•READINGS  IN 

INDUSTRIAL  SOCIETY 


A  STUDY  IN  THE  STRUCTURE  AND  FUNCTIONING 
OF  MODERN  ECONOMIC  ORGANIZATION 


BY 
LEON  CARROLL  MARSHALL 

VI 


THE  UNIVERSITY  OF  CHICAGO  PRESS 
CHICAGO,  ILLINOIS 


3*1 


s^£ 


>3 


3 


3 


Copyright  1918  By 
The  University  of  Chicago 


All  Rights  Reserved 


Published  September  igi8 


Composed  and  Printed  By 

The  University  of  Chicago  Press 

Chicago,  Illinois,  U.S.A. 


TABLE  OF  CONTENTS 

PART  I.    INTRODUCTION:  HISTORICAL  BACKGROUND 

PAGE 

Chapter  I.    Introduction 

A.  Problems  at  Issue 3 

B.  Scarcity  and  Economic  Activity 

@  The  Economic  Struggle.     T.  N.  Carver 9 

(2'i  Ways  of  Getting  a  Living.     T.  N.  Carver       ....  14 

3.  The     Fundamental     Conditions     of    Wealth.    Edwin 
^Cannan 14 

C.  Structure  of  Modern  Industrial  Society, 

4.  The    System    of    Individual    Exchange    Co-operation. 

F.  M.  Taylor 16 

V  5.  How  the  Industrial  System  Works.    F.  W.  Taussig       .         18 

6.  A  View  of  Industrial  Society  in  a  State  of  Equilibrium. 

H.  R.  Seager 22 

7.  Order,  Not  Chaos.     Edwin  Cannan 25 

v  8.  Certainty,     Completeness,     and    Regularity.     Richard 

Whately 27 

9.  Planlessness  and  Conflict.     Morris  Hillquit    ....         28 

10.  Wherein  Harmony,  Wherein  Disharmony,  of  Structure. 

/.  A.  Hobson .         3° 

D.  Structure  of  Other  Societies 

11.  Four  Stages  in  the  History  of  Industry.     W.  J.  Ashley        32  V*' 

12.  Household  Economy.     Carl  Bucher 33   V' 

13.  Structure  of  a  Possible  Socialist  State 

A.  William  Graham 36 

B.  R.T.Ely 39 

14.  The  Organization  of  the  Kaweah  Co-operative  Colony. 

W.  C.  Jones Qg) 

E.  The  Terms  Production,  Distribution,  and  Consumption 

15.  The  Economist's  Use  of  the  Terms  Production,  Con- 
sumption, and  Distribution 

A. "  H.  R.  Seager 44 

B.  A.  S.  Johnson       . 45 

C.  F.  W.  Taussig 46 

16.  The  Business  World's  Use  of  the  Terms  Production  and 
Distribution 46 

vii 


viii  TABLE  OF  CONTENTS 

PAGE 

Chapter  II.    The  Structure  and  Functioning  of  Mediaeval 
Industrial  Society 

A.  Problems  at  Issue 48 

B.  Manorial  Economy 

17.  Functions  of  Mediaeval  Social  Organisms.     W.  Cun- 
ningham and  E.  A.  Mc  Arthur    55 

18.  Description  of  a  Manor.     H.  de  B.  Gibbins    ....  56 

19.  A  Diagram  of  a  Manor.    Henry  Allsopp  .....  58 

20.  The  Villain  and  the  Freeman.     T.  W.  Page   ....  58 

21.  The  Cotters  and  Their  Significance.     H.  0.  Meredith     .  62 

22.  The  Industrial  Organization  of  the  Manor.     W.J.Ashley  63 

23.  Manorial  Methods  of  Cultivation.     E.  Lipson     ...  64 

24.  Characteristics  of  the  Manorial  Group.     W.  J.  Ashley  .  67 

25.  The  Manor  versus  the  Modern  Village.     W.  J.  Ashley  .  69 

C.  Town  Economy 

26.  The  Rise  of  Towns.     W.  Cunningham  and  E.  A.  Mc- 
Arthur 71 

27.  The  Significance  of  the  Town.     Clive  Day      ....  72 

28.  The  Agricultural  Element  in  the  Towns.     E.  Lipson     .  73 

29.  A  History  of  the  Gild  Merchant.     Charles  Gross       .      .  74 

30.  Ordinances   of   the    Gild   Merchant   of   Southampton. 
University  of  Pennsylvania  Reprints 76 

31.  The  Gild  Merchant  and  the  Craft  Gilds.     Charles  Gross  79 

32.  A  List  of  Craft  Gilds  in  York,   141 5.     University   of 
Pennsylvania  Reprints 81 

5$.  Characteristics  of  Craft  Gild  Economy.     W.  J.  Ashley  82 
34.  Ordinances  of  the  White  Tawyers  of  London.     A.  E. 

Bland,  P.  A.  Brown,  and  R.  H.  Tawney 85 

t^5.  Gild  Merchant  Regulations  versus  Craft  Gild  Regula- 
tions.    H.  0.  Meredith 87 

36.  The  Craft  of  the  Mediaeval  Craftsman.     L.  F.  Salzmann  88 

37.  Merits  and  Defects  of  the  Craft  Gild.    E.  Lipson    .      .  89 

38.  The  Gilds  and  the  Modern  Trade  Union.     E.  Lipson    .  91 

39.  An  Indenture  of  Apprenticeship,  1459.     A.  E.  Bland, 

P.  A .  Brown,  and  R.  H.  Tawney 94 

40.  Household,  Town,  and  National  Economy  Compared. 

Carl  Bucher 94 

D.  Trade  and  Commerce 

41.  The  Merchant  of  the  Early  Middle  Ages.     Clive  Day    .         98 

42.  Travel.    A.  Abram 98 

43.  Fairs  and  Markets.     E.  £ipson 101 

44.  Grant  of  a  Fair  at  St.  Ives,  1202.     A.  E.  Bland,  P.  A. 
Brown,  and  R.  H.  Tawney 105 

45.  Grant  of  a  Market  at  St.  Ives,  1293.     A.  E.  Bland, 

P.  A.  Brown,  and  R.  H.  Tawney 105 


TABLE  OF  CONTENTS  IX 

PAGE 

46.  The  Markets  of  London.     H.  R.  Fox  Bourne       ...  105 

47.  Mediaeval  Shops.     A.  Abram 107 

48.  Pedlars,  Merchants,  and  Chapmen.     /.  /.  Jusserand     .  108 

49.  The  Significance  of  England's  Foreign  Trade.     W.  J. 
Ashley m 

50.  The  Staplers.     Charles  Gross in 

51.  The  Merchant  Adventurers.     E.  Upson 113 

52.  Mediaeval  and  Early  Modern  Business  Associations. 

Clive  Day 115 

53.  Mediaeval  Currency.     Clive  Day 120 

^54.  The  Law  Merchant.     E.  Lipson     . 122 

55.  Evils  Resulting  from  a  Lack  of  Commerce.     Clive  Day  124 

56.  Mediaeval  versus  Modern  Trade  and  Industry.     G.  T. 
Warner 124 

i^E.  Social  Control  of  Industrial  Activity 

57.  The  Power  of  the  Church  as  an  Agency  of  Control. 

/.  H.  Robinson •.      .  126 

58.  The  Church  and  Business  Activity.     W.  J.  Ashley  .      .  127 

59.  Fair  Dealing  and  Fair  Price.     W.  Cunningham   .      .      .132 

60.  Control  by  Public  Authorities 

A.  W.  J.  Ashley 136 

B.  H.  O.  Meredith 140 

61.  Assize  of  Measures,  1197.     A.  E.  Bland,  P.  A.  Brown, 

and  R.  H.  Tawney 142 

62.  Individual  Enterprise  under  Feudalism.     W.  Cunning- 
ham            ...  142 


* 


Chapter  III.    The  Coming  in  of  Capitalism 

A.  Problems  at  Issue 144 

B.  General  Survey 

63.  The  Social  History  of  Capitalism.     Henri  Pirenne    .      .       154 

64.  Hindrances  to  the  Development  of  Capitalism.    W.  Cun- 
ningham      163 

65.  The  Capitalistic  Spirit.     Werner  Sombart       ....       164 

66.  Calculation  and  Capitalism.     Werner  Sombart     ...       166 
The  State  and  Capitalism.     Werner  Sombart       ...       168 

68^  Consequences  of  the  Intervention  of  Capital-    W.  Cun- 
ningham      171 

C.  Capitalism  and  the  Woolen  Industry 

69.  A  Diagram  of  Stages  of  Development       .      .      .      .      .  175 

70.  A  Sketch  of  the  Woolen  Industry.     W.J.Ashley     .      .  176 

7 1 .  Commercial  Organization  in  the  Woolen  Industry.    R.  B. 
Westerfield        180 

72.  Loss  of  Control  by  the  Gilds.     W .  Cunningham        .      .  187 


X  TABLE  OF  CONTENTS 

PAGE 

73.  Some  Agricultural  Changes  in  Relation  to  the  Woolen 
Industry 

A.  H.  D.  Traill 189 

B.  Conyers  Read _.  191 

74.  Early  Large-Scale  Production.     H.  0.  Meredith  ...  193 

75.  The  Domestic  System  a  Forerunner  of  the  Factory 
System.     W.  J.  Ashley .      .  195 

D.  Some  Examples  of  Differentiation  of  Function 

76.  The  Rise  of  Functional  Middlemen.     A.W.Shaw    .  .       198 

77.  Carriers  and  Communicators.     R.  B.  Westerfield       .  .       199 

78.  Methods  of  Marketing  Abroad.     R.  B.  Westerfield    .  .       203 

79.  The  Early  History  of  Insurance  in  England.     W.  R. 

Scott     . 205 

80.  The  Rise  of  Financial  Middlemen  in  England.     R.  B. 
Westerfield 207 

81.  The  Exchange  in  England.     George  Clare       ....  210 

E.  The  Industrial  Revolution  the  Current  Phase  of  Capitalism 
**•%**     82.  The  Changes  Wrought  by  the  Revolution.     L.  L.  Price        213 

83.  The  Causes  and  the  Achievements  of  the  Revolution. 

s?      H.  0.  Meredith 217 

84.  Significance    of    the    Industrial    Revolution.     W.    H. 
Hamilton 221 

PART    II.    SOME    OUTSTANDING    FEATURES    OF    MODERN 
INDUSTRIAL  SOCIETY 

Chapter  IV.    Individual  Exchange  Co-operation 

A.  Problems  at  Issue 227 

B.  The  Co-operation  of  Our  Society 

85.  The  Great  Co-operation 

A.  William  Smart 236 

B.  Adam  Smith 237 

86.  The  Indirect   Method  of   Satisfying  Wants.     P.   H. 
Wicksteed 238 

87.  Unrest  Because  of  Violation  of  Reciprocity.     A.  W. 
Small 240 

C.  Exchange  in  Our  Society 

"."" '   88.  The  Meaning  of  Exchange 242 

_^_    89.  Benefits  of  Exchange.     F.  M.  Taylor 243 

_.         90.  The  Benefits  of  International  Trade.     C.  F.  Bastable  .  243 

91.  Some  Criticisms  of  Commerce.     /.  S.  Mill  ....  245 

92.  The  Middleman.     E.  G.  Nourse    .      .      .      .   •  .      .      .  248 

93.  Is  Exchange  Productive  ? 249 


TABLE  OF  CONTENTS  xi 

PAGE 

D.  Some  Phases  of  Market  Structure 

94.  The  Market 251 

95.  The  Framework  of  a  Market.     E.  G.  Nourse     .     .     .  252 

96.  Types  of   Market   Distribution   for   Ordinary   Goods 

A.  A.W.  Shaw 254 

B.  P.  H.  Nystrom 257 

C.  V.  K.  McElheny,  Jr 259 

97.  Produce  Exchanges.     S.  S.  Huebner 260 

98.  The  Cotton  Exchange  of  New  Orleans.     The  Industrial 
Commission 265 

99.  Stock  Exchanges.     F.  M.  Taylor 266 

E.  The  Role  of  the  Individual 

100.  The  Enterpriser.     W .  S.  Jevons    .      .      .      .      .      .      .  266 

101.  The  Individual  and  the  Gain  Spirit.     Edwin  Cannan  267 

102.  Competition  Places  the  Individual.     C.  H.  Cooley  .      .  268 

103.  Human  Motives  in  Economic  Life.     C.  H.  Parker  .      .  270 

104.  Some  Shortcomings  of  Self-interest..  Henry  Sidgwick  277 

gr^     F.  The  Apportionment  of  Productive  Energy 

105.  Productive  Energy  and  Its  Apportionment  ....  280 

106.  The  Formation,  Maintenance,  and  Apportionment  of 
Capital  Goods 284 

107.  Costs  of  Progress.     J.  A.  Hobson 287 

/foBy  Conditions  of  Progress.     J.  A.  Hobson    .      .    '.      .      .  289 

109.  Some  Technological  Aspects  of  Apportionment.    F.  M. 
Taylor 290 

1 10.  Mobility  and  the  Apportionment  of  Productive  Energy. 

H.  B.  Reed 294  ^^^ 

in.  The  Mobility  of  Capital  and  Labor.     William  Smart  .  296  JC/wj^y^ 

112.  What  Mobility  Really  Involves  ^. 

A.  J.E.Cairnes 298  '•>. 

B.  J.  A.  Hobson 29g/JJT\  §^^ 

Chapter  V.    Money  Economy  and  Financial  Organization 

A.  Problems  at  Issue 304 

B.  Money  Economy 

113.  A  Pecuniary  Society.     H.J.Davenport 311 

114.  The  Shortcomings  of  Barter.     W.  S.  Jevons       .      .'    .  313 

115.  The  Exchange  Functions  of  Money.     W.  S.  Jevons      .  315 

116.  The  Role  of  Money  in  Economic  Organization.     W.  H. 
Hamilton 316 

117.  Money  and  Capital  Accumulation.     W.  H.  Hamilton  319 

118.  Qualities  of  a  Satisfactory  Money-Metal.     W.S.  Jevons  320 

119.  A  Typical  Monetary  System.     F.  M.  Taylor     .      .      .  323 


'tfo&d 


s/ 


xii  TABLE  OF  CONTENTS 

PAGE 

C.  Credit  and  Credit  Instruments 

1 20.  Credit  and  Its  Functions 

A.  H.  G.  Moulton 324 

B.  /.  S.  Nicholson '.  325 

121.  The  Basis  of  Credit.    II .  G.  Moulton 327 

122.  The  Development  of  Formal  Credit.     Sidney  Sherwood  328 

123.  The  Various  Kinds  of  Credit.    H.  G.  Moulton  .      .      .  330 

124.  Types    of    Commercial    Credit    Instruments.     H.    G. 
Moulton 334 

125.  The  Increasing  U.se  of  Commercial  Credit  Instruments. 
David  Kinley 338 

126.  Types    of    Investment    Credit    Instruments    (Bonds) 

F.  A.  Cleveland 341 

127.  Types   of   Investment    Credit    Instruments    (Stocks) 
Thomas  Conyngton 343 

D.  Some  Financial  Institutions 

128.  Various  Services  of  Banks.     /.  W.  Gilbart   ....  346 

129.  A    Classification   of   Banks    and   Types   of   Banking 
Operations.     H.  G.  Moulton 349 

130.  Investment  Banking.     W.  A.  Scott 350 

131.  The  Services  of  Bond  Houses.     Lawrence  Chamberlain  351 

132.  Trust  Companies.     H.  G.  Moulton 353 

133.  The  Functions  of  the  Stock  Exchange.     C.  A.  Conant  354 

134.  A  Favorable  View  of  Wall  Street.    S.S.Pratt.      .      .  355 

135.  Life  Insurance  Companies  as  Investment  Institutions. 

A.  S.  Johnson 357 

136.  Types  of  Business  Organization.     L.  S.  Lyon    .      .      .  358 

137.  The  Importance  of  the  Corporation.     W.  I.  King  .      .  365 

138.  Classes  of  Corporations.     Thomas  Conyngton     .      .      .  366 

E.  Some  Defects  of  the  Pecuniary  Order 

139.  Faulty  Direction  of  Economic  Activity.     W.C.Mitchell  368 

140.  Production  for  Profit.     John  Spar  go 370 

Chapter  VI.    Specialization  and  Interdependence 

A.  Problems  at  Issue 373 

B.  Some  Forms  of  Specialization 

141.  Specialization  and  Co-operation.     F.  M.  Taylor      .      .  377 

142.  Specialization  in  Capital.     A.  E.  Outerbridge,  Jr.    .      .  380 

143.  Labor  Specialization  in  Meat  Packing.     J.  R.  Commons  381 

144.  Specialization  in  Management.     F.W.  Taylor  .      .      .  382 

145.  Woman  in  Industry.     C.  E.  Persons 385 

146.  Geographical  Specialization.     E.  A.  Ross     ....  386 

147.  International  Specialization  and  Free  Trade.     F.  M. 
Taylor        .      .    '. 391 


TABLE  OF  CONTENTS  xiii 

<  PAGE 

C.  An  Estimate  of  the  Value  and  Limits  of  Specialization 

148.  Advantages  of  Specialization.     Edwin  Cannan  .      .      .       394 

149.  Disadvantages  of  Specialization 

A.  /.  A.  Hobson 397 

B.  A.  S.  Johnson 399 

C.  Josephine  Goldmark 399 

150.  The  Limits  of  Specialization 

A.  A.  S.  Johnson 400 

B.  /.  S.  Mill 401 

C.  /.  S.  Lewis 402 

D.  Interdependence,  Its  Forms  and  Consequences 

151.  Two    Pervasive    and    Connective    Industries.     /.    A. 
Hobson 404 

152.  The  Bonds  of  Harmony  and  of  Repulsion  among  Trades. 

/.  A.  Hobson 405 

153.  Interdependence  of  Prices.     W.  C.  Mitchell        .      .      .  408 

154.  The  Crops  in  Relation  to  Industry.     A.P.Andrew     .  412 

155.  The  World's  Food  Supply.     D.A.Wells      ....  414 

156.  The  Sensitiveness  of  Industrial  Society   .      .      .      .      .  415 

Chapter  VII.    Machine  Industry — an  Expression  of  the  New 
Technology 

A.  Problems  at  Issue 417 

B.  The  Role  of  the  Machine 

157.  The    Services   of   the   New   Technology.     Eugen   von 
Bohm-Bawerk 423 

158.  What  the  Machine  Is.     Karl  Marx 426 

159.  Functions  of  Machinery.     J.  A.  Hobson       ....  428 

160.  The  Productivity  of  Machinery.     H.  W.  Quaintance    .  429 

161.  The  Increase  of  Active  Capital  in  the  United  States. 

W.  I.  King 430 

162.  The  Brief  Reign  of  the  Machine.     Hull-House  Labor 
Museum  Report 432 

163.  Why  England  Led  in  Machine  Industry.     /.  A.  Hobson      432 

164.  The   Industries   Best   Fitted   for   Machine   Industry. 

/.  A.  Hobson 434 

C.  Some  Characteristic  Results  of  the  Machine  Process 

165.  Standardization  and  the  Machine  Process.     Thor stein 
Veblen ".....       436 

166.  The  Transfer  of  Thought,  Skill,  and  Intelligence.    D.  S. 

<^  Kimball 438 

^67.  Impersonality  and   the   Machine   Process.     Thor  stein 

Veblen 439 

168.  The  N(ew  Strain  in  Industry.     Josephine  Goldmark       .  440 


xiv  TABLE  OF  CONTENTS 

PAGE 

169.  The  Machine  and  the  Laborer.     /.  A.  Hobson  .      .      .  442 

170.  Technical    Inventions    and     the    Capitalistic    Spirit. 
Werner  Sombart 448 

D.  Indirect  Costs  and  Social  Control 

171.  Elements  of  Costs.     /.  L.  Nicholson        .....  451 

172.  Costs  in  Machine  Industry.     /.  F.  Strombeck    .      .      .  454 

173.  The  Importance  of  Added  Business  in  Machine  Indus- 
try.   A.  M.  Wellington 456 

174.  Simple  versus  Complex  Industry 458 

175.  Complex  Industry  Is  Difficult  to  Regulate.     E.   D. 
Durand 463 

176.  Can  We  Control  the  Genie?    J.B.Clark    ....  466 

177.  The  Brute.     W.  V.  Moody 467 

Chapter  VIII.    Speculative  Industry:  Risks  and  Risk  Bearing 

A.  Problems  at  Issue 470 

B.  The  Meaning  of  Speculation 

178.  Speculation.     W.  C.  Van  Antwerp 474 

179.  Commercial  Speculation.     A.  T.  Hadley       ....  475 

180.  Industrial  Speculation.     A.  T.  Hadley 479 

C.  Risks  of  Modern  Industrial  Society 

181.  Classes  of  Risk.     John  Haynes 480 

182.  Influences  That  Disturb  the  Static  Equilibrium.    /.  B. 
Clark 482 

183.  Classification  of  Price  Influences.     Irving  Fisher   •.      .  483 

184.  Chance.     G.  H.  Palmer 485 

185.  The    Delicate     Mechanism     of     Industry.     Thor stein 
Veblen 487 

186.  Seasonal  Fluctuations.     /.  S.  Poyntz 489 

187.  Business  Cycles.     W.  H.  Hamilton 492 

188.  Labor  Disturbances.     U.S.  Commissioner  of  Labor       .  495 

189.  Business  Failures 

A.  Quarterly  Journal  of  Economics 496 

B.  Bradslreet's 497 

C.  Emile  Vandervelde 497 

D.  Risk  Bearing  in  Modern  Industrial  Society 

190.  Avoidance  of  Risk.     Irving  Fisher 498 

191.  Some  Functions  and  Effects  of  Insurance.   John  Haynes  499 

192.  Speculative  Contracts ~.  501 

193.  Hedging:  A  Form  of  Speculative  Contract 

A.  F.  M.  Taylor 502 

B.  S.  S.  Huebner 504 


TABLE  OF  CONTENTS  XV 

PAGE 

•      194.  A  Case  Where  Organized  Speculation  Was  Forbidden. 

A.  T.  Hadley 508 

195.  Reduction  of  Risk  by  Social  Control 509 

196.  Regulation  of  Production  through  Combinations.     The    • 
Industrial  Commission 5°9 

197.  Does  Price  Maintenance  Promote  Stability? 

A.  P.  T.  Cherington 511 

B.  Chamber  of  Commerce  of  U .S . 512 

198.  Knowledge  and  Information  in  Relation  to  Risk-Taking 

A.  R.  W.  Babson     .    .. 5H 

B.  B.  D.  Mudgett 515 

199.  The  Entrepreneur  as  a  Risk-Taker.     T.  N.  Carver       .  516 

200.  The  Risk  Theory  of  Profit.    F.  B.  Hawley  ....  518 

Chapter  IX.    The  Wage  System  and  the  Worker 

A.  Problems  at  Issue ' .      .      .      •  52° 

B.  An  Introductory  Survey 

201.  The  Wage-Earners.     F.  A.  Walker 528 

202.  Labor  Conditions  and  Problems.     R.  F.  Hoxie  ...  528 
v     203.  Economic  Insecurity  of  the  Workers.     W.H.Hamilton  532 

204.  Life  and  Labor  in  a  Steel  District.    E.  T.  Devine   .     .  534 

C.  Unemployment 

205.  The  Unemployment  Problem.     E.  S.  Bogardus       .      .  536 

206.  Mediaeval  Unemployment.     A.  Abram 537 

207.  The  Unemployed.     F.  A.  Kellor 538 

208.  Unemployment   a    Case   of    Maladjustment.     W.   H. 
Beveridge 539 

209.  Changes  of  Industrial  Structure  and  Unemployment. 

W.  H.  Beveridge 54* 

210.  The  Influence  of  Machinery  upon  Employment.     J.  A. 
Hobson ;     .      .      .      .  542 

211.  The  Amount  of  Unemployment 

A.     N.Y.  Commission  on  Employers'  Liability  and 

Unemployment 544 

£r-*-^N         B.     U.S.  Bureau  of  Labor  Statistics 546 

(    D.  The  Worker  and  the  New  Technology 

"   212.  The  Hazardous  Nature  of  Modern  Industry.    E.  H. 

Downey 549 

213.  Causes  and  Volume  of  Industrial  Accidents.     F.  L. 
Hoffman 55° 

214.  Social  Loss  through  Accidents.     Crystal  Eastman   .     .  552 

215.  Occupational  Diseases.     The  Industrial  Commission     .  553 

216.  Fatigue.     E.  S.  Bogardus 5^4 

217.  Long  Hours.     Felix  Frankfurter  and  Josephine  Goldmark  555 


xvi  TABLE  OF  CONTENTS 

PAGE 

2 1 8.  An  Outline  of  the  Case  against  Long  Hours.     Felix 
Frankfurter  and  Josephine  Goldmark 556 

219.  Child  Labor.     E.  S.  Bogardus 558 

E.  The  Danger  of  Economic  Insufficiency 

220.  Supply  and  Demand  in  the  Case  of  Labor.     Alfred 
Marshall 560 

221.  Craft  Skill  and  the  Competitive  Struggle.    International 
Molders'  Journal      ..*'.. 562 

222.  The  Lot  of  the  Workingman.     John  Spar  go       ...  564 

223.  The  Share  of  Wages 

A.  /.  M.  Rubinow 565 

B.  W.I.King    ...........  567 

F.  Insecurity  through  Inadequate  Social  Control 

224.  An  Outgrown  Legal  Philosophy.     W.F.Dodd  .      .      .  569 

225.  Difficulties  of  Contract  in  Labor.     P.  U.  Kellogg    .      .  570 
/'I226.  Freedom  of  Contract  and  Labor.     John  Dewey  and 

\S             J.  H.  Tufts 573 

227.  Some  Common-Law  Doctrines.     Crystal  Eastman  .      .  574 

G.  Some  Structures  Designed  to  Meet  the  Difficulties 

228.  A  Program  of  Reform 577 

229.  The  Organization  of  the  Labor  Market.     /.  B.  Andrews  578 

230.  Social  Insurance.     W.  F.  Willoughby       .      .     .     .      .  588 

231.  A  Survey  of  Workingmen's  Insurance  in  the  United 
States.     C.  R.  Henderson 589 

232.  Some  Aspects  of  the  Minimum  Wage.     H.  A.  Millis   .  -  592 
l/~  233.  The  Socialization  of  Law.     Roscoe  Pound           .      .      .  594 

234.  Reform  with  Respect  to  Employers'  Liability.     G.  L. 

Campbell    ' 597 

«■  235.  Labor  Legislation  in  One  State.     Russell  Sage  Founda- 
tion       599 

236.  Other  Forms  of  Community  Control.     Russell  Sage 
Foundation 600 

237.  Control  of  Population.     W.  I.  King  .      .  -  .      .      .      .  601 

238.  Restriction  of  Immigration.     The  Immigration  Com- 
mission       603 

239.  The  Winning  of  Industrial  Success.     /.  L.  Laiighlin    .  604 

240.  Productive  Co-operation.     F.  A.  Walker      ....  606 

241.  Distributive  Co-operation.     F.  A.  Walker    ....  608 

242.  Democracy  in  Industry.     A.  W.  Small 609 

243.  The  Trade-Union  Program 

A.  C.  H.  Cooley 611 

B.  Sidney  and  Beatrice  Webb 613 

244.  The  Plan  of  the  Socialist.     William  Graham      .      .      .  614 

245.  Syndicalism.     V.  S.  Yarros 616 


TABLE  OF  CONTENTS  xvn 

PAGE 

H.  Are  There  Social  Classes  ? 

246.  The  Mechanical  and  Psychological  Methods  of  Defi- 
nition.    R.  F.  Hoxie 617 

247.  The  Classical  and  the  Progressive-Uplift  Points  of  View. 

R.  F.  Hoxie .  619 

248.  The  Socialist  Point  of  View.     O.  D.  Skelton       ...  621 

249.  Inheritance  and  Competition.     C.  H.  Cooley      .      .      .  622 

250.  Class-Consciousness  in  America 

A.  John  Martin 624 

B.  Jack  London • 625 

251.  An  Illustration  of  the  Effect  of  Environment.     R.  F. 
Hoxie 627 

Chapter  X.     Concentration 
I.  Concentration  of  Production 

A.  Problems  at  Issue 634 

B.  Large-Scale  Production 

(2$?.  The  Decline  of  the  Handicrafts.     Carl  Biicher  .      .      .       640 

253.  The  Economic  Advantages  of  Concentration.     C.  R. 

Van  Hise 646 

254.  Concentration  in  Marketing 

A.  Charles  Gide        649 

B.  C.  S.  Duncan  ■ .       650 

255.  Relative  Increase  of  Capital  and  Employees  in  Manu- 
facturing        655 

256.  The   Limits   of   Concentration   in   Modern   Business. 

/.  A.  Hobson 655 

257.  The  Sweating  System.     The  Industrial  Commission      .  662 

258.  Does  Large-Scale  Production  Mean  Monopoly  ?     C.  /. 
Bullock 663 

C.  The  Modern  Industrial  and  Commercial  City 

259.  The  Facts  Concerning  the  Growth  of  Cities 

A.  Bureau  of  the  Census 668 

B.  Bureau  of  the  Census 668 

C.  A.  F.  Weber 671 

260.  The  Economic  Causes  of  the  Modern  City.    A.  F. 
Weber 673 

261.  Satellite  Cities.     G.  R.  Taylor 678 

II.  Concentration  of  Wealth  and  Income 

A.  Problems  at  Issue 682 

B.  Guiding  Considerations 

262.  Why  Wealth  Should  Be  in  the  Hands  of  the  Many. 

W.  I.  King 686 

263.  Evils  of  the  Concentration  of  Wealth.     Lyman  Abbott      687 


w*: 


XVlll    .  TABLE  OF  CONTENTS 

PAGE 

264.  Forces  Making  for  Equality  and  for  Inequality.     R.  T. 

Ely     . 689 

265.  Forces  Governing  the  Distribution  of  Property.    Edwin 
Cannan •  .       691 

266.  Forces  Governing  the  Differences  of  Income  from  Work. 
Edwin  Cannan 692 

C.  The  Distribution  of  Wealth  and  Income 

267.  The    Increasing    Total    Available    for    Distribution. 
Bureau  of  the  Census    .  694 

268.  The  Distribution  of  Wealth  in  Different  Countries. 

W.  I.  King 694 

269.  Property  Conditions  of  the  Various  Classes 

A.  W.  I.  King 695 

B.  The  Commission  on  Industrial  Relations  ...       697 

270.  Distribution  of  Income.     W.  I.  King 698 

D.  Poverty 

271.  The  Standard  of  Living.     F.  H.  Streightojf  ....       699 

272.  The  Nature  and  Extent  of  Poverty.     /.  H.  Hollander       700 

273.  Causes  of  Poverty.    /.  A.  Hobson 702 

274.  Suggested  Cures  for  Poverty 

A.  R.  H.  Tawney 705 

B.  T.  N.  Carver 708 

III.  Concentration  of  Private  Control  of  Industrial  Activities 

A.  Problems  at  Issue 709 

B.  The  Corporation  as  an  Instrument  of  Concentration 

275.  Control  by  a  Dominating  Spirit.     W.  C.  Mitchell  .      .       714 

276.  Minority  Control 

A.  The  Pujo  Committee 715 

B.  Julius  Kahn       .      .      .      .      .      .  '  .      .      .      .       716 

277.  Preferred  Stock  and  Concentration  of  Control 

A.  W.H.  Lough 716 

B.  G.  J.  Shoholm 717 

278.  Voting  Trusts.     W.  H.  Lough 718 

279.  Manipulation  through  Brokers.     Samuel  Untermyer     .  718 

280.  Concentration  through  Reorganization 

A.  Samuel  Untermyer   .........       719 

B.  The  Pujo  Committee 720 

281.  Interlocking  Directorates  and  Associated  Corporations 

A.  F.  H.  Dixon 722 

B.  The  Pujo  Committee 723 

282.  The    Holding    Company.     The    Interstate    Commerce 

Commission 726 

283.  Forms  of  Control  over  a  Corporation 

A.  The  Interstate  Commerce  Commission       .      .      .       727 

B.  The  Commissioner  of  Corporations      ....       728 


TABLE  OF  CONTENTS  xix 

PAGE 

C.  Other  Instruments  of  Concentration 

284.  Forms  of  Combination.     L.  H.  Haney 73° 

285.  A  Classification  of  Agreements.     L.  H.  Haney  ...       731 

286.  The  Original  Trust.     The  Industrial  Commission    .      .       732 

287.  Pools 

A.  W.  S.  Stevens 732 

B.  The  Industrial  Commission 736 

288.  Patents.     U.S.  Bureau  of  Corporations    .      .      .      .      .  737 

289.  The  Dinner  Party.     Court  Record 738 

290.  Trade  Associations.     U.S.  Bureau  of  Corporations        .  739 

291.  Some    Methods   of    Consolidation   among   Railroads. 

The  Industrial  Commission 741 

292.  Unfair  Methods  of  Competition.     U.S.  Bureau  of  Cor- 
porations        743 

D.  The  Trust 

293.  Forces  Making  for  Combination.    L.  H.  Haney     .     .       748 

294.  Concentration  among  the  Railroads  (1906).     The  Inter- 
state Commerce  Commission 751 

295.  Control  of  Money  and  Credit  (An  Accusation).     The 
Pujo  Committee        752 

296.  Control  of  Money  and  Credit  (A  Reply).     /.  P.  Morgan 

fr  Co 756 

297.  Some  Advantages  of  Concentration 

A.  The  Industrial  Commission      .      .      .      .      .      .  760 

B.  N.Y.  Joint  Committee  on  Trusts 761 

298.  The  Good  Big-Business.     T.  N.  Carver 762 

299.  The  Evils  of  the  Situation.     L.  H.  Haney    ....  762 

E.  Remedial  Action 

300.  Control  through  Ethical  Development.     A.  T.  Hadley      765 

301.  Proposed  Corporation  Reform.     Samuel  Untermyer     .       767 

302.  The  Limited  Voting  Device.     The  Pujo  Committee      .       770 

303.  Cumulative  Voting  a  Check  on  Concentration.     W.  H. 
Lough • 771 

304.  Proposed  Remedies  for  the  Evils  of  Trusts  (1900).     The 
Industrial  Commission 771 

305.  The    Seven    Sisters   of   New   Jersey    (1913).    N.   J. 
Statutes 774 

306.  The  Sherman  Anti-Trust  Act  (1890).     U.S.  Statutes  .       777 

307.  Provisions  of  the  Federal  Trade  Commission  Act  (19 14). 

C.  W.  Wright 778 

308.  Provisions   of   the    Clayton   Anti-Trust   Act    (19 14). 

C.  W.  Wright 779 

Chapter  XL    Impersonal  Relations 

A.  Problems  at  Issue 782 

B.  Some  Manifestations  of  Impersonality 

309.  Impersonality  in  Modern  Life.     L.  M.  Powell   .      .      .       786 


xx  TABLE  OF  CONTENTS 

PAGE 

310.  Impersonality  under  the  Pecuniary  Regime 

A.  S.  P.  Altman 791 

B.  W.  H.  Hamilton 792 

C.  John  Dewey  and  /.  H.  Tufts    .      .     .      .      .      .  793 

311.  The  Impersonality  of  the  Market 

A.  Warner  Fite 795 

B.  E.  D.  Page 797 

312.  Standardization.     E.  D.  Page 798 

((3$)  Impersonality  and  the  Worker.     Commission  on  Indus- 
trial Relations 800 

314.  Impersonal  Devices  to  Meet  Impersonal  Conditions. 

E.  W.  Burgess 802 

315.  Migration  and  Impersonality.     Werner  Sombart      .      .  806 

316.  Impersonal  Laws  of  Management.     R.  F.  Hoxie     .      .  808 

317.  Impersonality,  Business  Principles,  and  Middle-Class 

^^  Virtues.     Werner  Sombart 812 

/QJ$>)  New  Varieties  of  Sin.     E.A.Ross     .     .  -   .      .      .      .  816 
v  319.  Personal  and  Social  Responsibility 

A.  B.  K.  Gray 819 

B.  /.  M.  Clark  ..'-.■> 821 

Chapter  XII.    The  Individual  Guidance  of  Economic  Activity 

A.  Problems  at  Issue 824 

B.  The  Role  of  the  Consumer 

320.  Industrial  Structure  the  Product  of  Human  Wants      .  828 

321.  The  Pressure  Exerted  by  the  Consumer 

A.  Sidney  and  Beatrice  Webb 833 

B.  /.  M.  Clark 836 

322.  The  Consumer  and  the  Producer.    /.  A.  Hobson    .     .  840 

323.  Defences  of  the  Consumer.     P.  T.  Cherington   .     .      .  842 

324.  Woman  as  a  Director  of  Consumption.     Hazel  Kyrk    .  844 

C.  Entrepreneurship 

325.  Some  Responsible  Agents.     W.  C.  Mitchell 847 

326.  The  Entrepreneur  and  the  Capitalist.     F.  A.  Walker  .  852 

327.  The  Functions  of  the  Entrepreneur 

A.  /.  B.  Clark 853 

B.  /.  M.  Clark 856 

328.  Is  the  Entrepreneur  Active  or  Passive  ?    /.  B.  Clark  .'  861 

D.  The  Financier 

329.  The  Function  of  the  Banker.     C.  A.  Conant      .      .      .  862 

330.  The  Underwriter.     W.  H.  Lough 864 

331.  The  Promoter.     W.  H.  Lough 867 


TABLE  OF  CONTENTS  xxi 

PAGE 

E.  Science  in  Management 

332.  A  Technical  Expert — The  Accountant.     /.  0.  McKin- 

sey v 870 

SS3.  Stages  in  Management 

A.  H.  S.  Person 874 

B.  H.  P.  Kendall     .      .      .      : 875 

334.  Scientific  Management.     H.  S.  Person 878 

335.  The  New  Industrial  Leadership.     E.  D.  Jones  .      .      .       881 

Chapter  XIII.     Competition 

A.  Problems  at  Issue 885 

B.  The  Meaning  of  Economic  Competition 

336.  Some     Definitions     and     Characterizations.     Various 
sources .       890 

337.  The  Forms  of  Economic  Competition 

A.  E.  R.  A.  Seligman 894 

B.  T.  N.  Carver 896 

338.  Competition  and  Fkonomic  Freedom.     E.  R.  A.  Selig- 
man       .       897 

339.  Some  Interpretations  of  the  Content  of  Freedom 

A.  John  Dewey  and  J.  H.  Tufts •    .       901 

B.  /.  T.  Young 901 

C.  Competition  as  an  Organizing  Agency 

340.  General  Statement  of  the  Services  of  Competition 

A.  John  Bascom 903 1 

B.  H.C.Adams 9051 

341.  Competition  and  the  Survival  of  Forms  of  Organization 

A.  G.  de  Molinari 905 

B.  /.  B.  Clark 906 

342.  Territorial  Competition.     The  Industrial  Commission  907 

343.  Competition  of  Cities  and  Markets 

A.  The  Industrial  Commission 909 

B.  L.  G.  McPherson 911 

344.  Competition  and  the  Fate  of  Industries.     A.  T.  Hadley  912 

345.  What  Firm  Shall  Survive  Within  an  Industry  ?     D.  H. 
MacGregor 913 

346.  Competition  and  the  Survival  of  Industrial  Methods. 
Sidney  and  Beatrice  Webb 914 

347.  What    Marketing    Methods    Shall' Survive  ?     P.    T. 
Cherington 915 

348.  Competition  and  Fair  Price.     A.  T.  Hadley       .      .      .  920 

D.  An  Estimate  of  the  Worth  of  Competition 

349.  Competition  Does  Not  Work  Perfectly.     Charles  Gide      922 

350.  Competition  Faulty  as  a  Regulator  of  Prices.     C.  R. 

Van  Hise '      923 


1 


xxn  TABLE  OF  CONTENTS 

PAGE 

351.  The  Tendency  to  Ever  Lower  Levels 

A.  Louis  Blanc 924 

B.  H.  C.  Adams .'.       925 

352.  Has  Competition  Retarded  Industrial  Progress?     P. 
Kropotkin 926 

353.  The   Socialists'   Indictment   of   Competitive   Society. 

0.  D.  Skelton 927 

354.  Has    Competition   Outlived   Its   Usefulness?    C.   H. 
Cooky 931 

355.  The  Brief,  Incomplete  Reign  of  Competition.    /.  S. 

Mill 933 

356.  Competition  Not  Responsible  for  Many  Evils 

A.  John  Bascom 935 

B.  G.  de  Molinari 936 

C.  Frederic  Bastiat        937 

357.  Competition   Depends   on   No   One   Motive.     C.   H. 
Cooley 938 

358.  Competition  and  Laissez-Faire  Not  Synonymous.     T. 

N.  Carver 939 

359.  The  Enormous  Demands  upon  Competition.     C.  H. 
Cooley 941 

360.  Regions  Where  Competition  Should  Not  Be  Expected 

to  Organize.    John  Bascom 943 

■   361.  Competition  and  Moral  Quality.     C.  H.  Cooley       .  .  .       945 

Chapter  XIV.    Private  Property 

A.  Problems  at  Issue 947 

B.  Property  and  Its  Justification 

362.  Property,  Ownership,  Possession.     W.  M.  Geldart  .      .  950 

363.  The  Attributes  of  Property.     Charles  Gide   ....  953 

364.  The  Varying  Content  of  the  Term  Property.     /.  S.  Mill  955 

365.  Property  and  Wealth.     Irving  Fisher 958 

366.  Theories  of  Private  Property 

A.  E.  R.  A.  Seligman 959 

B.  F.  A.  Walker 960 

C.  W.  L.  Sheldon 962 

367.  A  Case  for  Private  Property 

•A.    F.A.Walker 963 

B.  A.D.Lindsay 963 

C.  W.  II .  Hamilton 964 

368.  Private  Property  Has  Not  Had  Fair  Trial.     J.  S.  Mill  967 

C.  An  indictment  of  Property 

369.  Property  for  Use;    Property  for  Power.     Charles  Gore      968 

370.  Property  at  Its  Zenith.     L.  T.  Hobhouse       ....       970 

371.  Property  and  Production.     A.  D.  Lindsay    .      .      .      .       971 


TABLE  OF  CONTENTS  xxin 

PAGE 

372.  The  Content  of  American  Property  Rights.     H.  J. 
Davenport 972 

D.  The  Position  of  Property 

373.  The  Position  of  Property  in  America.     A.  T.  Hadley   .       973 
374/  The  Future  Development  of  Private  Property.     R.  T. 

Ely 980 

E.  Wealth  and  Welfare 

375.  Demand  an  Expression  of  the  Power  of  Ownership. 

C.  H.  Cooley 983 

376.  Some  Misuses  of  the  Power  of  Ownership.     Thor stein 
Veblen 984 

377.  Demand  Not  an  Infallible  Regulator.     F.  M.  Taylor  .  986 

Chapter  XV.    Social  Control 

A.  Problems  at  Issue 989 

B.  Some  Forms  and  Agencies  of  Control 

378.  Conscious   and   Unconscious   Social   Control.     W.   G. 
Sumner    . 993 

379.  The  Forms  of  Control.     A.  A.  Tenny 999 

380.  Tradition  and  Social  Inheritance.     L.  T.  Hobhouse  1000 

381.  Imitation:  An  Agent  of  Conservation  and  of  Progress. 

E.  S.  Bogardus 1001 

382.  The  Family  as  an  Agency  of  Control 

A.  Edwin  Cannan 1003 

B.  E.  S.  Bogardus 1004 

383.  The  Economic  Significance  of  Culture.     F.  H.  Giddings  1005 

384.  Public  Opinion.     The  New  Republic 1006 

385.  Public  Opinion  and  Acquiescence.     W.  J.  Ghent     .      .  1007 

386.  Control  by  Voluntary  Associations 

A.  /.  T.  Young 1009 

B.  Josephine  Goldmark 1010 

387.  Law  and  Social  Control.     Frank  Parsons      .      .      .      .  ion 

388.  Statute  Law  and  Common  Law 

A.  W.  M.  Geldart 1013 

B.  Frederick  Pollock 1014 

389.  Legal  Intervention  in  Business.     H.  E.  Oliphant  .     1015 

C.  The  Relation  of  Government  to  Industrial  Activity 

390.  Mercantilism.     James  Bonar 1019 

,      391.  The  Mercantilist  Regulations  Become  Onerous.     H.T. 

Buckle 102 1 

392.  The  Development  of  Individualism.     Thomas  Davidson     1022 

393.  The  Physiocrats  and  the  Natural  Order 

A.  James  Bonar 1026 

B.  Charles  Gide  and  Charles  Rist  .      .      .      .      .      .     1027 


s/ 


> 


xxiv  TABLE  OF  CONTENTS 

PAGE 

394.  The  Natural  Rights  Theory.     W.  S.  McKechnie     .      .  1029 

395.  Some  Natural  Rights  Documents.     Various  sources     .  103 1 

396.  The  Transition  to  Laissez-Faire  in  England.     A.  A. 
Bruce 1032 

397.  The  Stronghold  of  Laissez-Faire  in  the  United  States. 

A.  A.  Bruce 1034 

398.  The  Classical  Statement  of  the  Functions  of  Govern- 
ment.    Adam  Smith 1036 

399.  Reasons  for  Increasing  Intervention 

y£  A.     F.  C.  Montague 1037 

B.  L.  T.  Hobhouse 1038 

C.  L.  M.  Powell       .      .      .  '   .      .      .      .  '  .      .      .  1039 

400.  What  Government  Is  Now  Doing.    E.  R.  A.  Seligman  1040 

401.  The  Rain  of  Law 

A.  W.  D.  Parkinson 1042 

B.  A.  C.  Coxe 1043 

402.  Defense  of  Laissez-Faire.    J.  W.  Garner       ....  1044 

403.  Criticisms  of  Laissez-Faire.     J.  W.  Garner   ....  1046 

404.  Modern  Statements  of  the  Functions  of  Government 

A.  H.  C.  Adams 1050 

B.  /.  W.  Garner 1052 

C.  W.  S.  McKechnie 1053 

D.  The  Old  Order  Changeth 

405.  Disharmony  the  Result  of  Changed  Industrial  •Condi- 
tions.    H.  C.  Adams 1057 

406.  Increasing  Strife  in  Economic  Life.     E.A.Ross     .      .  1059 

407.  Dissatisfaction  with   Present   Formal   Social   Control 

A.  R.  F.  Hoxie 106 1 

B.  Roscoe  Pound 1062 

408.  Dissatisfaction  with  Present  Informal  Social  Control. 
/.  H.  Tufts 1064 

409.  The  Changing  Importance  of  the  Forms  of  Control. 
E.  A.  Ross 1068 

410.  The  Function  of  Research  and  Investigation.     L.  M. 
Powell ' 1069 

411.  Can  Direction  Be  Given  to  Social  Control?     W.  11. 
Hamilton 1070 

412.  Radiant  Points  of  Social  Control.     E.A.Ross  .      .      .  1073 

413.  Some  Suggestions  Concerning  the  Direction  of  Social 
Control 

A.  T.  N.  Carver 1074 

B.  John  Dewey  and  J.  H.  Tufts 1076 

414.  A  Vision  of  Social  Efficiency.     A.  W.  Small       .      .      .  1078 


PART  I 
INTRODUCTION:  HISTORICAL  BACKGROUND 


CHAPTER  I 

INTRODUCTION 
A.  Problems  at  Issue 

The  material  in  this  introductory  survey  is  presented  with  four 
purposes  in  mind.     It  should  be  studied  in  the  light  of  these  purposes. 

i.  It  is  desirable  that  we  should  from  the  outset  think  of  industrial 
society  as  something  which  has  structure,  and  as  something  which 
actually  operates.  In  a  few  hours'  study  we  cannot  acquire  a  full 
understanding  of  all  that  this  statement  involves.  We  can,  however, 
get  an  appreciation  of  what  to  look  for  as  the  course  develops. 

2.  We  should  from  the  outset  see,  if  only  dimly,  the  relation  of  the) 
structure  and  operations — the  relation  of  the  functioning  structure — \j 
of  industrial  society  to  the  great  social  fact  of  the  "scarcity"  ofj 
economic  goods. 

3.  Since  comparison  is  an  aid  to  understanding,  we  should  early 
get  a  working  knowledge  of  the  structure  and  operations  of  industrial 
societies  other  than  our  own.  We  should  be  careful  not  to  regard 
this  as  critical  knowledge.  Much  study  should  preface  criticism  and 
the  passing  of  judgments. 

4.  We  must  know  the  content  of  a  few  terms  which  will  appear 
repeatedly  in  our  readings  and  discussions.  Fortunately  the  number 
of  such  terms  is  not  unduly  large. 

The  study  of  the  functioning  structure  of  industrial  society 
centers  about  man's  efforts  to  gratify  his  wants. 

Nature  does  not  spontaneously  and  gratuitously  satisfy  our 
wants.  Our  wants  are  many,  insistent,  and  apparently  capable 
of  indefinite  expansion.  We  "struggle  with  nature"  in  our  effort 
to  gratify  these  wants.  It  follows  that  these  things  are  of  great  sig- 
nificance: (a)  our  wants,  (b)  means-of -gratifying- these- wants,  i.e., 
goods,  and  (c)  the  processes  by  which  these  goods  are  secured  and 
applied  to  our  wants.  We  may  leave  the  analysis  of  wants  to  psy- 
chology. Goods  may  be  classified,  from  our  present  point  of  view, 
as  follows:  (a)  Free  Goods,  which  are  not  discussed  in  economics 
since  they  constitute  no  significant  problem  from  that  point  of  view; 


INDUSTRIAL  SOCIETY 


(b)  Economic  Goods,  which  are  "scarce,"  relative  to  the  demand  for 
them.  It  has  become  customary  to  refer  to  material  economic  goods 
as  wealth  and  to  non-material  economic  goods  as  services.  The 
structure  and  operations  of  the  society  in  which  these  (economic) 
goods  are  brought  into  existence  and  applied  to  our  wants  are  the 
subject-matter  of  this  course. 

The  material  of  the  preceding  paragraph   may   be  presented 
diagrammatically  thus: 


Man 


has 
— > 


(economic) 
goods — 
wealth  and 
services 

In  gratifying  wants  man  uses 

a  series  of 
mechanisms 
and  devices 

wants 

which  are  gratified  by 

We  shall  be  studying  primarily  the  "mechanisms  and  devices " — 
not,  however,  as  separate,  isolated  units,  but  in  their  relationships. 
It  is  not  worth  while,  at  this  stage  of  our  study,  to  attempt  any  scien- 
tific classification  of  these  mechanisms  and  devices.  It  will  suffice 
for  the  present  if  we  realize  that  the  following  (among  others)  are 
devices  of  the  sort  mentioned:  capital,  exchange,  specialization, 
private  property,  competition,  contract,  inheritance,  wages,  rent, 
interest,  profits,  money,  money  economy,  banks,  insurance  companies, 
laws  regulating  business  operations.  As  we  proceed,  it  will  be  seen 
that  there  is  nothing  immutable  about  these  devices.  Most  of  them 
are,  historically  speaking,  quite  new.  No  one  can  wisely  predict 
when,  if  ever,  they  will  be  supplanted  by  others.  Taken  as  an  ever- 
changing  whole,  they  constitute  in  their  interrelationships  and  rami- 
fications that  curious  complex  called  industrial  society. 

Various  figures  of  speech  have  been  applied  to  present-day 
industrial  society.  To  some  of  us  it  is  an  organism,  species  undesig- 
nated; to  others  it  is  a  human  being;  to  others,  a  complex  of  forces; 
to  others,  a  machine.  Clearly  none  of  these  or  of  other  illustrations  is 
completely  applicable  to  all  the  phases  and  manifestations  of  modern 
society.  One  illustration  will  serve  certain  purposes,  another  will  be 
better  adapted  to  different  aims. 

If  we  make  use  of  the  machine  illustration,  attention  may  profit- 
ably be  given  to  four  aspects  of  the  matter:  (a)  There  is  the  question 
of  the  adequacy  of  the  individual  wheels,  rods,  and  other  parts,  con- 
sidered merely  as  parts.  Sometimes  it  is  convenient  to  think  of  these 
parts  in  terms  of  persons;  at  other  times  and  for  other  purposes  it 
serves  better  to  speak  of  business  units,  such  as  a  factory,  retail  store, 
a  United  States  Steel  Corporation,  as  the  parts  of  the  machine. 


INTRODUCTION  5 

(b)  Then,  too,  we  must  consider  the  effectiveness  with  which  these 
parts  are  co-ordinated  or  organized  into  the  machine  as  a  whole.  A 
machine  of  excellent  individual  parts  may  be  loose-jointed,  ram- 
shackle, inefficient.  Conversely,  a  machine  of  beautiful  appearance 
with  all  adjustments  perfectly  made  may  be  practically  worthless  if 
the  component  elements  cannot  bear  strain  in  action,  (c)  Next, 
is  there  adequate  power  ?  Is  it  efficiently  applied  ?  Even  a  groan- 
ing, poorly  built  machine  may  do  much  work,  if  it  can  meet  the  strain 
and  if  power  suffices,  (d)  Finally,  if  the  power  suffices,  is  the  machine 
properly  guided  in  its  course  ? 

The  parts  of  the  industrial  machine  of  today  are  far  short  of  per- 
fection, but  they  are  reasonably  sound  and  competent.  If  we  think 
of  them  as  persons,  as  human  stock,  we  find  ourselves  in  general 
agreement  that  the  race  is  improving — this  notwithstanding  the  argu- 
ments of  those  who  see  in  modern  strain,  intensity,  and  discourage- 
ment arising  from  unequal  opportunity  efficient  causes  of  race 
deterioration.  If  the  "parts"  mean  to  us  industrial  units — businesses 
— we  are  likely  to  agree  that  within  the  given  business  unit  there  is  a 
relatively  high  degree  of  efficient  organization  and  relatively  little 
waste — "relatively,"  that  is,  to  what  has  gone  before  and  to  the 
situation  that  exists  in  the  case  of  the  co-ordination  of  these  parts 
into  the  machine  as  a  whole.  Anyone  who  believes  this  is  certain 
to  believe  that  in  our  society  some  force  is  operating  to  select  reason- 
ably efficient  managers  as  heads  of  these  industrial  units  and  that 
some  force  impels  these  efficient  managers  to  continuously  efficient 
activity. 

The  co-ordination  of  the  parts  of  the  industrial  machine  is  far  from 
satisfactory,  from  the  point  of  view  of  the  interests  of  society.  There 
are  countless  cases  where  the  gears  mesh  improperly,  where  con- 
nections are  poorly  made.  The  joints  rattle — or  are  not  sufficiently 
flexible.  There  is  lost  motion.  Processes  have  been  added  as  an 
afterthought  or  with  little  thought  at  all.  Worse  still,  it  requires  no 
skilled  social  mechanic  to  find  cases  of  parts  actually  working  at 
cross-purposes — of  power  being  simultaneously  applied  in  opposite 
directions.  The  "wastes  of  competition"  and  the  achievements  of 
"the  predacious"  even  during  normal  times  make  a  formidable  cata- 
logue, and  there  are  periods — depressions  we  call  them — when  the 
machine  is  in  a  pitiable  state.  It  is  not  surprising  that  some  per- 
sons (with  perhaps  too  great  confidence  in  their  powers  both  of 
analysis  and  of  construction)  would  tear  down  the  whole  structure 


6  INDUSTRIAL  SOCIETY 

and  erect  a  new  one  in  its  stead — or  at  least  put  in  much  tinkering, 
seeking  a  better  co-ordination  of  parts. 

But  if  there  is  no  question  that  the  industrial  machine  runs  with 
much  groaning  and  lamenting,  there  is  equally  no  question  that  it 
runs  with  considerable  speed.  Tremendous  power  is  applied  and, 
incredible  as  it  sounds,  this  power  is  applied  at  almost  every  part, 
joint,  connection,  or  process.  Perhaps  it  were  wiser  to  use  the  plural 
and  say  great  powers  are  applied,  for  there  are  many  of  them — these 
motives  to  industrial  activity.  For  the  present  it  will  suffice  to 
indicate  that  one  of  the  most  important  of  these  motive  forces  is 
appeal  to  self-interest.  And  what  of  the  guidance  of  this  industrial 
machine  ?  Discussion  of  this  phase  of  the  matter  must  be  postponed. 
The  responsible  agents  are  a  motley  array:  producer,  consumer,  entre- 
preneur, technical  expert,  government,  financier,  property-holder, 
inventor,  and  many  others. 

Economic  literature,  in  considering  the  activities  of  man  in 
gratifying  his  wants,  commonly  treats  these  activities  as  made  up  of 
three  significant  factors  or  processes:  (a)  the  production  of  economic 
goods — generally  called  "the  productive  process";  (b)  the  appor- 
tionment, or  sharing,  of  these  goods  among  the  members  of  society — 
generally  called  "the  distributive  process";  (c)  the  consumption  of 
these  goods.  All  these  processes  occur  in,  and  are  largely  determined 
by,  the  environment,  both  physical  and  social. 

Clearly  these  factors  or  processes  may  be  operative  under  varying 
conditions  in  varying  organizations  of  society.  Under  household 
economy,  for  example,  all  three  go  on  within  the  bounds  of  the  family 
group  without  what  we  call  exchange  and  without  much  contact  with 
people  outside,  at  least  in  economic  matters.  Under  socialism  or 
communism  the  essential  functions  of  production,  distribution,  and 
consumption  would,  of  course,  have  to  be  performed,  but  the  scheme 
of  organization  would  be  different  from  that  of  household  economy  or 
of  modern  industrialism.  We  shall  need  to  sketch  the  outlines  of 
the  scheme  of  organization  in  each  case. 

questions 
i.  "We  should  see  the  relation  of  the  structure  and  operations  of  industrial 
society  to  the  great  social  fact  of  the  scarcity  of  economic  goods."  Cite 
a  series  of  social  problems  and  institutions  either  arising  from  the 
scarcity  of  economic  goods  or  related  to  that  scarcity.  In  which  of 
these  is  the  business  man  interested,  either  directly  or  indirectly  ? 


INTRODUCTION  7 

2.  "To  attain  better  satisfaction  of  our  wants,  we  might  do  one  or  more 
of  several  things:  (a)  diminish  the  number  of  our  wants;  (b)  change 
the  character  of  our  wants,  e.g.,  develop  altruism;  (c)  provide  for  larger 
production  and  better  distribution  of  economic  goods."  Are  any  of 
these  being  done  today  ?  On  what  part  of  the  problem  is  the  business 
man  working  ?  Is  he,  generally  speaking,  conscious  of  the  fact  that  he 
is  working  at  any  part  of  the  problem  ? 

3.  Try  to  estimate  how  large  a  portion  of  our  life  is  given  over  to  the 
attempt  to  gratify  economic  wants. 

4.  What  factors  determine  whether  man  will  have  an  easy  or  a  difficult 
"struggle  with  nature"  ? 

5.  Work  through  the  "mechanisms  and  devices"  of  modern  industrial 
society  listed  on  page  4.  Just  how  can  each  of  these  be  regarded  as 
a  device  which  man  has  adopted  in  his  struggle  with  nature?  Did 
he  adopt  these  devices  consciously  ? 

6.  Is  there  really  a  structure  in  this  industrial  society  of  ours?  What 
proofs  or  evidences  of  real  system  and  structure  can  you  cite  ? 

7.  How  do  you  account  for  the  fact  that  quite  a  few  people  insist  that  there 
is  little  or  no  structure  ?    Is  this  mere  exaggeration  ? 

8.  "Formerly  people  gratified  their  wants  directly,  i.e.,  they  produced 
what  they  consumed.  Nowadays  specialists  pour  products — wealth 
and  services — into  a  vast  social  reservoir  and  then  draw  from  this 
reservoir  the  things  they  consume."  Does  this  seem  to  you  substan- 
tially true?  Name  some  of  the  specialists.  What  determines  the 
amount  each  of  us  can  draw  from  the  reservoir?  Do  the  "laws"  of 
wages  ever  determine  this  amount  ? 

o.  "All  persons  engaging  in  economic  activity  are  really  engaged  in 
satisfying  human  wants.  Formerly  men  satisfied  all  their  wants  in  a 
direct  method.  Now  they  specialize  and  exchange  and  thus  co-operate 
in  satisfying  human  wants  even  though  they  are  not  conscious  of  the 
fact."    Is  this  .true? 

10.  "The  business  man  thinks  he  is  engaged  in  getting  a  living.  He  is.  He 
is  also  engaged  in  a  vast  co-operative  enterprise  as  large  as  all  industrial 
society."  Is  this  true?  If  it  is,  has  it  always  been  true?  Are  all 
"ways  of  getting  a  living"  forms  of  what  we  call  "business"  ? 

11.  "Ways  of  getting  a  living  may  be  classified  as  pro-social,  non-social, 
and  anti-social."  Explain  what  this  means.  Cite  illustrations  of 
each. 

12.  Will  my  success  in  getting  a  living  be  in  direct  proportion  to  my  con- 
tribution to  the  progress  of  society  in  the  "struggle  with  nature"? 
Is  it  possible  that  I  may  succeed  by  actually  harming  society?  Will 
society  permit  me  to  do  this  ?     Can  it  prevent  my  doing  it  ? 

13.  What  is  meant  by  social  control  ?  Are  the  following  agencies  of  control : 
religion,  custom,  law,  government,  public  opinion,  codes  of  ethics? 


8  INDUSTRIAL  SOCIETY 

Does  a  trade  union  exercise  social  control?  Does  a  caste  system? 
Does  an  employers'  association  ?  Does  a  business  men's  club  ?  Try 
to  distinguish  between  formal  and  informal  social  control;  between 
conscious  and  unconscious  social  control.  Cite  illustrations  of  each 
form.    Is  our  want-satisfying  activity  subject  to  social  control  ? 

14.  Explain  the  significance  of  each  word  in  the  phrase  "individual  exchange 
co-operation." 

15.  Describe  the  structure  of  the  "industrialism"  of  household  economy. 
What  would  be  the  essential  features  of  a  socialistic  regime  ?  In  just 
what  main  particulars  would  it  be  different  from  the  present  order? 
Go  through  your  list  of  mechanisms  and  devices,  asking  whether  each 
would  be  found  in  household  economy,  in  socialism,  in  communism. 

16.  "Our  co-operation  today  is  regulated  by  exchange;  under  household 
economy  it  was  regulated  by  authority."  What  does  this  mean? 
How  would  it  be  regulated  under  socialism  ?  under  communism  ?  under 
the  regime  of  an  omniscient  benevolent  despot  ? 

17.  "Our  society  is  a  co-operative  society."  Was  household  economy 
co-operative?    Would  socialism  and  communism  be  co-operative? 

18.  "Our  society  is  an  exchange  society."  Would  this  be  true  of  house- 
hold economy  ?  of  socialism  ?  of  communism  ? 

19.  "There  is  a  high  degree  of  organization  and  relatively  little  waste 
within  the  business  unit.  In  society  as  a  whole,  however,  there  is 
chaos  and  waste."  What  reasons  can  you  allege  for  this  state  of 
affairs?  When  you  reflect  upon  the  charges  of  inefficiency  within 
business  units  uttered  by  management  experts,  do  you  subscribe  to 
the  quotation  ? 

20.  Think  of  the  "industrial  machine"  under  the  three  headings  power, 
parts,  co-ordination  of  parts.  Against  which  of  the  three  are  most  of  the 
charges  of  inefficiency  made  today  ?  Suppose  we  had  socialism;  would 
the  quotation  in  the  preceding  question  apply?  What  should  you 
guess  would  be  the  effect  of  socialism  upon  power,  parts,  and  co-ordination 
of  parts  ?  How  would  it  do  to  have  an  omniscient  benevolent  despot 
ruling  industrial  society  ? 

21.  Explain  carefully  what  is  meant  by  production;  by  distribution;  by 
consumption.     In  which  of  these  is  the  business  man  interested  ? 

22.  Are  the  following  enterprises  productive:  cold  storage;  the  express 
business;  storage  of  ice;  making  of  chairs;  a  retail  candy  business? 
What  form  of  utility  results  from  each  activity  here  listed  ? 

23.  "A  good  is  not  fully  produced  until  it  is  in  the  hands  of  the  ultimate 
consumer."    Is  this  true  ? 

24.  Enumerate  the  factors  of  production.  What  general  conditions  make 
for  abundant  production  ? 

25.  If  you  had  to  choose  between  the  following  propositions,  which  would 
you  accept?    (a)  "Men  consume  in  order  to  produce."     (b)  "Men  pro- 


INTRODUCTION  9 

duce  in  order  to  consume."    Is  either  one  correct?    Why  do  men 
engage  in  business  ? 

26.  Give  five  illustrations  of  free  goods;  five  of  economic  goods.     What  is 
the  distinction  between  wealth  and  services  ? 

27.  We  hear  much  of  the  motives  to  industrial  activity.     Make  a  list  of 
these  motives.     See  selections  Nos.  100-104. 


B.  Scarcity  and  Economic  Activity 
1.  THE  ECONOMIC  STRUGGLE1 

Of  course,  the  first  and  most  obvious  reason  for  the  scarcity  of 
goods  is  that  nature  has  not  provided  them  in  sufficient  abundance  to 
satisfy  all  the  people  who  want  them.  Of  some  things,  it  is  true,  she 
is  bounteous  in  her  supply;  but  of  others  she  is  niggardly.  Things 
which  are  so  bountifully  supplied  as  to  satisfy  all  who  want  them  do 
not  figure  as  wealth,  or  economic  goods,  because  we  do  not  need  to 
economize  in  their  use.  But  things  which  are  scantily  supplied  must 
be  meted  out  and  made  to  go  as  far  as  possible.  That  is  what  it 
means  to  economize.  Because  we  must  practice  economy  with 
respect  to  them  they  are  called  economic  goods  or  wealth.  In 
fact,  the  whole  economic  system  of  society,  the  whole  system  of  pro- 
duction, of  valuation,  of  exchange,  of  distribution,  and  of  consumption 
is  concerned  with  this  class  of  goods — toward  increasing  their  supply 
and  making  the  existing  supply  go  as  far  as  possible  in  the  satisfaction 
of  wants. 

The  fact  that  there  are  human  wants  for  whose  satisfaction  nature 
does  not  provide  in  sufficient  abundance — in  other  words,  the  fact 
of  scarcity — signifies  that  man  is,  to  that  extent  at  least,  out  of  har- 
mony with  nature.  The  desire  for  fuel,  for  clothing,  and  for  shelter 
grows  out  of  the  fact  that  the  climate  is  more  severe  than  our  bodies 
are  fitted  to  endure,  and  this  alone  argues  a  very  considerable  lack  of 
harmony.  The  lack  is  only  emphasized  by  the  fact  that  it  is  necessary 
for  us  to  labor  and  to  endure  fatigue  in  order  to  provide  ourselves  with 
these  means  of  protecting  our  bodies  against  the  rigors  of  nature. 
That  labor  also  which  is  expended  in  the  production  of  food  means 
nothing  if  not  that  there  are  more  mouths  to  be  fed,  in  certain  regions 
at  least,  than  nature  has  herself  provided  for.  She  must  therefore 
be  subjugated  and  compelled  to  yield  larger  returns  than  she  is  willing 

1  Adapted  by  permission  from  T.  N.  Carver,  "The  Economic  Basis  of  the 
Problem  of  Evil,"  Harvard  Theological  Review,  I  (1908),  98-1 11. 


io  INDUSTRIAL  SOCIETY 

to  do  of  her  own  accord.  And  that  expanding  multitude  of  desires, 
of  appetites,  and  of  passions  which  drive  us  as  with  whips;  which 
send  us  to  the  ends  of  the  earth  after  gewgaws  with  which  to  bedeck 
our  bodies  and  after  new  means  of  tickling  the  five  senses;  which 
make  us  strive  to  outshine  our  neighbors,  or  at  least  not  to  be  out- 
shone by  them — these  even  more  than  our  normal  wants  show  how 
widely  we  have  fallen  out  of  any  natural  harmony  which  may  sup- 
posedly have  existed  in  the  past. 

Viewed  from  this  standpoint,  the  whole  economic  struggle  becomes 
an  effort  to  attain  to  a  harmony  which  does  not  naturally  exist.  As  is 
well  known,  the  characteristic  difference  between  the  non-economizing 
animals,  on  the  one  hand,  and  man,  the  economizer,  on  the  other,  is 
that  in  the  process  of  adaptation  the  animals  are  passively  adapted 
to  their  environment,  whereas  man  assumes  the  active  role  in  attempt- 
ing to  adapt  his  environment  to  himself.  If  the  climate  is  cold, 
animals  must  develop  fur  or  blubber,  but  man  builds  fires,  constructs 
shelters,  and  manufactures  clothing.  If  there  are  enemies  to  fight 
against,  the  animals  must  develop  claws  or  fangs,  horns  or  hoofs, 
whereas  man  makes  bows  and  arrows,  or  guns  and  ammunition.  The 
whole  evolutionary  process,  both  passive  and  active,  both  biological 
and  economic,  is  a  development  away  from  less  toward  greater 
adaptation,  from  less  toward  greater  harmony  between  the  species 
and  its  environment. 

That  phase  of  the  disharmony  between  man  and  nature  which 
takes  the  form  of  scarcity  gives  rise  also  to  a  disharmony  between 
man  and  man.  Where  there  is  scarcity  there  will  be  two  men  wanting 
the  same  thing;  and  where  two  men  want  the  same  thing  there  is  an 
antagonism  of  interests.  Where  there  is  an  antagonism  of  interests 
between  man  and  man  there  will  be  questions  to  be  settled,  questions 
of  right  and  wrong,  Of  justice  and  of  injustice;  and  these  questions 
could  not  arise  under  any  other  condition.  The  antagonism  of 
interests  is,  in  other  words,  what  gives  rise  to  a  moral  problem,  and 
it  is,  therefore,  about  the  most  fundamental  fact  in  sociology  and 
moral  philosophy. 
J  This  does  not  overlook  the  fact  that  there  are  many  harmonies 
between  man  and  man,  as  there  are  between  man  and  nature.  There 
may  be  innumerable  cases  where  all  human  interests  harmonize, 
but  these  give  rise  to  no  problem,  and  therefore  we  do  not  need  to  con- 
cern ourselves  with  them.  But  where  interests  are  antagonistic  and 
trouble  is  constantly  arising,  we  are  compelled  to  concern  ourselves 


INTRODUCTION  II 

whether  we  want  to  or  not.  As  a  matter  of  fact,  we  do  concern  our- 
selves in  various  ways;  we  work  out  systems  of  moral  philosophy  and 
theories  of  justice  after  much  disputation;  we  establish  tribunals 
where,  in  the  midst  of  much  wrangling,  some  of  these  theories  are 
applied  to  the  settlement  of  actual  conflicts;  we  talk  and  argue 
interminably  about  the  proper  adjustment  of  antagonistic  interests  of 
various  kinds,  all  of  which,  it  must  be  remembered,  grow  out  of  the 
initial  fact  of  scarcity — that  there  are  not  as  many  things  as  people 
want.  These  considerations  reveal  a  third  form  of  conflict — perhaps 
it  ought  to  be  called  the  second — a  conflict  of  interests  within  the  indi- 
vidual himself.  If  the  procreative  and  domestic  instincts  are  freely 
gratified,  there  will  inevitably  result  a  scarcity  of  means  of  satisfying 
other  desires,  however  modest  those  desires  may  be,  through  the  multi- 
plication of  numbers.  Either  horn  of  the  dilemma  leaves  us  with 
unsatisfied  desires  of  one  kind  or  another.  We  are  therefore  pulled 
in  two  directions,  and  this  also  is  a  condition  from  which  there  is  no 
possible  escape.  But  this  is  only  one  illustration  of  the  internal  strife 
which  tears  the  individual.  The  very  fact  of  scarcity  means  necessa- 
rily that  if  one  desire  is  satisfied  it  is  at  the  expense  of  some  other. 
What  I  spend  for  luxuries  I  cannot  spend  for  necessaries;  what  I 
spend  for  clothing  I  cannot  spend  for  food;  and  what  I  spend  for  one 
kind  of  food  I  cannot  spend  for  some  other.  This  is  the  situation 
which  calls  for  economy,  since  to  economize  is  merely  to  choose 
what  desires  shall  be  gratified,  knowing  that  certain  others  must, 
on  that  account,  remain  ungratified.  Economy  always  and  every- 
where means  a  threefold  conflict— a  conflict  between  man  and  nature, 
between  man  and  man,  and  between  the  different  interests  of  the 
same  man.  ^ 

In  this  antagonism  of  interests,  growing  out  of  scarcity,  the  insti- 
tutions of  property,  of  the  family,  and  of  the  state,  all  have  their 
common  origin.  No  one,  for  example,  thinks  of  claiming  property  in 
anything  which  exists  in  sufficient  abundance  for  all.  But  when  there 
is  not  enough  to  go  around,  each  unit  of  the  supply  becomes  a  prize  for 
somebody,  and  there  would  be  a  general  scramble  did  not  society 
itself  undertake  to  determine  to  whom  each  unit  should  belong.  Pos- 
session, of  course,  is  not  property,  but  when  society  recognizes  one's 
right  to  a  thing  and  undertakes  to  protect  him  in  that  right,  that  is 
property.  Wherever  society  is  sufficiently  organized  to  recognize 
these  rights  and  to  afford  them  some  measure  of  protection,  there  is  a 
state,  and  there  is  a  family  wherever  there  is  a  small  group  within 


12  INDUSTRIAL  SOCIETY 

which  the  ties  of  blood  and  kinship  are  strong  enough  to  overcome 
any  natural  rivalry  and  to  create  a  unity  of  interests. 

Closely  associated  with  the  right  of  property — as  parts  of  it,  in  fact 
— is  a  group  of  rights,  such  as  that  of  contract,  of  transfer,  of  bequest, 
and  a  number  of  other  things  with  which  lawyers  occupy  themselves. 
It  would  be  difficult  to  find  any  question  in  the  whole  science  of  juris- 
prudence, or  of  ethics,  or  of  politics,  or  of  any  of  the  social  sciences,  for 
that  matter,  which  does  not  grow  out  of  the  initial  fact  of  economic 
scarcity  and  the  consequent  antagonism  of  interests  among  men. 

It  would  be  interesting  to  follow  up  our  conclusion  with  an 
examination  of  the  possibilities  of  escape  from  the  situation  which  is 
imposed  upon  us  by  economic  scarcity.  Out  of  the  view  that  the  con- 
flict of  man  with  nature  is  a  source  of  evil  grow  two  widely  different 
practical  conclusions  as  to  social  conduct.  If  we  assume  that  nature 
is  beneficent  and  man  at  fault,  the  conclusion  follows  as  a  matter  of 
course  that  desires  must  be  curbed  and  brought  into  harmony  with 
nature,  which  is  closely  akin  to  Stoicism  if  it  be  not  its  very  essence. 
But  if,  on  the  contrary,  we  assume  that  human  nature  is  sound,  then 
the  only  practical  conclusion  is  that  external  nature  must  be  coerced 
into  harmony  with  man's  desires  and  made  to  yield  more  and  more 
for  their  satisfaction.  This  is  the  theory  of  the  modern  industrial 
spirit  in  its  wild  pursuit  of  wealth  and  luxury.  Complete  escape  by 
either  of  these  methods  seems  to  be  cut  off,  in  the  first  place,  by  the 
refusal  of  desires,  especially  the  elementary  ones,  to  be  repressed, 
and,  in  the  second  place,  by  the  utter  impossibility  of  increasing  goods 
to  a  point  which  will  provide  for  every  possible  increase  in  population 
when  population  is  unchecked  by  economic  motives. 

But  even  under  the  conditions  of  economic  scarcity  there  would  be 
no  antagonism  of  interests  between  man  and  man  if  human  nature 
were  to  undergo  a  change  by  which  altruism  were  to  replace  ego- 
ism. If  I  could  develop  the  capacity  to  enjoy  food  upon  my 
neighbor's  palate  as  well  as  upon  my  own,  as  I  have  already  de- 
veloped the  capacity  to  enjoy  it  upon  the  palates  of  my  children, 
and  if  my  neighbor  could  develop  a  like  regard  for  me,  obviously 
there  could  be  no  antagonism  of  interests  between  us  on  the  subject 
of  food.  Let  this  capacity  become  universal,  and  the  moral  problem 
would  be  solved. 

We  may  escape  from  some  of  the  worst  features  of  the  situation  by 
working  along  several  lines  at  the  same  time.  Every  improvement 
in  the  arts  of  production,  whereby  a  given  quantity  of  labor  is  enabled 


INTRODUCTION  13 

to  produce  a  larger  quantity  of  the  means  of  satisfying  wants,  tends, 
of  course,  in  some  degree  to  alleviate  scarcity.  If  this  can  be  sup- 
plemented by  the  doctrine  of  the  simple  life,  made  effective  espe- 
cially in  the  lives  of  the  wealthier  classes,  so  much  the  better;  for 
then  there  will  be  fewer  wants  to  satisfy.  If  this  result  can  be  still 
further  strengthened  by  a  rising  sense  of  the  responsibilities  of  parent- 
hood, whereby  the  reckless  spawning  of  population  can  be  checked, 
especially  among  those  classes  who  can  least  afford  to  spawn,  the 
discrepancy  between  numbers  and  provisions  will  be  kept  at  a  mini- 
mum. Again,  a  more  widespread  spirit  of  altruism,  or  even  a  milder 
and  more  enlightened  egoism  such  as  that  which  moves  the  farmer  to 
take  delight  in  the  sleek  appearance  of  his  horses,  of  the  English  land- 
lord to  take  pride  in  the  comfortable  appearance  of  his  tenants  and 
cotters,  would  go  a  long  way  toward  softening  the  antagonism  of 
interests  among  men. 

In  spite  of  all  these  methods,  however,  there  will  still  be  antago- 
nistic interests  to  be  adjudicated.  The  state  must  therefore  continue 
to  administer  justice.  But  every  improvement  in  our  conceptions  of 
justice,  as  well  as  in  the  machinery  for  the  administration  of  justice, 
whereby  a  closer  approximation  to  exact  justice  may  be  secured,  will 
make  for  social  peace,  though  the  mere  application  of  conflicting 
interests  will  not  remove  the  conflicts  themselves  nor  their  cause. 
That  lies  deeper  than  legislatures  or  courts  can  probe. 


14 


INDUSTRIAL  SOCIETY 


2.    WAYS  OF  GETTING  A  LIVING1 


Ways  of 
Getting  a 
Living 


I.  Uneconomical  1 


II.  Economical 


i.  Destructive   < 


2.  Neutral 


i.  Primary- 
industries 


War 

Piracy 

Plunder 

Swindling 

Counterfeiting 

Adulteration  of  goods 

Monopolizing 

(Marrying  wealth 
Inheriting  wealth 
Benefiting  through  a 
rise  in  land  values 

r  Farming 
Mining 
Hunting 
Fishing 
Lumbering 


Manufacturing 
2.  Secondary      J  Transporting 
industries       ]  Storing 

[  Merchandising 


3.  Personal  or 
professional 


Healing 
Teaching 
Inspiring 
Governing 
Amusing,  etc. 


3.    THE  FUNDAMENTAL  CONDITIONS  OF  WEALTH2 

No  man  actually  lives  in  isolation,  but  we  can  well  begin  by  asking 
what  would  be  the  conditions  of  wealth  to  such  a  man.  His  wealth 
would  depend  upon: 

a)  the  magnitude  of  his  original  natural  powers  in  proportion  to 
his  physical  requirements; 

b)  the  degree  in  which  he  had  improved  his  powers  and  his  out- 
ward surroundings; 

He  could  improve  his  original  powers  both  by  mere  practice  and  by 
deliberate  self- training  and  research;  he  could  improve  his  surround- 
ings both  by  "good  cultivation"  and  other  beneficial  alterations  of  the 

1  Taken  by  permission  from  T.  N.  Carver,  Principles  of  Rural  Economics,  p.  xx. 
(Ginn  &  Co.,  1911.) 

2  Taken  by  permission  from  Edwin  Cannan,  Wealth,  pp.  x-xi.  (P.  S.  King  & 
Son,  Ltd.,  1914.)       • 


INTRODUCTION  15 

earth's  surface  and  by  the  making  of  useful  tools,  buildings,  etc.  We 
cannot  add  up  all  such  improvements  into  a  total  susceptible  of  exact 
measurement  by  any  known  standard,  and  we  must  recognize  that  the 
utility  of  actual  changes,  reasonably  regarded  as  improvements  when 
made,  might  disappear,  owing  to  alterations  in  knowledge  and  other 
circumstances. 

c)  the  goodness  of  the  judgment  with  which  he  used  his  powers 
and  surroundings; 

Labor  as  a  whole  is  not  an  evil,  but  it  is  desirable  to  minimize  the 
amount  expended  in  the  attainment  of  any  particular  end.  There  are 
differences  in  the  agreeableness  of  different  kinds  of  labor,  and  every 
kind  becomes  disagreeable  when  carried  on  too  long.  Consequently, 
in  distributing  his  powers  and  using  his  surroundings  the  Isolated 
Man  would  have  to  be  guided,  not  only  by  the  urgency  of  his  desires 
for  different  goods  and  the  time  to  be  spent  in  procuring  them,  but 
also  by  the  kind  of  labor  involved.  He  would  also  have  to  compare 
immediate  with  distant  advantage,  and  decide  how  much  of  the  one 
should  be  forgone  for  the  sake  of  the  other. 

d)  the  extent  to  which  he  saw  fit  to  sacrifice  some  possible  wealth 
for  some  non-economic  end  which  he  regarded  as  more  important. 

These  conditions  of  the  wealth  of  Isolated  Man  exist  also  in  regard 
to  Society,  which  will  be  better  or  worse  off  according  as: 

1.  Its  members  have  great  or  small  natural  powers  in  proportion 
to  their  physical  requirements. 

2.  Much  or  little  improvement  (measured  by  the  standard  of 
present  utility)  has  been  made  in  personal  qualities,  accumulated 
knowledge,  and  material  surroundings. 

3.  Effort  is  more  or  less  properly  distributed  between  different 
ends,  both  present  and  future,  and  any  irksomeness  of  effort  is  more 
or  less  properly  weighed  against  results. 

4.  Much  or  little  wealth  is  deliberately  sacrificed  for  the  sake 
of  non-economic  satisfactions  regarded  as  more  important. 

But  Society  will  also  be  better  or  worse  off  according  as : 

5.  The  age-composition  of  the  population  is  more  or  less  favour- 
able to  productive  effort. 

6.  Greater  or  less  advantage  is  taken  of  co-operation. 

7.  Population  is  more  or  less  near  the  most  suitable  magnitude. 


1 6  INDUSTRIAL  SOCIETY 

C.  Structure  of  Modern  Industrial  Society 

4.    THE  SYSTEM  OF  INDIVIDUAL  EXCHANGE 
CO-OPERATION1 

It  is  easy  to  imagine  an  economic  order  wherein  each  person  pro- 
duces the  very  things  which  he  consumes — bakes  the  bread  he  eats 
from  flour  he  has  ground  from  wheat  he  has  raised.  Such  an  order 
might  be  called  an  autonomous  economic  order.  But  the  actual  sys- 
tem is  far  different.  Most  of  the  goods  which  each  of  us  consumes 
are,  speaking  literally,  produced  by  others,  while  most  of  those  which 
each  produces  are  consumed  by  others.  In  short,  the  present  order 
is  not  autonomous,  but  co-operative.  Herein  is  the  most  important 
single  characteristic  of  that  order. 

The  second  important  fact  about  our  present  system  is  to  be 
found  in  the  peculiar  way  in  which  our  co-operation  is  effected,  brought 
about.  When  the  word  co-operation  is  used,  the  first  thought  sug- 
gested is  that  of  a  system  in  which  we  act  together  as  the  result  of  an 
agreement  entered  into,  or  of  authority  exercised  over  us  by  some 
outside  power.  Thus,  people  co-operate  in  getting  up  a  church 
supper  or  a  picnic,  through  agreement.  On  the  other  hand,  in  the 
family  we  have  a  co-operation  which  is  brought  about  by  the  authority 
of  one  or  both  of  the  parents.  Such  co-operation  is  conscious,  organ- 
ized. This  type  is  present  in  communistic  societies,  many  of  which 
have  existed  in  the  United  States,  e.g.,  the  Shakers,  Oneida,  Amana. 
In  contrast  with  such  conscious,  organized  co-operation,  that  of  the 
present  order  is  largely  spontaneous,  unconscious,  organic.  Each 
man  produces  some  commodity  or  service  and  exchanges  it  for  the 
commodities  or  services  of  his  neighbors.  In  doing  this  he  and  they 
really  co-operate,  but  they  are  scarcely  conscious  that  this  is  true. 
The  fact  just  brought  out  is  expressed  by  saying  that  our  co-operation 
in  the  present  order  is  effected,  brought  about,  through  exchange. 
And  accordingly  we  denominate  that  order  as  one  of  exchange  co- 
operation. 

But  there  is  another  reason  for  calling  this  order  one  of  exchange 
co-operation.  It  is  pretty  clear  that,  if  we  have  any  co-operation  at 
all,  there  must  be  some  way  of  regulating  that  co-operation.  We  need 
more  of  some  things  than  of  others.  We  need  certain  things  so  much 
that  it  will  pay  us  to  have  them  even  at  the  cost  of  going  without 

1  Adapted  by  permission  from  F.  M.  Taylor,  Principles  of  Economics,  pp.  9-13. 
(University  of  Michigan,  1916.) 


INTRODUCTION  17 

some  other  things  altogether.  Unless  there  is  some  guiding,  directing 
machinery,  we  shall  be  wasting  our  resources  producing  the  wrong 
things,  or  the  right  things  in  the  wrong  proportion.  Now,  in  some 
kinds  of  co-operation  this  regulating  is  done,  or  would  be  done,  by 
authority.  This  is  the  case  within  the  family.  How  much  time 
the  farmer's  boy  shall  put  in  weeding  the  garden,  how  much  splitting 
wood,  how  much  picking  up  stones,  and  so  on,  the  farmer  determines 
by  authority;  and  such  a  system  prevails  in  the  main  in  the  com- 
munistic societies  to  which  reference  has  already  been  made.  But 
throughout  most  of  the  present  order  our  co-operation  is  regulated 
by  the  same  machinery  of  exchange  which  effects  that  co-operation, 
and  in  the  same  spontaneous  way.  If  too  little  of  anything  is  pro- 
duced, prices  rise  or  the  market  expands,  profits  increase,  and  so  pro- 
ducers of  their  own  motion  increase  output;  if,  on  the  other  hand,  too 
much  of  anything  is  produced,  prices  fall  or  the  market  contracts, 
profits  diminish,  and  so  producers  of  their  own  motion  diminish  output. 
Again,  if  the  output  of  some  commodity  during  a  particular  year  is 
exceptionally  small,  so  that  consumption  all  along  the  line  needs  to  be 
curtailed,  this  is  usually  accomplished,  not  by  the  interposition  of  the 
public  authorities,  but  by  an  automatic  rising  of  price  which  induces 
almost  everyone  to  cut  down  consumption  of  his  own  motion.  So, 
in  various  other  ways,  exchange  regulates  our  co-operation. 

The  next  most  important  characteristic  of  the  present  order  is 
individual  initiative.  It  is  quite  possible  to  conceive  a  system  of 
co-operation  which,  in  part  at  least,  is  effected  and  regulated  by 
exchange,  but  in  which  initiative  is  left  to  society  as  a  whole,  govern- 
ment. This  would  be  the  case  under  socialism  as  it  is  commonly 
advocated.  In  such  a  system  the  state  would  be  the  sole  farmer, 
miner,  manufacturer,  merchant,  et  ah,  i.e.,  the  state  alone  would 
undertake  to  produce  things,  putting  all  individuals  into  the  position 
of  employees.  But  it  would  enter  into  relations  with  these  individuals 
under  the  conditions  of  free  contract,  buying  their  services  in  the  open 
market.  Further,  it  might,  probably  would,  pay  for  these  services 
prices  determined  under  the  free  working  of  the  laws  of  value.  So,  in 
determining  what,  and  how  much,  should  be  produced,  it  would  prob- 
ably be  guided  by  the  fluctuations  of  freely  determined  prices.  (For 
example,  if  the  price  of  some  particular  thing  went  down,  the  govern- 
ment would  take  this  as  a  warning  to  diminish  the  production  of 
that  thing.)  But  while  such  a  system  would,  like  the  present,  be  a 
system  of  exchange  co-operation,  it  would  differ  radically  in  leaving  all 


l8  INDUSTRIAL  SOCIETY 

initiative  to  the  state;  whereas, in  the  present  order, initiative  is  mostly, 
though  not  entirely,  the  business  of  the  individual — persons  who  have 
the  means  and  think  they  see  a  chance  to  obtain  profits  set  about 
producing  wheat  or  iron  or  chairs  or  what  not.  Accordingly,  to  give 
something  like  a  complete  characterization  of  the  present  order  in  its 
most  general  features  we  have  to  say  that  it  is  a  system  of  individual 
exchange  co-operation. 

The  preceding  discussion  has  laid  much  stress  upon  the  fact  that 
the  existing  order  is  co-operative.  In  thus  characterizing  that  order 
we  almost  necessarily  say  that  it  is  one  wherein  specialization  prevails, 
i.e.,  one  in  which  different  persons  devote  themselves  to  doing  differ- 
ent things — one  man  makes  shoes,  another  clothes,  another  bread, 
and  so  on.  Doubtless  there  are  occasions  when  homogeneous  co- 
operation, i.e.,  co-operation  of  persons  doing  the  same  sort  of  things, 
is  of  decided  advantage,  e.g.,  a  barn  raising;  but  co-operation  would 
have  very  slight  significance  compared  with  what  it  now  has  did  it 
not  also  prevail  in  the  form  of  heterogeneous  co-operation,  i.e.,  a  co- 
operation in  which  the  different  participants  do  different  things. 
Further,  the  successful  workings  of  heterogeneous  co-operation  would 
require  that  the  differentiation  of  tasks  should  be  more  or  less  perma- 
nent— each  one  should  make  a  practice  of  doing  one  sort  of  thing  only. 
That  is,  we  should  have  to  have  thoroughgoing  specialization.  And 
of  course  this  is  what  we  do  have  in  the  present  order.  Each  devotes 
himself  to  doing  one  sort  of  things,  acquiring  in  this  way  extraordinary 
skill  and  efficiency.  Further,  the  same  rule  of  specialization  is  applied 
to  the  instruments  used  in  production,  the  tools  and  machines,  till  more 
and  more  each  is  fitted  for  one  very  small  job.  Finally,  the  same  idea 
is  carried  out  with  respect  to  land — one  district  being  devoted  to 
celery,  another  to  onions,  another  to  citrous  fruits,  and  so  on. 

5.    HOW  THE  INDUSTRIAL  SYSTEM  WORKS1 

Let  it  be  assumed,  as  the  starting-point  in  the  inquiry,  that  we 
have  a  community  in  which  the  money  regime  has  reached  its  complete 
development.  Let  it  be  supposed  that  the  division  of  labor,  with  its 
results  as  to  exchange,  sale,  and  money,  has  been  carried  so  far  that 
no  one  consumes  any  of  the  things  he  produces.  Every  article  pro- 
duced comes  to  market  and  is  sold.  It  follows  that  the  total  product 
or  output  of  the  community  is  sold  for  money.     It  follows,  also, 

1  Adapted  by  permission  from  F.  W.  Taussig,  "The  Employer's  Place  in  Dis- 
tribution," Quarterly  Journal  of  Economics,  X  (1895-96),  69-81. 


INTRODUCTION  IQ 

that  all  income  of  every  sort  appears  first  in  the  form  of  a  money 
receipt. 

Let  us  now  suppose  a  simple  case,  perhaps  never  to  be  seen  in  the 
actual  world,  yet  largely  typical  of  what  goes  on  in  it,  and  at  all  events 
serviceable  as  a  first  step  towards  understanding  its  complexities. 
Suppose  a  capitalist,  active  in  the  conduct  and  management  of  a  pro- 
ductive enterprise,  to  own  all  of  his  plant  and  to  start  at  the  outset 
with  funds  sufficient  to  pay  all  laborers  and  to  buy  all  materials  until 
sales  are  made.  Such  a  capitalist  buys  for  cash  and  sells  for  cash, 
pays  laborers  out  of  funds  in  his  own  possession,  and  has  his  assets 
always  under  complete  and  ready  control.  His  product,  whatever  it 
be,  whether  an  article  nearer  or  farther  removed  from  completion  so 
far  as  the  community's  real  income  is  concerned,  yields  him  an  avail- 
able income  as  soon  as  sold. 

That  income  he  is  free  to  spend  as  he  pleases.  He  may  spend  the 
whole  of  it  for  his  own  immediate  pleasure.  He  may  reinvest  the 
whole  of  it  or,  rather,  may  reinvest  everything  over  and  above  what  is 
necessary  for  his  support  and  the  support  of  those  whom  he  cherishes 
as  part  of  himself.  If  he  reinvests,  he  devotes  this  gross  money  income 
to  the  purchase  of  more  materials,  the  enlargement  of  his  plant,  the 
payment  of  more  laborers.  If  he  spends,  he  devotes  it  to  the  purchase 
of  real  income,  of  enjoyable  wealth,  for  himself  and  for  those  depend- 
ent upon  him.  The  mode  in  which  he  shall  apportion  his  money 
income  between  these  different  objects  is  a  matter  at  his  discretion. 

Let  us  now  stretch  further  this  supposition  of  simple  conditions. 
Let  it  be  assumed  that  all  the  capitalists  of  the  community  are  of  the 
sort  just  described — that  there  are  no  idle  investors,  no  bankers  or 
other  lenders,  and  that  all  buying  and  selling  are  for  cash.  Every 
active  producer  owns  his  own  plant  and  materials,  and  every  shop- 
keeper and  every  merchant  his  stock.  All  these  persons  collectively 
own  the  capital  of  the  community;  meaning  the  real  capital  of  the 
community,  the  inchoate  wealth  which  is  to  be  advanced  by  successive 
stages  to  completion.  Further,  let  it  be  assumed  that  all  laborers 
are  hired  by  these  capitalists.  None  work  on  their  own  account  or 
sell  anything  but  their  labor.  None  own  capital  or  have  any  source 
of  present  income  beyond  pay  for  the  labor  of  the  day.  They  may 
have  some  accumulations  in  present  enjoyable  form,  such  as  houses, 
furniture,  food  in  the  closet,  but  these  must  have  been  derived  from 
income  of  the  past.  Their  income  for  present  work  comes  exclusively 
as  pay  from  the  capitalists. 


20  INDUSTRIAL  SOCIETY 

In  such  a  society,  then,  the  total  money  income  would  flow  in  the 
first  instances  entirely  into  the  hands  of  the  capitalist  managers. 
They  may  spend  it  all  for  themselves  or  invest  it  all.  They  may  spend 
only  their  net  income,  i.e.,  the  excess  over  what  they  must  use  to 
keep  intact  their  capital  (and  so  the  community's  capital),  or  may 
spend  less  than  their  net  income  and  so  cause  capital  to  be  added  to. 

All  this  means  simply  that  the  machinery  of  production  at  any 
given  time  is  arranged  for  the  supply  of  the  habitual  and  anticipated 
wants  of  the  community.  Each  individual  capitalist  produces  the 
commodities  which  he  has  sold  before,  and  which  experience  leads  him 
to  expect  to  sell  again.  The  pig-iron  maker  has  a  reasonable  faith 
that  his  iron  will  be  bought  by  the  maker  of  machinery,  and  he,  again, 
that  his  machinery  will  be  bought  by  the  person  who  means  to  use  it 
in  making  one  product  or  another.  That  process  of  investment  and 
accumulation,  by  which  existing  capital  is  maintained  and  new  capital 
is  added,  is  thus  prepared  for  and  virtually  accomplished  before  the 
individuals  take  the  steps  which  for  them  are  decisive,  of  turning  their 
money  income  to  investment  rather  than  to  enjoyment.  The  pro- 
ducers of  luxuries  go  their  way  in  the  same  fashion.  Some  create  or 
maintain  machinery  for  silks  and  satins,  others  prepare  the  raw 
material,  others,  finally,  buy  the  products  from  the  manufacturer 
and  arrange  them  in  the  shops  of  the  cities,  for  the  expected  purchases 
of  the  capitalists,  who  will  presumably  do  as  they  have  done  in  times 
past — spend  part  of  their  inflowing  money  receipts  for  enjoyment. 
Not  least,  the  makers  of  the  commodities  for  laborers  continue  to  pro- 
duce these  on  the  accustomed  scale,  anticipating  the  transference  of 
money  income  by  capitalists  to  laborers,  in  the  course  of  that  contin- 
uance of  investment  of  which  the  purchase  of  machinery  and  materials 
is  the  other  part. 

We  may  now  make  the  conclusions  derived  from  this  analysis 
more  closely  applicable  to  real  life  by  introducing  the  complications 
which  appear  in  society  as  it  is  organized  in  fact. 

No  active  capitalist  is  in  that  position  of  complete  independence 
which  has  been  assumed — of  neither  borrowing  nor  lending,  of  buying 
for  cash,  and  of  selling  for  cash.  He  buys  on  credit,  and  thus  is  under 
obligations  to  transfer  part  of  his  money  income,  as  it  flows  in,  to  his 
creditors;  while  those  to  whom  he  has  sold  on  credit  are  under  similar 
obligations  to  him.  As  between  the  direct  managers  of  industry,  the 
obligations  which  thus  fetter  each  one  do  not  change  the  case  for 
the  mass.    Collectively,  they  are  still  free  and  uncontrolled  as  to  the 


INTRODUCTION  21 

disposal  of  the  general  money  income.  But  quite  as  important  as 
their  relations  inter  se  are  their  relations  to  the  great  body  of  bankers, 
brokers,  money-lenders,  middlemen  of  all  sorts  and  degrees,  whose 
business  it  is  to  make  advances  to  the  more  immediate  directors  of 
business  affairs.  The  banks  of  discount  and  deposit  find  their  chief 
function  in  such  advances  and  are  the  great  types  of  this  factor 
in  the  industrial  world.  Side  by  side  with  them  are  to  be  found,  in 
every  considerable  centre,  other  parts  of  the  same  credit  organization. 
Brokers  place  loans  wherever  they  find  funds  offering  for  investment 
over  those  short  periods  for  which  the  regularly  recurring  debts  of  the 
business  manager  are  contracted.  The  great  wholesale  houses  are  a 
most  important  and  effective  part  of  this  organization.  They  buy 
on  credit,  make  advances  on  consignments,  nurse  this  producer 
and  drive  to  the  wall  that  one;  themselves  meanwhile  borrow  largely 
from  the  banks  and  play  a  most  influential  part  in  settling  when  and 
how  and  where  money  income  shall  flow  into  the  hands  of  those  who 
are,  in  the  more  direct  and  obvious  sense,  the  directors  of  production 
and  the  employers  of  labor. 

In  other  words,  the  body  of  persons  whose  judgment  and  discretion 
determine  how  the  gross  income  shall  be  used,  and  what  part  shall 
be  turned  over  to  laborers,  is  much  larger  than  the  group  of  their 
immediate  employers.  The  immediate  employers  are  thought  of  as 
the  only  persons  who  decide  primarily  how  and  where  laborers  shall  be 
hired,  and  whose  resources  determine  what  direct  advances  of  wages 
shall  be  made  them.  In  fact,  the  immediate  employer  is  controlled,  in 
greater  or  less  degree,  by  his  relations  with  this  large  and  complex 
body  of  lenders  and  of  middlemen.  He  can  sell  rapidly  to  the  mer- 
chants who  are  his  first  customers  if  their  judgment  approves  of  his 
wares,  and  he  can  get  advances  from  them  if  they  have  faith  in  his 
capacity  and  integrity.  Similarly,  he  can  borrow  from  the  bankers 
and  brokers  according  to  his  repute  for  success  and  character.  If  a 
long  career  of  successful  ventures  and  punctual  probity  has  given  him, 
not  only  large  means  of  his  own,  but  a  high  standing  in  the  business 
world,  his  immediate  resources  are  almost  limitless;  he  can  secure  at 
a  moment's  notice  the  command  of  millions.  On  the  other  hand, 
a  rumor  of  disaster,  a  revelation  of  dishonesty,  may  practically  wipe 
out  his  means. 

The  employing  capitalists — we  may  now  mean  by  that  phrase  the 
varied  body  which  directly  or  indirectly  is  active  in  business  manage- 
ment— were  supposed  to  own  all  the  capital.    Separate  from  them,  in 


22  INDUSTRIAL  SOCIETY 

the  main,  there  stands  in  the  modern  world  a  great  mass  of  investors 
who  own  capital  and  derive  an  income  from  it,  but  take  no  direct  part 
in  its  management. 

The  investors  have  made  loans  to  the  active  entrepreneurs.  They 
have  received  an  engagement  for  the  payment  of  interest  at  stated 
terms  and  for  the  eventual  repayment  of  the  principal.  They  may 
be  conceived,  for  many  social  purposes,  as  the  owners  of  a  great  part 
of  the  community's  capital.  When  a  plant  is  erected  with  borrowed 
capital,  the  lender  is  in  so  far  virtually  its  owner.  Legally,  he  is  only 
a  creditor;  while,  in  the  eye  of  the  economist,  he  is  to  be  regarded 
for  many  purposes  as  an  owner  of  real  capital.  As  it  happens,  how- 
ever, the  legal  relation  fits  exactly  the  economic  relation  for  the  pur- 
poses of  the  present  inquiry  into  the  working  of  the  machinery  of 
distribution.  If  it  is  asked,  Who  in  the  end  owns  the  capital  of  the 
community?  the  answer  must  be,  the  idle  investor  as  well  as  the 
active  business  manager.  But  if  it  is  asked,  Who  controls  the  capital 
of  the  community  and  first  becomes  owner  of  its  total  income  ?  the 
answer  must  be,  the  active  manager,  indebted  though  he  may  be  to 
his  creditor.  The  output  becomes  his  as  it  goes  to  market,  and  is 
sold;  and  the  gross  money  income  passes  first  into  his  hands.  He 
must  simply  pay  the  stipulated  interest  to  his  creditor.  In  so  far 
only  is  he  subject  to  a  direct  and  immediate  limitation  in  his  control 
of  the  inflowing  money  receipts. 

6.    A  VIEW  OF  INDUSTRIAL  SOCIETY  IN  A  STATE 
OF  EQUILIBRIUM1 

Figure  i  represents  capitalistic  production  in  a  self-contained 
industrial  society  brought  to  a  state  of  normal  equilibrium.  In  it  are 
represented  in  successive  and  connected  compartments  the  three  great 
branches  of  production:  the  extractive  industries,  manufacturing,  and 
transportation  and  trade.  Raw  materials,  the  products  of  the 
extractive  industries,  flow  through  from  left  to  right,  being  enriched 
as  they  pass  along  by  the  addition  of  form,  place,  time,  and  possession 
utilities.  On  leaving  the  hands  of  dealers  they  are  separated  into 
two  great  streams,  one  the  replacement  fund,  which  flows  back  to 
repair  and  renew  capital  goods  worn  or  destroyed  in  the  process  of 
production,  the  other,  consumption  goods,  which  begin  immediately 
to  gratify  wants.    The  consumption-goods    stream    is  again  sub- 

1  Adapted  by  permission  from  H.  R.  Seager,  Principles  of  Economics, 
pp.  189-91,  284-85.     (Henry  Holt  &  Co.,  1913.) 


INTRODUCTION 


*3 


divided,  one  branch  conveying  the  second  and  subordinate  replace- 
ment fund  needed  to  repair  and  renew  the  durable  consumption  goods 
whose  presence  is  indicated  at  the  top  of  the  diagram  and  which  give 
off  a  continuous  stream  of  utilities  to  mingle  with  those  afforded  by 
transient  consumption  goods,  the  other  and  larger  branch  into  which 
the  main  consumption-goods  stream  is  divided.  The  net  product 
represented  in  this  diagram  consists  in  part  of  raw  materials,  in  part 
of  manufactured  goods,  finished  and  unfinished,  and  in  part  of  the 
utilities  subsequently  added  at  the  stage  "transportation  and  trade." 
Only  a  very  limited  part  is  sufficiently  advanced  to  be  flowing  out 


Fig.  1 

with  the  stream  of  consumption  goods  to  minister  directly  to  human 
wants.  On  the  other  hand,  it  is  from  this  stream  of  consumption  goods 
that  the  entire  real  income  for  which  the  money  income  is  exchanged 
is  drawn.  Although  the  identical  goods  constituting  the  real  income 
are  thus  for  the  most  part  other  than  the  goods  constituting  the  net 
product,  the  latter  consists  of  exactly  similar  utilities  quantitatively 
and  qualitatively  as  the  former.  At  each  point  the  streams  of  goods 
flow  on  evenly  and  unbrokenly  so  that  the  "  transient  consumption 
goods"  that  are  allowed  to  escape,  and  which  constitute  the  real 
income,  are  exactly  replaced  by  the  goods  included  in  the  net  product. 
The  diagram  thus  represents  movement  without  change.  It  depicts 
the  circulation  of  goods  that  is  going  on  in  actual  industrial  society 
with  the  elements  of  change  and  monopoly  eliminated. 

In  order  to  state  the  laws  determining  rent,  wages,  and  interest, 
it  will  be  necessary  to  advert  to  the  relations  that  would  prevail 


24 


INDUSTRIAL  SOCIETY 


in  an  industrial  society  brought  to  the  state  of  normal  equilibrium. 
In  such  a  society  the  relation  between  production,  distribution,  and 
consumption  would  be  extremely  simple.  The  whole  matter  may 
be  represented  graphically  by  Fig.  2. 

In  Fig.  2  production  is  represented  as  subdivided  into  three 
great  stages.  The  extractive  industries,  depicted  at  the  extreme 
left,  turn  out  raw  materials.  Manufacturing  takes  these  and  trans- 
forms them  into  manufactured  products.     Transportation  and  trade 


Fig.  2 


deliver  these  finished  products  to  purchasers,  who  may  be  either 
consumers  converting  their  money  incomes  into  real  incomes,  or 
enterprisers  converting  the  free  replacement  fund  into  capital  goods 
to  restore  the  wastes  incidental  to  production.  The  figure  represents 
movement  without  change.  Goods  are  flowing  continuously  from 
stage  to  stage.  At  the  last  stage  the  stream  is  divided,  an  unvarying 
volume  of  capital  goods  flowing  one  way  and  an  unvarying 
stream  of  consumers'  goods  flowing  the  other.  The  capital  goods 
exactly  replace  the  goods  destroyed  in  the  course  of  production  and 
the  consumers'  goods  exactly  remunerate  the  owners  of  land,  workmen, 
and  owners  of  capital  goods  for  the  productive  services  which  they 
or  their  possessions  have  rendered. 


INTRODUCTION  25 

7.    ORDER,  NOT  CHAOS1 

Some  would  have  us  believe  that  there  is  at  present  no  organiza- 
tion at  all.  They  use  hard  words,  such  as  "scramble  for  wealth," 
" suicidal  competition,"  " exploitation,"  "profit-hunting,"  and  say 
that  the  present  state  of  things  is  "chaotic."  Now,  whatever  our 
present  state  may  be,  however  unsatisfactory  it  is,  it  is  certainly  not 
chaotic.  If  it  were  really  chaotic,  everyone  who  goes  to  his  daily  work 
tomorrow  must  be  a  fool,  since  he  would  be  just  as  likely  to  get  his 
daily  bread  if  he  stayed  at  home  or  went  elsewhere  to  amuse  himself. 
The  very  fact  that  we  all  know  as  well  as  we  do  that  certain  results  will 
almost  certainly  follow  upon  a  certain  course  of  action  shows  that  we 
are  not  living  in  chaos.  Our  system  may  be  a  bad  system,  but  it  is  a 
system  of  some  sort;  it  is  not  chaos.  If  a  man  holds  a  book  too  close 
to  his  nose,  he  cannot  read  it,  and  so  it  is  with  the  world  of  industry. 
If  we  look  at  it  from  too  close  a  standpoint,  we  can  only  see  a  blur. 

Let  us  imagine  a  committee  of  the  Economics  Section  of  the 
Saturnian  Association  for  the  Advancement  of  Science  reporting  on 
what  they  had  been  able  to  see  of  affairs  on  our  planet  through  a 
gigantic  telescope  big  enough  for  them  to  see  human  beings  moving 
on  its  face.  Would  they  be  likely  to  report  that  poor  Mundus  seemed 
quite  chaotic  ?  Would  they  report  that  everyone  was  scrambling  for 
himself  to  the  disadvantage  of  everyone  else  in  such  a  way  that  the 
general  good  seemed  entirely  neglected  ?  Would  they  say  that  all  the 
land  in  the  most  convenient  situations  was  lying  idle,  that  nobody  had 
a  roof  over  his  head,  and  that  everyone  was  running  about  aimlessly 
or  sitting  idle,  in  imminent  danger  of  starvation  ?  They  might  report 
something  of  this  kind  if  they  could  carry  on  a  conversation  with 
certain  people  here  and  believed  all  they  were  told,  but  certainly  not 
if  they  judged  by  their  own  observation. 

They  would  be  much  more  likely  to  report  that  they  had  seen  a 
very  orderly  people  co-operating  on  the  whole  with  a  wonderful 
absence  of  friction,  that  they  had  seen  them  come  out  of  their  homes 
in  the  morning  in  successive  batches  and  wend  their  way  by  all  sorts  of 
means  of  locomotion  to  innumerable  different  kinds  of  work,  all  of  which 
seemed  to  fit  somehow  into  each  other  so  that  as  a  whole  the  vast 
population  seemed  to  get  fed,  and  clothed,  and  sheltered.  They  would 
not,  of  course,  vouch  for  the  perfection  of  the  arrangements.  They 
would  see  that  there  were  occasional  irregularities  and  hitches.  They 
might  see  now  and  then  too  many  vehicles  in  one  street,  too  many 

1  Adapted  by  permission  from  Edwin  Cannan,  Wealth,  pp.  72-76.  (P.  S.  King  & 
Son,  Ltd.,  1914.) 


26  '  INDUSTRIAL  SOCIETY 

passengers  trying  to  travel  by  one  train  or  tramcar.  They  might 
even  see  along  our  English  country  roads  the  melancholy  spectacle 
of  men  tramping  in  both  directions  evidently  in  search  of  the  same 
kind  of  work.  They  might  be  able  to  see  that  some  had  too  much — 
more  than  they  seemed  to  know  how  to  dispose  of  without  hurting 
themselves  and  others — while  some  evidently  had  too  little  for  healthy 
and  happy  existence.  But  in  spite  of  these  defects,  they  would 
report,  I  think,  that  on  the  whole  the  machinery,  whatever  its  exact 
nature,  seemed  to  do  its  work  fairly  effectively.  And  if  we  can 
imagine  them  able  to  go  back  five  hundred  or  a  thousand  years,  we 
can  feel  tolerably  sure  that  they  would  report  still  more  favourably, 
since  they  would  then  see  that  enormous  improvement  had  taken  place 
and  would  discover  no  appearance  of  any  change  which  would  suggest 
that  the  existing  system  is  not  the  outcome  of  an  orderly  development 
of  the  institutions  of  the  past. 

I  insist  so  strongly  on  the  fact  that  ouf  existing  machinery  does 
work,  not  with  any  idea  of  contending  that  all  is  for  the  best  in  the 
best  of  all  possible  worlds,  but  because  I  think  that  in  order  to  get 
any  proper  hold  of  economics  it  is  necessary  to  begin  by  considering, 
not  the  defects  of  machinery,  but  the  main  principles  involved  in  its 
construction  and  working.  We  are  apt  to  begin  with  the  defects 
because  it  is  they  that  strike  our  eye  and  often  excite  our  sympathy. 
Seven  per  cent  of  unemployed  are  much  more  likely  to  make  us  start 
thinking  about  economics  than  the  other  ninety-three  who  are  in 
employment.  The  emaciated  corpse  of  a  single  person  starved  to 
death  naturally  makes  more  impression  on  our  minds  than  the  com- 
fortable bodies  of  a  hundred  thousand  sufficiently  fed  citizens.  But 
if  we  want  thoroughly  to  understand  the  reason  why  work  and  food 
do  not  quite  "go  round,"  we  should  begin  by  endeavoring  to  discover 
what,  after  all,  certainly  does  not  explain  itself — why  they  go  as  far 
round  as  they  do.  If  we  grant  that  there  is  an  organization,  the  next 
question  is,  What  is  it?  It  is  certainly  not  merely  "the  State." 
In  modern  times  we  become  so  accustomed  to  all  institutions  being 
defined  and  modified  from  time  to  time  by  the  States  within  the  juris- 
diction of  which  they  exist,  that  we  are  apt  to  regard  them  all  as 
springing  from  the  State  and  dependent  upon  its  existence  for  their 
origin  and  development.  But  this  is  wrong.  There  are  economic 
institutions  which  are  older  than  the  State,  at  any  rate  in  the  sense 
in  which  we  use  the  word  at  the  present  day,  and  there  are  others 
which  have  come  into  being  and  developed  under  the  ban  rather 


INTRODUCTION  27 

than  under  the  patronage  of  the  State.  Moreover,  some  of  them 
cover  the  whole  world  or  at  the  least  far  wider  areas  than  any  State 
of  the  present  or  past.  In  dealing  with  the  most  important  of  the 
institutions  on  which  our  existing  economic  organization  is  based, 
it  is  most  convenient  to  take  the  State  as  the  third,  the  Family  and 
Property  being  the  first  and  second. 

8.    CERTAINTY,  COMPLETENESS,  AND  REGULARITY1 

Let  anyone  propose  to  himself  the  problem  of  supplying  with 
daily  provisions  of  all  kinds  a  city  containing  above  a  million  of 
inhabitants.  Let  him  imagine  himself  a  head-commissary,  en- 
trusted with  the  office  of  furnishing  to  this  enormous  host  their  daily 
rations.  Any  considerable  failure  in  the  supply,  even  for  a  single 
day,  might  produce  the  most  frightful  distress,  since  the  spot  on  which 
they  are  cantoned  produces  absolutely  nothing.  Some,  indeed,  of  the 
articles  consumed  admit  of  being  reserved  in  public  or  private  stored 
for  a  considerable  time;  but  many,  including  most  articles  of  animal 
food  and  many  of  vegetable,  are  of  the  most  perishable  nature.  As  ft 
deficient  supply  of  these  even  for  a  few  days  would  occasion  great 
inconvenience,  so  a  redundancy  of  them  would  produce  a  corresponding 
waste.  Moreover,  in  a  district  of  such  vast  extent  as  this  "province 
(as  it  has  been  aptly  called)  covered  with  houses,"  it  is  essential  that 
the  supplies  should  be  so  distributed  among  the  different  quarters  as 
to  be  brought  almost  to  the  doors  of  the  inhabitants;  at  least  within 
such  a  distance  that  they  may,  without  an  inconvenient  waste  of  time 
and  labour,  procure  their  daily  shares. 

Moreover,  whereas  the  supply  of  provisions  for  an  army  or  garri- 
son is  comparatively  uniform  in  kind,  here  the  greatest  possible  variety 
is  required,  suitable  to  the  wants  of  various  classes  of  consumers. 

Again,  this  immense  population  is  extremely  fluctuating  in 
number;  and  the  increase  or  diminution  depends  on  causes,  of  which 
though  some  may,  others  cannot,  be  distinctly  foreseen. 

Lastly,  and  above  all,  the  daily  supplies  of  each  article  must  be  so 
nicely  adjusted  to  the  stock  from  which  it  is  drawn — to  the  scanty,  or 
more  or  less  abundant,  harvest,  importation,  or  other  source  of  supply 
— to  the  interval  which  is  to  elapse  before  a  fresh  stock  can  be  fur- 
nished, and  to  the  probable  abundance  of  the  new  supply  that  as 
little  distress  as  possible  may  be  undergone;  that,  on  the  one  hand 

1  Adapted  from  Richard  Whately,  Introductory  Lectures  in  Political  Economy, 
Lecture  IV,  pp.  93-98.     (B.  Fellowes,  1832.) 


28  INDUSTRIAL  SOCIETY 

the  population  may  not  unnecessarily  be  put  upon  short  allowance  of 
the  article,  and  that,  on  the  other  hand,  they  may  be  preserved  from 
the  more  dreadful  risk  of  famine,  which  would  ensue  from  their  con- 
tinuing a  free  consumption  when  the  store  was  insufficient  to  hold  out. 
It  is  really  wonderful  to  consider  with  what  ease  and  regularity 
this  important  end  is  accomplished,  day  after  day  and  year  after  year, 
through  the  sagacity  and  vigilance  of  private  interest  operating  on 
the  numerous  class  of  wholesale  and,  more  especially,  of  retail  dealers. 
Each  of  these  watches  attentively  the  demands  of  the  neighborhood, 
or  of  the  market  he  frequents,  for  such  commodities  as  he  deals  in. 
The  apprehension,  on  the  one  hand,  of  not  realizing  all' the  profit  he 
might,  and,  on  the  other  hand,  of  having  his  goods  left  on  his  hands, 
either  by  his  laying  in  too  large  a  stock,  or  by  his  rival's  underselling 
him — these,  acting  like  antagonist  muscles,  regulate  the  extent  of  his 
dealings  and  the  prices  at  which  he  buys  and  sells.  An  abundant 
supply  causes  him  to  lower  his  prices  and  thus  enables  the  public  to 
enjoy  that  abundance,  while  he  is  guided  only  by  the  apprehension 
of  being  undersold;  and,  on  the  other  hand,  an  actual  or  apprehended 
scarcity  causes  him  to  demand  a  higher  price,  or  to  keep  back  his 
goods  in  expectation  of  a  rise. 

9.    PLANLESSNESS  AND  CONFLICT1 

And  there  is  war  between  and  among  the  classes.  War,  some- 
times overt  and  violent,  sometimes  concealed  and  even  unconscious, 
but  war  nevertheless. "  The  war  is  all  the  more  intense  and  irrepres- 
sible because  it  springs,  not  from  personal  hostility  or  accidental 
misunderstandings,-  but  from  ever-present  organic  economic  causes. 

There  is  war  between  employer  and  employee. 

The  employer  is  in  business  for  profits.  Industrial  profits  come 
from  the  work  of  the  hired  hand.  The  smaller  the  wages  the  larger 
the  profits.  The  employee  works  for  wages.  Wages  represent  the 
product  of  his  labor  after  deduction  of  the  employer's  profit.  The 
smaller  the  profit  the  larger  the  wages.  The  employer  must  strive 
to  maintain  or  increase  his  profits  under  penalty  of  industrial  extermi- 
nation. His  personal  views  and  feelings  cannot  alter  the  situation. 
The  employee  must  strive  to  maintain  or  increase  his  wages  under  pain 
of  physical  destruction.  His  personal  inclinations  do  not  count. 
Sometimes  this  antagonism  of  interests  expresses  itself  in  petty  bar- 

1  Taken  by  permission  from  Morris  Hillquit,  Socialism  Summed  Up,  pp.  14-17. 
(H.  K.  Fly  Co.,  1911,  Author's  copyright.) 


INTRODUCTION  29 

gaining  and  commonplace  haggling,  and  at  other  times  it  assumes  the 
form  of  violent  conflicts:  strikes,  boycotts,  and  occasional  dynamite 
explosions  and,  on  the  other  hand,  lockouts,  black  lists,  injunctions, 
and  jails. 

^There  is  war  between  employer  and  employer. 

Each  capitalist  controls  a  share  of  an  industry.  The  greater  the 
share  the  larger,  ordinarily,  is  his  profit.  His  natural  desire  is  to 
increase  his  share.  He  can  do  that  only  at  the  expense  of  his  neighbor. 
Hence,  the  mad  industrial  competition,  the  merciless  rivalry  for  the 
"market,"  the  mutual  underbidding  and  underselling,  the  adultera- 
tion and  falsification  of  commodities,  the  senseless  speculative  enter- 
prises, and,  finally,  wholesale  failure  and  ruin. 

There  is  war  between  worker  and  worker. 

Modern  machinery,  although  inherently  of  untold  blessing  to 
mankind,  operates  as  a  curse  upon  the  toiler  under  the  prevailing 
system  of  individual  ownership.  It  does  not  lighten  the  burdens 
of  the  worker.  It  does  not  reduce  his  hours  of  labor — it  displaces 
him  from  his  employment.  The  marvelous  productivity  of  the 
machine  creates  the  dread  legions  of  jobless  workers,  the  fierce  com- 
petition for  a  chance  to  work,  and  the  consequent  lowering  of  wages 
below  the  living  standard. 

The  automatic,  almost .  self-operating,  machine  makes  child  and 
woman  labor  possible  and  profitable,  and  the  children  and  wives  of  the 
workers  are  drafted  into  the  field  of  industry  in^competition  with 
their  fathers  and  husbands.  The  more  women  and  children  are  at 
work  in  factories  the  rarer  become  the  opportunities  for  men  to  find 
work  and  the  lower  become  their  wages.  Child  and  woman  labor 
means  lower  wages  for  man.  Low  wages  for  men  mean  more  child 
and  woman  labor,  and  so  the  workers  move  forever  in  a  vicious 
circle  of  misery  and  privation. 

There  is  war  between  producer  and  user. 

Business  is  conducted  for  profits.  The  larger  the  prices  of  the 
commodity  or  the  higher  the  rate  of  service  the  greater,  ordinarily,  is 
the  profit  of  the  capitalist.  Hence,  the  everlasting  quarrels  between 
the  seller  and  the  buyer,  the  landlord  and  the  tenant,  the  carrier  and 
the  passenger,  the  aggressive  and  inexorable  "producer,"  and  the 
pitiable  "ultimate  consumer." 

The  individualistic  and  competitive  system  of  industry  is  a  sys- 
tem of  general  social  warfare;  an  ugly,  brutal  fight  of  all  against  all. 
It  is  a  mad,  embittered  race  for  wealth  or  bread,  without  plan  or 


30  INDUSTRIAL  SOCIETY 

system,  without  pity  or  mercy.  It  has  produced  the  abnormal  type 
of  the  multi-millionaire  with  a  hoard  of  material  wealth  enough 
to  last  thousands  of  families  for  countless  generations  to  come,  and  the 
children  of  the  slums  succumbing  for  lack  of  the  barest  necessaries  of 
life.  It  operates  through  periods  of  feverish  activity  during  which 
men,  women,  and  even  children  of  tender  age  are  worked  to  exhaus- 
tion, and  periods  of  inactivity  and  depression  during  which  millions 
of  willing  workers  are  forced  into  idleness  and  starvation. 

The  system  of  competition  has  not  been  without  merit.  It  has 
organized  industry,  stimulated  invention,  and  increased  human  pro- 
ductivity a  hundred  fold.  It  has  created  vast  wealth  and  evolved 
higher  standards  of  life.  It  has  broken  down  the  barriers  between 
countries  and  united  all  modern  nations  into  one  world-wide  family  of 
almost  identical  culture  and  civilization.  It  has  played  an  important 
and  useful  part  in  the  history  of  human  growth. 

But  sharing  the  fate  of  all  other  industrial  systems,  competition 
finally  reaches  a  stage  when  its  mission  is  accomplished,  and  its  use- 
fulness is  outlived. 


See  also,  353.  The  Socialists'  Indictment  of  Competitive  Society. 
140.  Production  for  Profit. 

10.    WHEREIN  HARMONY,  WHEREIN  DISHARMONY 
OF  STRUCTURE1 

Our  survey  of  industry  shows  us  an  elaborate  system  of  businesses 
and  trades  by  which  the  productive  powers  of  Nature  and  of  man  are 
brought  into  operation  for  the  supply  of  human  wants.  This  system 
exhibits  much  detailed  skill  of  adaptation  and  co-operation.  The 
harmony  of  structure  and  of  working  in  an  ordinary  business,  a  factory, 
a  mine,  a  bank,  a  shop,  is  very  exact.  Though  the  owners  of  the 
different  factors  of  production  in  the  business  are  mainly  moved  by 
considerations  of  personal  gain,  viz.,  the  wages,  interest,  rent,  profits 
they  expect  to  receive,  there  is  a  sufficiently  close  and  constant  har- 
mony of  these  individual  interests  to  supply  a  sound  business  economy. 
Though  friction  causes  some  evident  waste,  and  larger  disturbances 
sometimes  arise,  the  ordinary  business  works  harmoniously  and  eco- 
nomically at  most  times. 

1  Taken  by  permission  from  J.  A.  Hobson,  The  Science  of  Wealth,  pp.  249-52. 
(Henry  Holt  &  Co.,  191 1.) 


INTRODUCTION  31 

When  we  turn  to  the  group  of  businesses  which  form  a  trade  and 
to  the  series  of  trades  required  to  supply  some  sort  of  commodity  to 
consumers,  we  still  find  a  remarkable  amount  of  accurate  adjustment. 
If  we  consider  the  enormous  number  of  minutely  divided  activities 
required  to  furnish  London  with  any  of  its  food  supplies,  the  working 
of  the  industrial  machinery  appears  marvelous.  But  here  closer 
inspection  shows  much  greater  irregularity  and  waste.  Twenty 
businesses  are  often  engaged  in  doing  the  work  which  ten,  or  even 
five,  could  do  as  well;  congestions  and  temporary  stoppages  of  con- 
siderable magnitude  occur;  there  is  a  great  deal  of  miscalculation  and 
of  misdirected  energy.  The  economy  of  a  trade  structure  is  evi- 
dently less  exact  than  that  of  a  business.  The  needs  of  humanity 
require,  however,  that  a  great  variety  of  trades  shall  produce,  carry, 
and  distribute  innumerable  goods  in  the  proper  proportions  simul- 
taneously and  continuously  at  ten  thousand  different  places.  This  is 
achieved  by  the  establishment  of  an  industrial  system  which  sets  the 
required  quantity  of  land,  capital,  labour,  and  ability  in  operation 
at  each  point  of  industry,  and  causes  the  new  flow  of  capital  and 
labour  to  repair  the  waste  and  to  provide  for  growth.  Few  of  the 
millions  engaged  in  such  work  know  or  care  at  all  for  the  larger  purpose 
which  this  work  serves.  The  farmer  in  Argentina  or  Alberta  who  is 
preparing  bread  for  families  in  Manchester  or  Dresden  is  not  con- 
sciously concerned  with  any  step  beyond  his  bargain  for  delivery  of 
the  wheat  at  the  elevator  or  the  nearest  railroad. 

As  we  pass  from  the  single  compact  business  to  the  wider  system, 
less  and  less  clear  conscious  purpose  appears  to  animate  the  system. 
And  yet,  as  we  see,  a  great  deal  of  order  emerges  in  the  working  of  the 
whole.  This  order,  however,  is  attended  also  by  a  great  deal  of  dis- 
order. The  modern  industrial  system  as  a  whole  does  not  exhibit 
anything  like  the  same  degree  of  harmony  or  economy  as  is  found  in 
the  single  business.  This  is  natural  enough.  For  we  saw  that  in  the 
business  a  single  control  existed  and  a  single  dominant  purpose,  that 
of  profit-making.  Now,  in  the  industrial  system  as  a  whole  there  is 
no  adequate  central  control  or  purpose.  To  a  large  extent,  indeed, 
finance  constitutes  a  sort  of  central  power-station  for  the  distribution 
of  capital  and  labour.  But  its  grasp  is  very  partial,  and  its  methods 
are  not  accurately  adjusted  to  supply  the  general  needs  of  industry. 
The  central  purpose,  as  we  see,  is  the  regular  supply  of  the  needs  of 
consumers.  And  it  is  this  purpose  which  does  maintain  such  harmony 
as  is  found  in  the  industrial  system.     But  the  elaborate  circuitous  ways 


32  INDUSTRIAL  SOCIETY 

by  which  the  interests  of  the  consumer  operate  through  the  veins  of 
industry  are  a  poor  substitute  for  the  keen  interest  of  the  profit-maker 
in  the  organization  of  the  business  cell.  No  conscious  controlling 
motive  of  social  profit-making  animates  the  whole. 

D.     Structure  of  Other  Societies 
ii.    FOUR  STAGES  IN  THE  HISTORY  OF  INDUSTRY1 

We  may  roughly  distinguish  four  stages  in  the  history  of  industry 
during  mediaeval  and  modern  times.  It  will  be  wiser,  for  the  present, 
to  leave  the  ancient  world  out  of  account. 

^  First,  there  is  that  stage  of  affairs  when  there  is  no  separate  body 

of  professional  craftsmen  at  all;  where  all  that  can  be  called  "in- 
dustry," as  distinguished  from  agriculture,  is  carried  on  within  the 
household  group,  for  the  satisfaction  of  its  own  needs,  by  persons 
whose  main  business  is  the  cultivation  of  the  land  or  the  care  of  flocks. 
The  main  activities  of  all  except  the  fighting  class  are  still  in  this  stage 
preponderantly  agricultural;  but  the  cultivators  of  the  soil  make  their 
own  clothes  and  furniture  and  utensils,  and  there  is  practically  no 

V  outside  "market"  for  their  manufactures.  It  represents  a  long  step 
in  evolution  when  professional  craftsmen  come  into  existence:  men 
who,  though  they  may  have  small  holdings  of  land  which  they  culti- 
vate, and  may  indeed  receive  remuneration  in  the  shape,  to  some 
extent,  of  these  holdings,  are  yet  primarily  craftsmen — primarily,  for 
instance,  weavers  or  smiths.  Such  a  specialisation  alike  of  agricul- 
ture and  industry  affords  one  of  the  earliest  and  most  striking  examples 
of  division  of  labour,  and  brings  with  it  some  of  the  advantages  which 
Adam  Smith  sets  forth  in  his  celebrated  chapter.  Production  in  this 
stage  is  still  on  a  small  scale;  it  takes  place  either  at  the  customer's 
home  or  in  a  small  workshop  or  room  or  shed  within  or  adjoining  the 
craftsman's  own  dwelling;  and  there  is  no  intermediary  between 
producer  and  consumer.  The  producer  either  works  on  the  customer's 
own  materials  or,  if  he  buys  his  own  material  and  has  not  only  "labour" 
but  a  "commodity"  to  sell,  he  deals  directly  with  a  small  neighbour- 
ing circle  of  patrons.  There  is  a  "market"  in  the  modern  business 
or  economic  sense,  but  it  is  a  small  and  near  one,  and  the  producer  is 
in  direct  touch  with  it;  though,  indeed,  it  may  sometimes  consist, 
not  of  the  ultimate  consuming  public,  but  of  fellow-artisans  in  some 

1  Taken  by  permission  from  W.  J.  Ashley,  The  Economic  Organisation  of  Eng- 
land, pp.  35-36.     (Longmans,  Green,  &  Co.,  1914.) 


INTRODUCTION  33 

other  mistery.  The  next  stage  is  marked  by  the  advent  of  various  3, 
kinds  of  commercial  middlemen,  who  act  as  intermediaries  between 
the  actual  makers  in  their  small  domestic  workshops  and  the  final 
purchasers,  the  widening  of  the  market  being  both  the  cause  and  the 
result  of  their  appearance.  And,  finally,  with  the  advent  of  costly  v\, 
machinery  and  production  on  a  large  scale  we  have  the  condition  of 
things  to  which  we  are  accustomed  in  our  modern  factories  and  works, 
where  the  owners  or  controllers  of  capital  not  only  find  the  market, 
but  organise  and  regulate  the  actual  processes  of  manufacture.  To 
these  several  stages  it  is  difficult  to  give  brief  designations  which 
shall  not  be  misleading.  It  is  common  to  speak  of  them  as  (1)  the 
family  or  household  system,  (2)  the  gild  or  handicraft  system,  (3)  the 
domestic  system  or  house  industry,  and  (4)  the  factory  system.  But 
we  can  dispense  with  labels  if  we  can  remember  the  essential  traits. 

12.    HOUSEHOLD  ECONOMY1 

The  stage  of  independent  domestic  economy  is  characterized  by 
restriction  of  the  whole  course  of  economic  activity,  from  production 
to  consumption,  to  the  exclusive  circle  of  the  household  (the  family,  the 
clan).  The  character  and  extent  of  the  production  of  every  house- 
hold are  prescribed  by  the  wants  of  its  members  as  consumers. 
Every  product  passes  through  the  whole  process  of  its  manufacture, 
from  the  procuring  of  the  raw  material  to  its  final  elaboration  in  the 
same  domestic  establishment,  and  reaches  the  consumer  without  any 
intermediary.  Production  and  consumption  are  here  inseparably 
interdependent;  they  form  a  single  uninterrupted  and  indistinguish- 
able process.  The  earnings  of  each  communal  group  are  one  with 
the  product  of  their  labour,  and  this,  again,  one  with  the  goods  going 
to  satisfy  their  wants,  that  is,  with  their  consumption. 

In  the  independent  domestic  economy  the  members  of  the  house- 
hold have  not  merely  to  gather  from  the  soil  its  products,  but  they 
must  also,  by  their  labour,  produce  all  the  necessary  tools  and  imple- 
ments and,  finally,  work  up  and  transform  the  new  products  and 
make  them  fit  for  use.  All  this  leads  to  a  diversity  of  employments 
and,  because  of  the  primitive  nature  of  the  tools,  demands  a  varied 
dexterity  and  intelligence  of  which  modern  civilized  man  can  scarcely 
form  a  proper  conception.  The  extent  of  the  tasks  falling  to  the 
various  members  of  this  autonomous  household  community  can  be 

1  Adapted  by  permission  from  Carl  Biicher,  Industrial  Evolution,  pp.  89-113. 
(Henry  Holt  &  Co.,  1901.) 


34  INDUSTRIAL  SOCIETY 

lessened  only  by  division  of  labour  and  co-operation  among  themselves 
according  to  age  and  sex,  or  according  to  the  strength  and  natural 
aptitudes  of  the  individual.  It  is  to  this  circumstance  that  we  must 
'ascribe  that  sharp  division  of  domestic  production  according  to  sex 
\jWhich  we  find  universal  among  primitive  peoples.  On  the  other 
hand,  owing  to  the  unproductiveness  of  early  methods  of  work,  the 
simultaneous  co-operation  of  many  individuals  was,  in  numerous 
instances,  necessary  to  the  accomplishment  of  certain  economic  ends. 
Labour  in  common  still  plays,  therefore,  at  this  stage,  a  more  impor- 
tant role  than  division  of  labour. 

To  neither,  however,  would  the  family  have  been  able  to  give 
much  scope  had  it  been  organized  like  our  modern  family,  that  is, 
limited  to  father  and  mother,  with  children  and  possibly  servants. 
It  would  also  have  had  very  little  stability  or  capacity  for  develop- 
ment if  each  individual  in  the  family  had  been  free  to  lead  the  inde- 
pendent existence  of  the  present  day. 

Significant  is  it  then  that  when  the  present  civilized  nations  of 
Europe  appear  on  the  horizon  of  history  the  tribal  constitution 
prevails  among  them.  The  tribes  (families,  gentes,  clans,  house 
communities)  are  moderately  large  groups  consisting  of  several 
generations  of  blood-relations,  which,  at  first  organized  according 
to  maternal  and  later  according  to  paternal  succession,  have  com- 
mon ownership  of  the  soil,  maintain  a  common  household,  and  con- 
stitute a  union  for  mutual  protection. 

[Note. — The  manor  is  discussed  in  selections  Nos.  17-25.] 

We  must  always  bear  in  mind  that  the  economic  relation  of  the 
lord  to  those  attached  to  his  land,  however  much  it  may  be  regarded 
from  the  general  point  of  view  of  mutual  service,  is  entirely  removed 
from  the  class  of  economic  relations  that  arise  from  a  system  of 
exchange.  Here  there  are  no  prices,  no  wages  for  labour,  no  land  or 
house  rent,  no  profits  on  capital,  and  accordingly  neither  entrepreneurs 
nor  wage- workers. 

Thus  in  this  economic  system  we  have  many  of  the  phenomena 
of  commerce,  such  as  weights  and  measures;  the  carriage  of  persons, 
news,  and  goods;  hostelries;  and  the  transference  of  goods  and 
services.  In  all,  however,  there  is  lacking  the  characteristic  feature 
of  economic  exchange,  namely,  the  direct  connection  of  each 
single  service  with  its  reciprocal  service,  and  the  freedom  of 
action  on  the  part  of  the  individual  units  carrying  on  trade  with 
one  another. 


INTRODUCTION  35 

One  must  not  be  led  away  from  a  proper  conception  of  this  eco- 
nomic stage  by  the  apparently  extensive  use  of  money  in  early  historic 
times.  Money  is  not  merely  a  medium  of  exchange;  it  is  also  a 
measure  of  value,  a  medium  for  making  payments,  and  for  storing  up 
wealth.  Payments  also  must  constantly  be  made  apart  from  trade, 
such  as  fines,  tribute-money,  fees,  taxes,  indemnities,  gifts  of  honour 
or  hospitality;  and  these  are  originally  paid  in  products  of  one's 
own  estate,  as  grain,  dried  meat,  cloth,  salt,  cattle,  and  slaves,  which 
pass  directly  into  the  household  of  the  recipient.  Accordingly,  all 
earlier  forms  of  money  and,  for  a  long  time,  the  precious  metals  them- 
selves circulate  in  a  form  in  which  they  can.  be  used  by  the  particular 
household  either  for  the  immediate  satisfaction  of  its  wants  or  for  the 
acquisition  by  trade  of  other  articles  of  consumption.  Those  of  special 
stability  of  value  are  pre-eminently  serviceable  in  the  formation  of  a 
treasure.  This  is  especially  true  of  the  precious  metals,  which  in  time 
of  prosperity  assumed  the  form  of  rude  articles  of  adornment  and 
as  quickly  lost  it  in  time  of  adversity. 

Exchange  value  accordingly  exercised  no  deep  or  decisive  influence 
on  the  internal  economy  of  the  separate  household.  The  latter  knew 
only  production  for  its  own  requirements;  or,  when  such  production 
fell  short,  the  practice  of  making  gifts  with  the  expectation  of  receiv- 
ing others  in  return,  of  borrowing  needful  articles  and  implements, 
and,  if  need  be,  of  plundering.  The  development  of  hospitality,  the 
legitimizing  of  begging,  the  union  of  nomadic  life  and  early  sea-trade 
with  robbery,  the  extraordinary  prevalence  of  raids  on  field  and  cattle 
among  primitive  agricultural  peoples,  are  accordingly  the  usual 
concomitants  of  the  independent  household  economy. 

From  what  has  been  said  it  will  be  clear  that  under  this  method  of 
satisfying  needs  the  fundamental  economic  phenomena  must  be  dis- 
similar to  those  of  modern  national  economy.  Wants,  labour,  pro- 
duction, means  of  production,  product,  stores  for  use,  value  in  use, 
consumption — these  few  notions  exhaust  the  circle  of  economic  phe- 
nomena in  the  regular  course  of  things.  As  there  is  no  social  division 
of  labour,  there  are  consequently  no  professional  classes,  no  industrial 
establishments,^  no  capital  in  the  sense  of  a  store  of  goods  devoted 
to  acquisitive  purposes.  Our  classification  of  capital  into  business 
and  trade  capital,  loan  and  consumption  capital,  is  entirely  excluded. 
If,  conformably  to  widely  accepted  usage,  the  expression  "capital" 
is  restricted  to  means  of  production,  then  it  must  in  any  case  be  limited 
to  tools  and  implements,  the  so-called  fixed  capital.    What  modern 


$6  INDUSTRIAL  SOCIETY 

theorists  usually  designate  circulating  capital  is  in  the  independent 
household  economy  merely  a  store  of  consumption  goods  in  process  of 
preparation,  unfinished,  or  half-finished  products.  In  the  regular 
course  of  affairs,  moreover,  there  are  no  sale  goods,  no  price,  no  circu- 
lation of  commodities,  no  distribution  of  income,  and,  therefore,  no 
labour  wages,  no  earnings  of  management,  and  no  interest  as  par- 
ticular varieties  of  income.  Rent  alone  begins  to  differentiate  itself 
from  the  (return  from  the)  soil,  still  appearing,  however,  only  in 
combination  with  other  forms  of  income. 

13.     STRUCTURE  OF  A  POSSIBLE  SOCIALIST  STATE 

[Note. — Naturally,  no  one  can  give  an  authoritative  description 
of  the  structure  of  a  possible  Socialist  state;  the  selections  here  pre- 
sented are  to  be  read  as  a  means  of  securing  suggestions  concerning 
this  structure.] 

A1 

The  State  is  to  own  the  land  and  the  fixed  capital — or,  to  express 
both  conveniently  in  a  single  phrase,  the  means  of  production,  produc- 
tion according  to  economic  usage  being  supposed  to  include  the  dis- 
tribution or  circulation  of  products. 

Products  in  their  final  shape,  in  which  they  are  directly  con- 
sumable, the  State  will  not  own.  These  it  will  only  keep  in  its  care, 
in  public  warehouses  or  magazines  or  stores,  until  the  workers  of  all 
kinds  send  in  their  claims  on  them,  which  claims  will  be  measured  by 
the  number  of  hours  for  which  they  have  worked,  and  for  which 
they  will  have  received  certificates  or  labour  cheques  or  orders  to  be 
presented  against  goods  in  their  final  consumable  form  as  distinct 
from  those  intermediate  stages  in  which  they  would  be  of  no  use  to  the 
holders  under  collectivism. 

The  actual  work  of  production  and  distribution  is  to  be  carried  on 
as  at  present,  namely  by  large  groups  or  co-operatively,  but  the  direct- 
ing head  is  no  longer  to  be  the  private  capitalist  employer.  He  is  to 
be  a  functionary,  a  paid  official  of  the  State,  producing  under  superior 
direction  and  not  according  to  his  own  judgment,  with  less  risk  than 
at  present,  but  also  with  much  less  chance  of  making  a  fortune.  It 
is  possible  that  extra  merit  should  be  more  highly  remunerated,  but 
the  salaries,  it  is  understood,  will  be  very  modest  indeed  as  compared 
with  those  of  the  successful  men  in  business  now.     How  the  manager 

1  Adapted  by  permission  from  William  Graham,  Socialism  New  and  Old, 
pp.  154-61.     (D.  Appleton  &  Co.,  1891.) 


INTRODUCTION  37 

or  leader  of  industry  is  to  be  selected,  whether  by  the  suffrages  of  the 
workers  or  by  the  State — and  in  the  latter  case  whether  through  the 
secretaries  or  chiefs  of  the  industrial  departments,  or  in  the  way  it 
now  selects  officials  for  the  existing  branches  of  the  public  service — is 
a  point  on  which  collectivism  does  not  seem  to  have  made  up  its  mind, 
though  its  principle,  being  democratic,  leans  to  the  former  method. 

So  far  we  have  only  been  concerned  with  the  labour  that  results  in 
material  things,  whether  directly  consumable,  as  food,  clothes,  houses, 
fuel,  light,  furniture,  etc.,  or  the  materials  of  these  in  any  of  their 
previous  stages;  under  production  being  included  by  the  Socialists  the 
very  considerable  labour  of  transport,  as  well  as  the  connected  labour 
of  distribution.  But  there  is  still  much  labour  in  the  world  that  is 
important  and  indispensable.  There  is  all  the  labour  that  consists 
in  rendering  services  where  no  material  thing  results  or  is  worked 
into  more  desirable  form.  There  is  the  labour — often  absolutely 
necessary — that  consists  in  doing  some  services  that  someone  requires, 
the  labour  of  the  physician,  the  schoolmaster,  the  professor,  the 
magistrate,  the  policeman,  the  soldier,  the  domestic  servant,  or,  as 
he  or  she  will  be  called  in  the  socialist  community,  the  domestic  help, 
not  to  speak  of  the  labour  that  merely  ministers  to  amusement, 
such  as  that  of  the  actor,  the  public  singer,  or  the  dancer.  There  is, 
too,  the  higher  labour  of  the  man  of  letters,  of  the  artist,  of  the  man  of 
science,  so  far  as  he  is  an  original  investigator.  There  is  the  labour  of 
the  civil  as  well  as  of  the  military  service.  How  is  all  this  labour  to  be 
organized  under  collectivism,  and  particularly  how  is  it  to  be  paid 
comparatively  with  productive  labour?  As  to  some  of  it,  there  is 
no  question  as  respects  organization,  as  it  is  already  carried  on  by 
co-operation  or  association  of  efforts,  and  is  paid  by  the  State.  Such 
is  the  case  with  the  work  of  the  soldier,  of  the  sailor  of  the  royal  navy, 
and  in  a  less  perfect  degree  with  the  labour  of  the  civil  service  in 
general.  But  there  is  labour  that  cannot  be  carried  on  by  association 
or  collective  effort — the  labour  of  the  medical  man,  of  the  lawyer, 
of  the  literary  man,  of  the  artist,  etc.  These  forms  of  labour  cannot 
be  organized  collectively,  but  on  the  strict  and  central  principle  of  col- 
lectivism they  should  be  regulated,  rated  at  their  proper  value,  and 
paid  by  the  State.  All  kinds  of  workers  are  to  be  State  functionaries 
and  paid  by  the  State.  There  will  be  no  private  enterprise,  because, 
if  any  were  allowed,  more  would  probably  come  and  inequality  of 
wealth  would  return  from  that  side.  A  man  will  no  longer  be  per- 
mitted, even  if  he  had  the  means  or  capital,  to  open  an  educational 


38  INDUSTRIAL  SOCIETY 

establishment,  start  a  journal,  undertake  any  private  business  on  his 
own  account,  because  the  fields  of  education,  journalism,  and  of  all 
business  are  to  be  occupied  by  the  State,  and  no  chance  will  be 
allowed  to  any  private  competition. 

Collectivism  does  not  think  it  necessary  to  suppress  inheritance; 
as  under  it  there  would  be  so  comparatively  little  left  to  inherit,  it 
assumes  that  there  would  be  no  fear  of  a  return  of  the  great  inequality 
of  the  old  system  from  that  side.  And  it  permits  private  property  in 
consumable  goods  and  in  things  quae  non  consumuntur  usu,  such  as 
pictures,  jewellery,  houses,  which  may  be  bequeathed,  but  it  so  far 
restricts  the  right  of  property  that  no  one  will  be  allowed  to  make  an 
income  out  of  property  without  work.  There  must  be  no  lending 
at  interest,  or  advancing  goods  on  credit  to  be  repaid  with  interest, 
no  letting  of  articles  for  hire,  no  leasing  for  rent,  no  private  setting 
others  at  work  with  a  view  to  make  a  profit  out  of  their  labour, 
though,  apart  from  this  case,  there  does  not  seem  to  be  any  objection 
to  asking  another  to  do  a  service  in  return  for  an  agreed-on  payment. 

As  to  distribution,  each  will  receive  in  proportion  to  the  amount 
and  kind  of  his  work:  the  amount  to  be  measured  in  time,  by  the 
number  of  hours  of  work  of  "average  labour,"  skilled  labour  to  rate 
at  so  many  time  average  labour. 

There  will  be  no  market  in  the  Socialist  kingdom,  and  no  money. 
Markets  and  market  prices  are  now  useful  to  adjust  supply  and 
demand;  this  will  be  unnecessary  under  collectivism,  because  the 
State  will  do  it  through  labour  bureaus  and  statistics.  At  present 
markets  afford  the  grand  chances  to  the  speculator  and  the  cornerer, 
who  can  act  on  prices  for  their  own  profit  but  to  the  detriment  of 
the  public.  The  speculator  and  the  cornerer,  the  engrosser  (accapar- 
eur)  of  former  times,  will  for  the  first  time  receive  his  effectual  quietus, 
it  is  confidently  believed,  with  the  suppression  of  the  market. 

Even  more  important  is  the  suppression  of  money,  of  gold,  silver, 
and  their  representatives — bank-notes,  bills  of  exchange,  etc.  It  is 
easy  to  some  to  accumulate  money,  and  thence  would  come  back 
inequalities;  it  is  not  so  easy  to  accumulate  consumable  goods. 
In  the  Socialist  State  you  will  get  for  your  work  or  your  special 
services  the  desired  thing  without  the  instrumentality  of  gold  or 
silver  or  notes,  simply  by  presenting  your  labour  cheques  at  the 
State  stores,  or  in  some  cases  for  your  services  you  will  get  labour 
cheques  directly  from  the  purchaser.  The  only  thing  resembling 
money  will  be  the  labour  cheque. 


INTRODUCTION  39 

With  money  will  go  all  private  bankers  and  bill  discounters,  who 
now  fulfil  a  useful  function  in  lending  at  interest  to  borrowers,  pro- 
ductive or  unproductive,  and  in  adapting  supply  of  money  to  demand 
by  altering  the  market  rate  of  interest,  but  who  would  be  unnecessary 
if  there  was  no  money,  and  who,  by  the  power  of  extending  or  con- 
tracting their  credit,  have  great  power  to  encourage  speculation,  which 
sometimes  ends  in  loss  and  ruin  and  crises,  which  would  be  impossible 
in  the  Socialist  State. 

As  the  State  will  undertake  all  industry,  and  will  save  the  neces- 
sary collective  capital,  there  will  be  no  private  investments.  There 
will  be  no  investment  of  money  (or  of  labour  cheques)  at  interest  in 
companies'  shares.  There  will  be  no  borrowing  by  Government  at 
interest.  There  will  be  no  stock  or  share  market  any  more  than 
money  market  or  produce  market;  no  quotations;  no  buying  or 
selling,  real  or  fictitious.  The  old  familiar  social  types,  the  banker, 
the  stockholder,  and  the  comparatively  new  ones,  the  financier,  the 
company  promoter,  the  speculator  on  the  Stock  Exchange,  will 
disappear,  as  well  as  the  much  larger  class  who  live  on  the  interest 
or  dividends  of  their  investments. 

B1 

Socialism,  when  analyzed,  is  found  to  embrace  four  main  elements. 
The  first  of  these  is  the  common  ownership  of  the  material  instruments 
of  production.  It  is  not  stated  precisely  how  this  common  ownership 
is  to  be  brought  about  or  exactly  what  form  it  is  to  take.  Opinions 
may  and  do  differ  about  the  practical  steps  which  are  to  be  taken  to 
secure  the  desired  end  and  also  about  the  nature  of  the  collective 
organization  in  which  this  ownership  is  to  be  vested.  But  no  one 
can  be  called  a  socialist  in  the  modern  technical  sense  who  does  not 
accept  the  doctrine  of  the  common  ownership  of  the  material  instru- 
ments of  production.  The  collectivity,  that  is,  society  as  a  whole, 
is  to  take  the  place  of  individuals  and  private  associations  of  indi- 
viduals as  owners  of  land  and  capital,  in  order  that  the  advantages  of 
ownership  may  accrue  to  the  whole,  and  not  merely  to  a  part  of  the 
whole.  The  private  receipt  of  rent  and  interest  in  the  economic  sense 
then  ceases,  for  rent  and  interest  are  the  remuneration  of  ownership. 

It  is  said  substantially  all  land  and  capital,  because  it  is  held  that 
it  is  not  necessary  that  the  common  ownership  should  be  absolutely 

1  Adapted  by  permission  from  R.  T.  Ely,  Socialism  and  Social  Reform  (6th 
edition),  pp.  9-17.     (Thomas  Y.  Crowell  Co.) 


40  '  INDUSTRIAL  SOCIETY 

all-inclusive.  It  is  a  weakness  of  the  extremists  to  insist  on  all- 
inclusiveness  in  common  ownership,  which  much  damages  their 
,  cause.  What  is  necessary  is  that  the  collective  ownership  should 
'  become  dominant  in  such  manner  as  to  control  all  other  ownership 
and  confine  it  within  narrow  limits.  All  the  great  instruments  of 
production,  like  telegraphs,  telephones,  railways,  forests,  arable 
lands,  and  large  manufacturing  plants,  must  become  collective 
property;  but  socialism  does  not  imply  that  it  is  necessary  to  restrict 
individuals  in  the  acquisition  of  the  instruments  of  production  on  a 
small  scale,  for  example,  a  wheelbarrow  or  a  cart. 

The  second  element  in  socialism  is  the  common  management  of 
production.  Not  only  are  the  material  instruments  of  production 
to  be  owned  in  common,  but  they  are  to  be  managed  by  the  collec- 
tivity, in  order  that  to  the  people  as  a  whole  may  accrue  all  the 
benefits  of  management,  that  is,  all  those  gains  of  enterprise  called 
profits,  as  distinguished  from  interest,  and  in  order  that  the  manage- 
ment may  be  conducted  in  accordance  with  the  public  need  rather 
than  in  accordance  with  the  advantage  of  private  captains  of  industry. 
Production  is  to  be  carried  on  to  satisfy  our  wants  for  material  things 
and  not  for  the  sake  of  private  profits.  The  distinction  is  undoubt- 
edly a  marked  one.  Production  now  ceases  when  those  who  manage 
it  are  unable  to  derive  profits  therefrom. 

This  common  management  of  production  means  that  the  collec- 
tivity must  furnish  work  for  all  who  desire  it.  As  the  socialist  state 
assumes  the  charge  of  production,  leaving  only  very  minor  functions 
to  individuals,  it  rests  upon  it,  of  course,  to  make  the  industrial 
society  all-inclusive.  How  many  could  find  employment  in  private 
service  it  is  not  easy  to  say.  Under  socialism  we  should  expect  a 
social  organization  of  medical  attendance  and  the  supply  of  medicines, 
which  would  be  simply  carrying  further  tendencies  already  at  work; 
and  yet  some  might  prefer  to  employ  private  physicians.  Should 
the  members  of  the  socialistic  society  be  willing  to  give  part  of  their 
income  in  return  for  private  medical  services,  there  is  no  reason  why 
they  should  be  hindered  in  so  doing.-  Similarly,  religious  services 
might  be  maintained  by  private  contributions,  and  in  the  churches 
there  could  be  large  numbers  of  preachers  outside  of  public 
employment.  Possibly,  also,  room  could  be  found  for  remunera- 
tive employment,  of  a  private  character,  of  a  great  many  persons  in 
the  aggregate,  who  would  concern  themselves  with  the  smaller 
branches  of  production.    Yet  if  socialism  works  as  well  as  it  is 


INTRODUCTION  4* 

claimed  it  will,  there  would  naturally  be  a  preference,  altogether 
apart  from  any  compulsion,  for  the  public  employment.  «/ 

The  third  element  is  the  distribution  of  income  by  the  common 
authority;  that  is,  the  income  of  society,  or  the  national  dividend, 
as  it  is  frequently  called;  and  it  is  that  part  of  the  wealth  produced 
by  society  which  may  be  used  for  enjoyment  after  the  material 
instruments  of  production  have  been  maintained  and  suitably 
improved  and  extended.  The  common  ownership  and  management 
of  the  material  instruments  of  production  necessarily  result  in 
ownership  of  the  national  dividend  by  the  collectivity,  in  the  first 
instance,  just  as  now  those  who  own  and  .manage  industry  have 
the  ownership  of  the  products  of  industry,  and  from  these  products 
satisfy  the  claims  of  those  who  have  participated  in  their  production. 
It  remains  for  the  collectivity  to  distribute  all  the  wealth  produced 
for  consumption  among  all  the  members  of  society. 

As  there  is  provision  for  work  for  all  in  the  public  service,  so  there 
must  be  provided  an  income  for  all.  But  this  provision  of  income  for  all 
reaches  even  further  than  the  ranks  of  the  toilers.  There  must  always 
be  in  society  some  who  are  physically  or  mentally  incapable  of  toil, 
and  socialism  contemplates  the  provision  of  an  income  for  these  also. 

The  fourth  element  in  socialism  is  private  property  in  the  larger 
proportion  of  income.  It  thus  becomes  at  once  apparent  that 
modern  socialism  does  not  propose  to  abolish  private  property. 
Quite  the  contrary.  Socialism  maintains  that  private  property  is 
necessary  for  personal  freedom  and  the  full  development  of  our 
faculties.  The  advantages  of  private  property  are  claimed  by  the 
advocates  of  the  existing  social  order  as  arguments  for  its  maintenance; 
but  socialism  asserts  that  society,  as  at  present  constituted,  is  unable 
to  secure  to  each  one  the  private  property  which  he  requires.  Social- 
ism proposes  to  extend  the  institution  of  private  property  in  such 
manner  as  to  secure  to  each  individual  in  society  property  in  an 
annual  income,  which  shall  be,  so  far  as  practicable,  sufficient  to 
satisfy  all  rational  wants  and  to  protect  all  from  those  attacks  upon 
personal  freedom  which  proceed  from  the  dependence  of  man  upon 
man.  The  instruments  of  production  do  not  exist  for  their  own 
sake,  but  for  the  sake  of  products  for  consumption,  which  again 
have  as  their  destination  man's  needs.  Now,  while  private  property 
in  the  instruments  of  production  is  to  be  reduced  to  its  lowest  terms, 
it  is  to  be  extended  and  strengthened  in  the  products  for  the  sake  of 
which  the  instruments  exist. 


42  INDUSTRIAL  SOCIETY 

14.    THE  ORGANIZATION  OF  THE  KAWEAH  CO-OPERATIVE 

COLONY1 

The  Kaweah  Colony  was  founded  as  a  voluntary  association  in 
1885  and  became  a  joint  stock  company  in  1888  under  the  name  of 
the  "Kaweah  Co-operative  Colony  Company  of  California,  Limited." 
The  number  of  members  was  then  fixed  at  five  hundred,  applicants 
to  be  first  passed  upon  by  a  board  of  trustees  and  then  admitted 
according  to  priority  of  payment  of  the  membership  contribution  of 
five  hundred  dollars.  The  capitalization  was  fixed  at  $250,000. 
All  land  and  buildings  and  all  other  property  except  private  dwellings 
and  personal  effects  were  held  in  common  by  the  members.  A 
controversy  with  the  government  over  timber  holdings  interfered 
seriously  with  the  success  of  the  colony. 

The  outline  subjoined  is  an  ideal  rather  than  an  actual  achieve- 
ment, although  it  has  been  followed  in  its  main  lines  and  underlying 
principles. 

A  Model  of  a  Co-operative  State,  consisting  of  Divisions  (3),  each  under  a 
Manager;  Departments  (13),  each  under  a  Superintendent;  Bureaus 
(58),  each  under  a  Chief;  and  Sections,  each  under  a  Foreman. 

Divisions:  I.  Division  of  Production,  II.  Division  of  Distribution,  III.  Di- 
vision of  the  Commonweal. 

Division  I.    (Production) 

(1)  Department  of  Collection:  Bureaus: 

1.  Fishing,  2.  Hunting,  3.  Woodmen,  4.  Sand  and  clay  collection. 

(2)  Department  of  Extraction:  Bureaus: 

1.  Metallic  extraction,  2.  Coal  and  oil  extraction,  3.  Lime  extrac- 
tion, 4.  Slate,  stone,  marble  quarries. 

(3)  Department  of  Growing:  Bureaus: 

1.  Fish  culture,  2.  Fowl,  3.  Insect,  4.  Flesh,  5.  Forage,  6.  Grain, 
7.  Vegetables,  8.  Fruits,  9.  Fibres,  10.  Miscellaneous  growing. 

(4)  Department  of  Handicraft:  Bureaus: 

1.  Bureau  of  food,  2.  Clothing,  3.  Shelter,  4.  Decorations. 

Division  II.    (Distribution) 

(5)  Department  of  Transportation:  Bureaus: 
1.  Freight  traffic,  2.  Passenger  traffic. 

(6)  Department  of  Storage:  Bureaus: 
1.  Warehouses,  2.  Stores. 

(7)  Department  of  Delivery:  Bureaus: 
1.  Carrier  delivery. 

(8)  Department  of  Finance:  Bureaus: 

1.  General  audits,  2.  Accounts,  3.  Cash,  4.  Exchange. 

1  Adapted  by  permission  from  W.  C.  Jones,  "The  Kaweah  Experiment  in 
Co-operation,"  Quarterly  Journal  of  Economics,  VI  (1891-92),  pp.  73-75. 


INTRODUCTION  43 

Division  III.    (Commonweal) 

(9)  Department  of  Administration:    Bureaus: 

1.  Legislation:  Sections:  (a)  Referendum,  (b)  Initiative,  (c)  Im- 
perative mandate. 

2.  Executive:  Sections:  (a)  Assignment  of  colony  labor,  (b)  Assign- 
ment of  outside  work. 

3.  Judiciary:  Sections:  (a)  Court  of  public  disputes,  (b)  Of  private 
disputes,  (c)  Of  prizes  and  rewards. 

(10)  Department  of  Education  (Children  and  Adults):  Bureaus: 

1.  The  Colony  Journal. 

2.  Physical  Culture:  Sections:  (a)  Gymnastics  (Turnverein), 
(b)  Drill:  "Setting-up,"  (c)  Boxing,  fencing,  wrestling,  (d)  Swim- 
ming, (e)  Shooting,  archery. 

3.  Mental  Culture:  (Speech-craft)  Sections: 

(a)  Science:  Heat,  light,  sound,  motion,  mechanics,  electricity, 
chemistry,  geology,  zoology,  mathematics,  geography,  his- 
tory, astronomy,  languages,  philosophy,  politics,  sociology, 
metallurgy,  logic,  metaphysics,  natural  justice,  or  law, 
medicine. 

(b)  Literature:  Poetry,  prose,  belles-lettres. 

(c)  Art:  Music,  painting,  sculpture,  architecture,  drama, 
tragedy,  comedy,  choral  music,  the  dance,  ceremonials  and 
festivals,  debate,  declamation,  the  band,  flower  culture, 
modeling,  drawing,  design. 

4.  Moral  Culture:  Sections:  To  teach  the  colonists  to  love  cour- 
age, fidelity,  truth,  kindness,  purity,  generosity,  love,  self- 
sacrifice,  independence,  modesty,  gentleness,  toleration,  mercy, 
gratitude,  justice,  forgiveness,  temperance,  politeness,  honesty, 
conscientiousness,  speech-craft,  firmness,  judgment,  prudence, 
perseverance,  industriousness;  and  to  hate  cowardice,  falsehood, 
treachery,  infidelity,  cruelty,  impurity,  avarice,  niggardliness, 
hatred,  selfishness,  servility,  vanity,  ferocity,  bigotry,  vindic- 
tiveness,  bestiality,  indulgence,  rudeness,  dishonesty,  unscrupu- 
lousness,  garrulity,  weakness,  vacillation,  rashness,  stupidity, 
frivolity,  desistance,  and  laziness.  These  departments  to  be 
carried  out  by  kindergarten,  lecture,  debate,  classes,  and  the 
press. 

(11)  Department  of  Public  Service:  Bureaus: 

1.  Public  health,  2.  Drainage,  3.  Fertilizing,  4.  Roads,  5.  Ditches, 
6.  Water  supply,  7.  Heating,  8.  Lighting,  9.  Pneumatics, 
10.  Post-Office,  11.  Telegraph  and  telephone,  12.  Cleanliness, 
13.  Propaganda. 


44  INDUSTRIAL  SOCIETY 

(12)  Department  of  Amusements  (should  co-operate  with  the  Depart- 
ment of  Education):  Bureaus: 

1.  Of  scientific  exhibition,  2.  Athletic  exhibition,  3.  Social  amuse- 
ment. There  should  be  constructed  for  these  departments 
elegant,  imposing,  and  artistic  structures,  which  might  be  called 
the  Forum,  the  Theater,  the  Amphitheater,  the  Arena,  Academe, 
etc. 

(13)  Department  of  Defence:  Bureaus: 

1.  Fire  Department,  2.  National  Guard. 


E.     The  Terms  Production,  Distribution,  and  Consumption 

15.    THE  ECONOMIST'S  USE  OF  THE  TERMS  PRODUCTION, 
CONSUMPTION,  AND  DISTRIBUTION 


1.  Production. — Production  has  been  defined  as  the  creation  of 
utilities.  That  man  cannot  create  matter  is  a  familiar  truth.  All 
that  he  can  do  is  to  rearrange  particles  of  matter  so  as  to  create  form 
utilities;  or  move  goods  from  one  part  of  the  world  to  another  so 
as  to  create  place  utilities;  or  preserve  goods  from  one  period  to 
another  so  as  to  create  time  utilities;  or,  finally,  transfer  goods  from 
the  ownership  of  one  individual  to  that  of  another  so  as  to  create 
possession  utilities.  Any  activity  which  contributes  to  the  creation 
of  utilities  in  any  of  these  ways  is  production. 

There  are  two  essential  factors  in  all  productive  processes:  nature 
and  man.  Nature  figures  in  production  as  an  aggregate  of  materials 
and  blind  forces.  Acting  in  conformity  with  invariable  laws,  she 
destroys  as  readily  as  she  creates.  Moreover,  her  productive  services 
are  always  gratuitous  to  him  who  has  the  means  and  the  intelligence 
to  command  them.  Man,  on  the  contrary,  appears  as  a  being 
with  conscious  purpose.  He  also  destroys — not  ruthlessly,  however, 
as  nature  seems  to  do,  but  in  order  to  gratify  his  wants.  In  pro- 
duction man  is  the  directing,  active  agent,  nature  the  obedient,  pas- 
sive agency.  Man  marshals  the  materials  and  productive  forces 
which  nature  supplies  in  the  ways  that  experience  has  taught  him  to 
be  best,  and  he  alone  enjoys  the  fruits  of  productive  enterprise. 

Man  and  nature  are  the  primary  factors  in  production;  secondary 
or  derived  from  them  is  capital,  the  products  of  past  industry  used  as 

1  Adapted  by  permission  from  H.  R.  Seager,  Principles  of  Economics 
pp.  55,  122-23.     (Henry  Holt  &  Co.,  1913.) 


INTRODUCTION  45 

aids*  to  further  production.  With  the  abundant  evidence  on  every 
side  of  the  dominant  role  which  power  machinery  and  other  forms  of 
capital  play  in  production  as  now  carried  on  there  is  little  need  to 
enlarge  upon  the  significance  of  this  third  factor.  To  capital  is 
chiefly  due  the  efficiency  of.  contemporary  productive  methods,  as 
contrasted  with  those  of  one  hundred  and  fifty  years  ago,  and  also  the 
division  of  the  working  population  into  employers .  and  employees. 
These  truths  are  so  familiar  to  everyone  that  it  is  not  so  much  the 
importance  of  capital  as  the  fact  that  it- is  not  an  independent  but  a 
derivative  factor  in  production  that  requires  emphasis. 

[Note. — It  has  become  the  custom  to  refer  to  the  factors  or 
agents  of  production  as  land,  labor,  and  capital.  Occasionally  a 
fourth,  organization,  is  mentioned.] 

2.  Consumption. — Contrasted  with  production  is  consumption,  the 
utilization  of  goods  as  a  means  to  the  gratification  of  wants.  Con- 
sumption furnishes  the  principal  motive  for  business  activity.  The 
utilization  of  goods  as  means  to  gratification  must,  for  the  sake  of 
clearness,  be  sharply  contrasted  with  productive  utilization,  as,  for 
example,  of  fuel  or  raw  materials  in  manufacturing.  Such  utilization, 
although  sometimes  described  by  the  misleading  phrase  "  productive 
consumption,"  is  really  production  itself.  It  has  nothing  in  common 
with  consumption  except  that  it,  too,  usually  involves  the  destruction 
of  the  utilities  in  the  goods  utilized. 

B1 

Economics  deals  with  the  distribution  of  wealth  among  the  differ- 
ent classes  of  which  society  is  composed. 

The  most  prominent  characteristic  of  modern  industrial  life  is 
that  commodities  are  produced,  as  a  rule,  through  the  joint  efforts 
of  many  individuals.  There  was  a  time  when  the  blacksmith  smelted 
his  own  iron  and  controlled  each  stage  in  the  process  until  the  finished 
nail  or  horseshoe  was  in  the  consumer's  hands.  Today,  probably  a 
thousand  men  have  co-operated  in  the  production  of  even  so  simple 
an  article  as  a  horseshoe.  The  value  thus  produced  must  be  distributed 
in  some  way  among  the  various  producers.  Those  who  have  con- 
tributed labor  receive  wages;  those  who  have  contributed  capital 
receive  interest.  What  determines  how  large  a  share  of  the  total 
value  shall  go  to  the  laborers,  how  large  a  share  to  the  owners  of 

1  Taken  by  permission  from  A.  S.  Johnson,  Introduction  to  Economics,  p.  9. 
(D.  C.  Heath  &  Co.,  1909.) 


46  INDUSTRIAL  SOCIETY 

capital?  There  are  general  principles  governing  this  distribution, 
and  these  form  perhaps  the  most  interesting  and  important  part  of 
economics.  These  laws  are  grouped  by  economists  under  the  head, 
"The  Distribution  of  Wealth." 


The  word  distribution,  in  the  sense  commonly  attached  to  it 
in  economic  writings,  refers  to  the  apportionment  of  the  income  of 
a  community  among  its  several  classes  and  members.  Wherever 
industrial  development  is  in  any  degree  advanced,  there  are  owners  of 
capital  and  of  land;  there  are  persons  using  land  and  capital,  who  yet 
are  not  the  owners — tenants  and  borrowers;  there  are  all  sorts  of 
workers,  ranging  in  earnings  and  in  social  position  from  the  poorly 
paid  day  laborer  to  the  prosperous  professional  man  and  salaried 
manager.  What  share  goes  to  a  person  who  simply  possesses  capital 
or  land,  and  what  share  goes  to  an  individual  for  his  labor,  of  whatever 
sort — these  are  among  the  central  problems  of  distribution.  A  com- 
mon division  of  the  subject  is  into  four  heads,  corresponding  to  four 
groups  in  the  community  whose  income  is  supposed  to  be  governed 
by  different  causes:  capitalists,  landowners,  laborers,  and,  finally, 
business  meu  or  active  managers  of  industrial  affairs.  The  capitalists 
are  said  to  receive  interest,  the  landowners  rent,  the  laborers  wages, 
and  the  business  men  profits  or  earnings  of  management.  We  need 
not  now  consider  how  far  this  classification  is  satisfactory;  it  suffices 
to  indicate  the  nature  of  the  subject. 

16.    THE  BUSINESS  WORLD'S  USE  OF  THE  TERMS  PRODUC- 
TION AND  DISTRIBUTION 

The  meaning  of  "production"  and  "distribution"  to  the  busi- 
ness man  may  advantageously  be  discussed  in  connection  with  the 
accompanying  chart  of  the  classification  of  business  activities  from 
the  point  of  view  of  the  business  manager.  It  is  clear  that  produc- 
tion means  to  the  business  man  primarily  the  creation  of  form 
utilities — it  refers  to  the  factory  end  of  his  business.  Distribution 
does  not  ordinarily  mean  to  him  a  discussion  of  rent,  wages,  inter- 
est, and  profits.  Rather  it  means  the  process  of  marketing  his 
goods.  Sometimes  (generally)  it  means  the  whole  process,  both 
the  phase  of  creating  demand  for  the  goods  and  that  of  supplying 

1  Taken  by  permission  from  F.  W.  Taussig,  Principles  of  Economics,  II,  3. 
(The  Macmillan  Co.,  1915.) 


INTRODUCTION 


47 


the  goods  after  the  demand  exists;  sometimes  it  means  only  the 
latter  phase,  physical  supply;  sometimes  (rarely)  it  means  a  minor 
element  of  physical  supply — the  transporting  of  the  goods  to  the 
consumer.    Mr.  A.  W.  Shaw  has  charted  business  activities  thus: 


Phases  of 
Business 


Production 


Plant  activities 


i.  Location 

2.  Construction 

3.  Equipment 


{1.  Material 
2.  Labor 
3.  Organization 


Distribution 

Demand  creation     / 1 .  Plant  activities 

\2.  Operating  activities 

Physical  supply  of  /i.  Plant  activities 
t     the  goods             \  2.  Operating  activities 

Administration 

CHAPTER  II 

THE  STRUCTURE  AND  FUNCTIONING  OF 
MEDIAEVAL  INDUSTRIAL  SOCIETY 

A.  Problems  at  Issue 

The  structure  of  mediaeval  industrial  society  is  here  considered 
primarily  in  order  to  furnish  a  comparative  basis  for  the  study  of 
our  present  industrial  society.  From  this  statement  of  purpose 
flows  the  statement  of  method  to  be  followed  in  the  study.  There 
are  few  facts  of  the  mediaeval  or  of  any  other  period  which  do  not 
have  some  bearing,  direct  or  remote,  on  the  industrial  life  of  that 
time.  In  a  rapid  survey  we  cannot  hope  to  canvass  all  or  even  a 
large  portion  of  the  facts.  We  must  select  those  facts  especially 
useful  for  the  particular  purpose  in  view.  We  shall  be  interested, 
accordingly,  in  the  factual  side  of  mediaeval  industrial  society  only 
to  the  extent  that  the  facts  are  of  service  in  making  clear  to  us  the 
structure,  the  organization,  the  functioning,  of  that  society.  We 
shall  be  interested  in  the  various  institutions  in  the  sense  that  we 
wish  to  know  how  they  operated — what  their  functions  were. 
We  shall  be  particularly  interested  in  the  structures,  the  organiza- 
tions, the  institutions  which  were  the  germs  of  present  structures, 
organizations,  and  institutions;  or,  on  the  other  hand,  in  those 
which,  by  contrast,  will  serve  as  a  foil  better  to  display  present 
features. 

On  the  factual  side  we  shall  discuss  the  manor,  the  town,  the 
gild,  the  markets,  the  fairs,  the  staplers,  the  merchant  adventurers, 
the  church,  the  open  field  system,  the  villein,  the  freeman,  the  cottar, 
etc.  But  these  facts  must  be  interpreted.  What  parts  did  these 
factors  play  on  the  mediaeval  stage  ?  How  well  did  they  play  their 
parts?  In  so  far  as  they  have  disappeared,  why  have  they  dis- 
appeared? Are  the  parts  being  played  today  by  other  players? 
Was  there  anything  that  may  be  called  "  commercial  organization," 
i.e.,  a  mechanism  for  the  " exchanging"  operations  of  industrial 
society?  Was  there  an  industrial  organization,  i.e.,  a  mechanism 
for  the  " producing"  functions  of  industrial  society?  Was  there 
social  control -of  industrial  and  commercial  activity?     Which  of 

48 


4 


MEDIAEVAL  INDUSTRIAL  SOCIETY  49 

our  modern  "mechanisms  and  devices"  were  present  in  mediaeval 
society  ?    Such  questions  as  these  will  concern  us. 

QUESTIONS 

1.  What  is  the  justification  of  starting  such  a  course  as  this  with  a  historical 
study  ? 

2.  Why  use  England  as  the  illustrative  case  in  our  historical  study? 
Why  not  use  Japan  or  Russia  or  the  United  States?  What  is  the 
justification  of  starting  the  study  of  England  at  1 100-1300?  Why 
not  begin  earlier  ?    Why  not  later  ? 

3.  It  has  been  said  that  institutions  spring  up  to  meet  certain  needs — 
to  perform  certain  functions.  What  should  you  designate  as  the 
main  functions  of  the  vill?  In  carrying  out  these  functions  the  vill 
manifested  certain  characteristics.  What  main  characteristics  should 
you  list  ? 

4.  Attempt  to  estimate  what  proportion  of  the  economic  life  of  that  day 
centered  about  the  vill.  • 

5.  What  were  the  outstanding  points  of  difference  between  the  villein 
and  the  freeman  ?    In  what  ways  could  the  villeins  become  freemen  ? 

6.  Who  were  the  cottars  ?    What  is  their  significance  for  our  purpose  ? 

7.  Were  there  social  classes  in  the  vill?  If  so,  do  they  correspond  to 
social  classes  of  today  ?  If  there  was  a  wage-earning  class,  how  was  it 
recruited?  Was  the  system  typically  a  wage  system?  If  not,  how 
should  you  characterize  it  ?    Just  what  is  a  wage  system  ? 

8.  "The  relation  of  mediaeval  lord  and  man  was  a  matter  of  status; 
that  of  modern  employer  and  employee  is  an  affair  of  contract."  Ex- 
plain. Gompare  the  advantages  and  disadvantages  of  the  positions 
of  the  mediaeval  and  modern  proletarian. 

9.  Give  a  general  account  of  the  life  of  a  mediaeval  agricultural  laborer. 
Compare  the  lot  of  the  villein  with  that  of  the  unskilled  workingman 
of  today. 

10.  Was  the  lord  of  a  manor  more  like  a  modern  landlord  or  a  modern 
capitalist  ?    How  did  he  get  his  income  ? 

11.  Was  there  in  the  vill  a  landlord  class  in  the  modern  sense  of  the  term  ? 
Was  there  a  capitalist  class?  Were  there  entrepreneurs?  Should 
you  call  the  vill  system  an  instance  of  commercial  agriculture  or  of 
customary  agriculture  ?    What  difference  is  there  between  the  two  ? 

12.  We  read  of  the  "customs  of  the  manor."  Did  these  customs  vary  from 
manor  to  manor?  Did  the  customs  have  much  significance?  Cite 
instances. 

13.  Why  should  we  inquire  into  manorial  methods  of  cultivation?  Was 
there  anything  in  the  nature  of  these  methods,  apart  from  their  cus- 
tomary character,  that  made  it  difficult  for  any  one  individual  to 
change  his  methods  of  cultivation  ? 


50  INDUSTRIAL  SOCIETY 

14.  Was  there  industrial  organization  in  the  vill?  If  so,  characterize  it. 
Was  there  commercial  organization  ?    If  so,  characterize  it. 

15.  Could  the  manorial  system  appropriately  be  termed  one  of  individual 
exchange  co-operation  ?    One  of  machine  industry  ? 

16.  Did  they  know  of  money  in  the  vill  ?  Was  the  vill  economy  a  money 
economy?  What  is  a  money  economy?  Did  the  inhabitants  of  the 
vill  produce  for  gain  ?    Does  the  farmer  produce  for  gain  today  ? 

17.  In  the  vill,  did  anything  approximating  the  modern  competitive  system 
exist?  Was  there  speculative  production?  What  do  competitive 
system  and  speculative  production  mean  ? 

18.  "The  manorial  system  was  an  aggregation  of  like  units;  modern  indus- 
trialism is  an  integration  of  a  multitude  of  unlike  units  into  a  vast  and 
intricate  system."     Explain. 

19.  Compare  the  manor  or  vill  with  the  village  of  today. 

20.  What  factors  would  cause  the  vill  economy  to  disappear?  Answer 
in  terms  of  the  functions  of  the  vill. 

21.  Begin  at  this  time  a  process  of  drawing  comparisons  which  should  be 
continued  throughout  your  study  of  the  mediaeval  period.  One 
helpful  method  is  that  of  stating  from  various  points  of  view  the 
character  of  the  change  which  has  occurred  since  mediaeval  times. 
For  example,  there  has  been  a  change  from  a  subsistence  economy  to 
a  market  economy,  from  customary  industry  to  speculative  industry, 
from  customary  industry  to  competitive  industry,  from  local  self- 
sufficiency  to  interdependence,  from  a  regime  of  personal  relations  to 
one  of  impersonal  relations.     Can  you  add  to  this  list  ? 

22.  What  factors  explain  the  origin  of  the  towns  ? 

23.  The  town  played  a  relatively  small  part  in  mediaeval  economy.  Why, 
then,  should  we  devote  a  considerable  amount  of  time  to  the  discussion 
of  town  economy  ? 

24.  What,  if  anything,  does  the  rise  of  the  town  mean,  with  respect  to 
money  economy,  competition,  producing  for  gain,  speculative  market, 
anonymous  production,  wage  system,  commercial  agriculture,  division 
of  labor  ? 

25.  Had  specialization  been  carried  as  far  in  the  mediaeval  town  as  in 
the  modern  town  ?     Support  your  answer  with  evidence. 

26.  What  were  the  functions  of  the  gild  merchant?  Did  the  functions 
meet  specific  needs  of  the  time  or  was  the  gild  merchant  an  unnecessary 
organization?  Was  the  gild  merchant  similar  to  the  modern  trade 
union  ?  Was  it  similar  to  the  modern  association  of  commerce  ?  Was 
it  similar  to  a  modern  employers'  association  ? 

27.  What  was  the  relation  of  the  craft  gild  to  the  gild  merchant  ?  Answer 
for  the  craft  gild  the  questions  in  No.  26  above. 

28.  What  was  the  relation  of  the  journeyman  gild  to  the  craft  gild  ?  Answer 
for  the  journeyman  gild  the  questions  in  No.  26  above. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  51 

29.  "The  gilds  were  monopolies."  Were  they  narrowly  closed  monopolies 
or  could  any  worthy  person  be  a  member?  What  difference  does 
this  make  with  respect  to  your  judgment  concerning  the  social  useful- 
ness of  the  organization  ? 

30.  "The  gilds  were  monopolies.  They  had  to  be  and  for  precisely  the 
same  reason  that  the  government  of  any  country  is  a  monopoly.  Its 
sway  must  be  undisputed."    Is  there  any  justification  for  this  position  ? 

31.  "The  gilds  were  very  important  agencies  of  social  control."  List  the 
services  they  rendered  in  this  respect. 

32.  Was  there  in  the  mediaeval  gilds  anything  in  the  nature  of  a  joint 
stock  or  any  associated  trading  on  the  part  of  the  craft  as  a  body? 
Do  we  have  organizations  which  have  such  features  today  ? 

33.  "The  craft  gild  ordinances  are  interesting  as  an  early  attempt  to 
overcome  certain  evils  of  anonymous  production  [the  producer  not 
being  known  to  the  consumer]."  What  does  this  mean?  Just  what 
regulations  are  in  point  ?  Do  we  have  anonymous  production  today  f 
If  so,  are  there  any  modern  attempts  to  meet  this  condition  ? 

34.  "As  we  should  expect,  the  doctrine  of  caveat  emptor  first  appears  in 
the  cloth  industry."  What  is  this  doctrine?  Why  should  it  ever 
have  appeared  ?    Why  did  it  appear  first  in  the  cloth  industry  ? 

35.  What  factors  made  for  the  disappearance  of  the  gild  merchant?  Of 
the*  craft  gild  ?    Answer  in  terms  of  the  functions  of  the  gilds. 

36.  "The  simple  gild  merchant  passed  off  the  stage  when  economic  life 
became  too  complex  for  it."  Explain.  What  took  the  place  of  the 
gild  merchant  ? 

37.  "The  market  for  which  the  gildsman  produced  was  very  different  from 
the  market  for  which  the  modern  business  manager  produces."  Cite 
the  outstanding  differences.  Which  of  these  differences  may  be  inter- 
preted as  subheads  under  the  characterization  of  the  modern  market 
as  speculative  ? 

38.  "To  use  modern  terms,  which  were  meaningless  then,  the  gildsman 
was  at  once  employer  and  workman,  capitalist  and  laborer."  Com- 
pare the  "labor  problems"  of  gild  and  modern  industrial  economy. 
Could  labor  unions  have  grown  up  in  the  mediaeval  town?  What 
does  your  answer  imply  with  respect  to  the  conditions  which  give  rise 
to  labor  unions  ? 

39.  "Apprenticeship  was  a  system  of  business  education.  It  trained 
the  worker  with  respect  to  the  internal  problems  of  business — i.e., 
those  having  to  do  with  production,  marketing,  and  administration. 
It  also  trained  with  respect  to  the  external  problems  of  business — i.e. 
those  having  to  do  with  the  relationship  of  the  business  and  of  the 
business  manager  to  the  rest  of  organized  society."  Why  has  appren- 
ticeship broken  down  ?  What  agencies  are  today  carrying  on  its  work 
with  respect  to  business  education  ? 


52  INDUSTRIAL  SOCIETY 

40.  Was  there  " industrial  organization"  in  the  "industrial  plants"  of  the 
craftsmen  ?    If  so,  describe  its  structure  and  then  characterize  it. 

41.  Have  we  today  any  producers  who  may  be  said  to  be  survivals  of  the 
handicraft  system  of  industiy  ? 

42.  "Life  in  the  thirteenth  and  fourteenth  centuries  was  corporate  rather 
than  individual."  Explain.  Was  this  true  only  in  the  town  ?  What 
did  we  find  to  be  the  situation  in  the  manor  with  respect  to 
individualism  ? 

43.  "The  relations  between  producer  and  consumer  were  personal  in  the 
mediaeval  period.  Today  they  are  impersonal."  Explain  and 
illustrate.  Can  you  cite  other  fields  in  which  personal  relations  have 
yielded  to  impersonal  relations?  "We  need  to  develop  an  impersonal 
code  of  ethics."    How  does  this  follow  ? 

44.  "The  mediaeval  merchant  was  not  the  specialist  he  later  became." 
Explain. 

45.  Characterize  the  means  of  transportation  and  the  means  of  trans- 
mission of  ideas  in  mediaeval  England. 

46.  In  his  History  of  Commerce,  Day  tells  of  a  "glover  who  was  traveling 
to  market  [1499]  and  was  drowned  with  his  horse  in  a  pit  which  a 
miller  had  dug  to  get  clay  from  the  road.  A  court  acquitted  the  miller 
on  the  ground  that  he  had  no  malicious  intent  and  really  did  no t  know 
of  any  other  place  where  he  could  get  the  kind  of  clay  he  wanted." 
What  would  a  modern  court  decide?  What  is  the  significance  of 
this  story  for  purposes  of  this  study  ? 

47.  Draw  up  a  comparison  of  the  market  and  the  fair.  We  have  today 
institutions  bearing  these  names.  Are  they  derived  from  the  mediaeval 
institutions  ?    If  so,  have  they  retained  their  old  functions  ? 

48.  "Markets  and  fairs  represent  a  phase  of  commerce  which  can  best 
be  described  as  periodic."  Explain.  How  should  you  characterize 
the  modern  phase  of  commerce  ? 

49.  Discuss  the  commercial  organization  of  the  towns.  Was  the  trade  in 
the  towns  along  modern  lines,  such  as  wholesale  and  retail  trade? 
Did  they  have  stores?  Were  certain  streets  of  the  towns  given 
over  to  certain  industries?  Had  occupations  been  definitely  differ- 
entiated ? 

50.  Who  were  the  pedlars?  What  kind  of  goods  did  they  sell?  Who 
were  their  customers  ? 

51.  Indicate  the  relative  importance  of  the  fair,  the  market,  and  the 
pedlar  in  the  commercial  organization  of  the  time.  Do  these  agencies 
play  as  prominent  a  part  today  as  they  did  in  mediaeval  times  ?  If 
not,  why  not  ? 

52.  Outline  the  hindrances  to  international  trade.  What  were  the  con- 
sequences upon  the  size  and  character  of  that  trade  ? 


MEDIAEVAL  INDUSTRIAL  SOCIETY  S3 

53.  The  merchants  of  the  staple:  (a)  What  were  their  functions?  (b) 
What  were  the  significant  features  of  their  organization?  Answer 
the  same  questions  for  the  merchant  adventurers. 

54.  "The  staplers  and  merchant  adventurers  combined  the  essential  ele- 
ments of  the  gild  and  of  the  fair."  Is  there  any  truth  in  this 
statement  ? 

55.  Why  should  the  merchant  adventurers  have  been  given  a  monopoly? 
Could  any  successful  merchant  have  joined  them?  If  so,  did  they 
have  a  monopoly?  Is  the  case  parallel  to  that  of  the  gilds?  Is  it 
parallel  to  our  modern  patents  and  copyrights  ? 

56.  Work  out  a  series  of  propositions  characterizing  mediaeval  currency. 
What  is  the  relation  of  the  modern  banker  to  the  mediaeval  money- 
changer ? 

57.  What  was  the  law  merchant  ?  Whence  came  it  ?  In  what  sense  was 
it  international  law?  What,  if  anything,  do  we  owe  to  the  law  mer- 
chant ? 

58.  Draw  up  in  parallel  columns  a  comparison  of  mediaeval  and  modern 
trade.  * 

59.  Show  why  the  lack  of  commerce  requires  small  groups  of  people  to 
produce  everything  for  themselves  and  why  this  self-sufficiency  in- 
volves a  low  standard  of  living. 

60.  Why  were  financial  panics,  commercial  crises,  and  industrial  depres- 
sions unknown  in  mediaeval  England?  What  was  the  nature  of 
economic  disasters  which  mediaeval  peoples  had  to  fear  ? 

61.  Is  commerce  aided  by  standardized  and  predictable  conditions? 
What  part  should  you  expect  commerce  to  play  in  facilitating  the 
enlargement  of  the  political  unit  ?  in  suppressing  local  disorder  ? 
in  rendering  social  arrangements  more  certain  ?  in  standardizing  legal 
codes  ?     in  preventing  war  ? 

62.  Much  discussion  goes  on  today  concerning  "price  maintenance." 
What  does  this  mean?  Could  such  a  discussion  have  arisen  in  the 
mediaeval  period  ? 

63.  Discuss  the  agencies  and  methods  of  social  control  of  mediaeval  Eng- 
land. Did  custom  play  a  part?  law?  codes  of  ethics?  religion? 
public  opinion?  voluntary  organizations?  government?  In  so  far 
as  these  did  play  a  part,  try  to  estimate  their  relative  importance. 
Do  they  have  the  same  relative  importance  today  ? 

64.  Should  you  say  that  the  social  control  of  the  mediaeval  period  was 
mainly  conscious  or  mainly  unconscious  control  ? 

65.  "  Control  of  industrial  affairs  in  the  mediaeval  period  may  be  character- 
ized by  the  propositions:  (a)  the  control  was  customary,  (b)  the  control 
was  local."  Is  this  true?  Does  this  apply  to  the  regulations  con- 
cerning forestalling,  engrossing,  and  regrating  ? 


54  INDUSTRIAL  SOCIETY 

66.  How  can  it  be  said  that  control  of  industrial  activity  was  mainly 
customary  in  character.  Was  there  not  a  large  body  of  control  resting 
with  the  church?  Was  there  not  another  large  body  resting  with 
the  central  government  and  with  the  municipal  authorities  ? 

67.  Outline  a  discussion  of  the  mediaeval  church  as  an  agency  of  social 
control.  With  respect  to  business  activity,  in  what  ways  did  the 
church  hinder  its  development?  Were  there  ways  in  which  the 
church  facilitated  its  development  ? 

68.  What  was  the  meaning  of  usury?  Does  it  mean  the  same  thing 
today?  How  do  you  account  for  the  presence  of  such  a  doctrine  in 
mediaeval  economy  ? 

69.  What  was  the  fair  price  doctrine  ?  How  do  you  account  for  its  pres- 
ence? By  what  agencies  were  its  teachings  carried  out?  Do  we 
have  anything  comparable  with  it  today  ? 

70.  Make  a  list  of  the  activities  of  the  central  government  with  respect  to 
the  control  of  industrial  activity?  Is  the  list  longer  or  shorter  than 
a  similar  list  of  such  activities  in  our  present  society  ? 

71.  We  often  speak  of  the  relation  of  the  state  to  industry,  meaning,  gen- 
erally, the  relation  of  government,  whether  local  or  central,  to  industry. 
Characterize  the  relation  of  the  state  to  industry  in  mediaeval  times. 

72.  "Broadly  speaking,  the  control  of  industry  of  the  mediaeval  period 
may  be  said  to  have  been  either  external,  by  parliamentary  or  municipal 
legislation,  or  internal,  by  means  of  craft  gilds.  These  two  sections 
again  admit  of  subdivision  according  as  their  objects  are  the  protection 
of  the  consumer,  the  employer,  or  the  workman."  Illustrate  each 
kind  of  control. 

73.  Was  there  much  of  what  we  call  "individualism"  in  England  at  this 
time  ?  What  is  individualism  ?  Is  there  any  word  which  serves  as  an 
antithesis  ?  Was  the  manorial  system  of  cultivation  one  which  gave 
much  scope  to  the  individual  ?  Did  the  gild  system  give  much  scope 
to  the  individual  ?    Why  should  we  be  interested  in  such  questions  ? 

74.  To  what  extent  had  the  following  "mechanisms  and  devices"  developed 
in  the  mediaeval  period:  private  property,  competition,  exchange, 
money  economy,  inheritance,  specialization,  division  of  labor,  contract, 
wages,  rent,  interest,  production  for  profit,  production  for  a  speculative 
market  ?  What  is  meant  by  saying  that  such  matters  should  be  men- 
tioned when  one  is  discussing  social  control  because  of  the  ways  in 
which  institutions  condition  and  control  human  activity  ? 

75.  It  has  been  said  that  our  modern  society  has  in  it  three  classes  of 
structures:  (a)  those  just  beginning  to  come  into  significance,  (b)  those 
in  full  flower,  and  (c)  those  which  have  largely  outlived  their  useful- 
ness, but  still  exist  as  "survivals."  Can  you  cite  illustrations  ?  Par- 
ticularly, have  we  "survivals"  which  have  come  down  to  us  from 
mediaeval  society  ? 


MEDIAEVAL  INDUSTRIAL  SOCIETY  55 

B.  Manorial  Economy 
17.    FUNCTIONS  OF  MEDIAEVAL  SOCIAL  ORGANISMS1 

There  was  a  time  when  a  vast  number  of  Englishmen  hardly  had 
reason  to  look  beyond  their  village  or  their  town,  and  only  came 
occasionally  into  conscious  contact  with  the  world  outside.  The 
prosperity  of  their  own  village  or  their  own  town  was  all  that  con- 
cerned them  then,  whereas  all  of  us  now,  for  the  very  bread  we  eat> 
are  affected  by  the  state  of  trade  between  England  and  other  lands. 
In  the  twelfth  century,  for  almost  all  the  purposes  of  life,  the  village 
or  the  manor  was  by  far  the  most  important  of  these  social  organisms, 
when  few  towns  existed  and  when  national  ties  were  of  the  slightest. 
As  in  course  of  time  towns  grew  up,  they  became  the  important 
centers  of  trade  and  of  industry;  the  stream  of  progress,  instead  of 
flowing  along  the  narrow  channels  of  village  life,  can  be  most  readily 
observed  in  the  larger  life  of  the  towns.  They,  in  their  turn,  fell  into 
the  background,  as  national  regulation  and  national  institutions 
became  more  powerful  to  watch  over  and  to  promote  common  national 
interests. 

Each  of  these  different  forms  of  social  organization  has  been 
required  to  serve  different  purposes.  Their  powers  have  been  brought 
into  play  (a)  to  secure  the  subsistence,  (b)  to  provide  for  the  defence, 
and  (c)  to  regulate  the  activities  of  the  persons  who  compose  them; 
and  in  the  discharge  of  each  of' these  functions  they  have  had  to  deal 
with  questions  that  are  really  economic.  This  is  obvious  in  regard 
to  the  means  of  human  life,  whether  they  are  procured  by  agriculture, 
by  industry,  or  by  trade.  It  is  also  clear  that  the  necessities  of  defence 
involve  military  obligations  or  taxation,  and  that  the  military  system 
must  be  taken  account  of  in  its  fiscal  aspects.  Similarly,  legis- 
lative and  judicial  administration  control  the  conditions  under  which 
industry  is  carried  on  and  lay  down  the  rules  by  which  it  is  regulated. 
All  these  sides  of  social  life  have  some  economic  bearing,  and  each  of 
them  must  be  at  least  alluded  to  in  an  industrial  history  which  deals 
with  these  various  groups  in  turn. 

1  Adapted  by  permission  from  W.  Cunningham  and  E.  A.  McArthur,  Outlines 
of  English  Industrial  History,  pp.  28-29.     (The  Macmillan  Co.,  1895.) 


56  INDUSTRIAL  SOCIETY 

18.    DESCRIPTION  OF  A  MANOR1 

Now,  in  these  manors,  the  central  feature  would  be  the  dwelling 
of  the  lord,  or  manor-house.  It  was  substantially  built  and  served 
as  a  court-house  for  the  sittings  of  the  court  baron  and  the  court  leet. 
If  the  lord  did  not  live  in  it,  his  bailiff  did  so,  and  perhaps  the  lord 
would  come  occasionally  himself  to  Hold  these  courts,  or  his  bailiff 
might  preside.  Near  the  manor-house  generally  stood  the  church, 
I  often  large  for  the  size  of  the  village,  because  the  nave  was  frequently 
used  as  a  town-hall  for  meetings  or  for  markets.  Then  there  would 
be  the  house  of  the  priest,  possibly  in  the  demesne;  and  after  these 
two  the  most  important  building  was  the  mill,  which,  if  there  was 
a  stream,  would  be  placed  on  its  banks  in  order  to  use  the  water-power. 
The  rest  of  the  tenants  generally  inhabited  the  principal  street  or 
road  of  the  village,  near  the  stream,  if  one  ran  through  the  place. 
/  The  average  population  of  an  eleventh-century  village  must  have  been 
~>v  about  150  persons.  The  houses  of  these  villages  were  poor  and  dirty, 
not  always  made  of  stone,  and  never  (till  the  fifteenth  century)  of 
brick,  but  built  of  posts  wattled  and  plastered  with  clay  or  mud, 
with  an  upper  story  of  poles  reached  by  a  ladder.  The  articles  of 
furniture  would  be  very  coarse  and  few,  being  necessarily  of  home 
manufacture;  a  few  rafters  or  poles  overhead,  a  bacon-rack,  and 
agricultural  tools  being  the  most  conspicuous  objects.  Chimneys 
were  unknown,  except  in  the  manor-houses,  and  so  too  were  windows, 
and  the  floor  was  of  bare  earth.  Outside  the  door  was  the  "mixen," 
a  collection  of  every  kind  of  manure  and  refuse,  which  must  have 
rendered  the  village  street  alike  unsavoury,  unsightly,  and  unwhole- 
some. 

It  is  necessary,  in  order  to  complete  our  sketch  of  the  manorial 
system  from  the  time  of  the  Conquest  onwards,  to  understand  how 
the  land  was  divided  up.  We  may  say  that  there  were  seven  kinds 
of  land  altogether.  (1)  First  came  the  lord's  land  round  about  the 
manor-house,  the  demesne  land,  which  was  strictly  his  own,  and 
generally  cultivated  in  early  times  by  himself  or  his  bailiff.  All  other 
land  held  by  tenants  was  called  land  in  villenage.  (2)  Next  came 
the  arable  land  of  the  village,  held  by  the  tenants  in  common  fields ■• 
Now  these  fields  were  all  divided  up  into  many  strips,  and  tenants 
held  their  strips  generally  in  quite  different  places,  all  mixed  up  in 
any  order.    The  lord  and  the  parson  might  also  have  a  few  strips  in 

1  Adapted  by  permission  from  H.  de  B.  Gibbins,  Industry  in  England, 
pp.  80-85.     (Methuen  &  Co.,  Ltd.,  1896.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  57 

these  fields.  There  were  at  least  three  fields,  in  order  to  allow  the 
rotation  of  crops.  Each  tenant  held  his  strip  only  till  harvest,  after 
which  all  fences  and  divisions  were  taken  away,  and  the  cattle  turned 
out  to  feed  on  the  stubble.  (3)  Thirdly  came  the  common  pasture, 
for  all  the  tenants.  But  each  tenant  was  restricted  or  stinted  in  the 
number  of  cattle  that  he  might  pasture,  lest  he  should  put  on  too 
many,  and  thus  not  leave  enough  food  for  his  neighbours'  cattle. 
Sometimes,  however,  we  find  pasture  without  stint,  as  in  Port  Meadow 
at  Oxford  to  this  day.  (4)  Then  comes  the  forest  or  woodland,  as  in 
Estone,  which  belonged  to  the  lord,  who  owned  all  the  timber.  But 
the  tenants  had  rights,  such  as  the  right  of  lopping  and  topping  certain 
trees,  collecting  fallen  branches  for  fuel,  and  the  right  of  "pannage," 
i.e.,  of  turning  cattle,  especially  swine,  into  the  woods  to  pick  up  what 
food  they  could.  (5)  There  was  also  in  most  manors  what  is  called 
waste,  i.e.,  uncultivated  land,  affording  rough  pasture,  and  on  which 
the  tenants  had  the  right  of  cutting  turf  and  bracken  for  fuel  and 
fodder.  Then  near  the  stream  there  would  be  perhaps  some  (6) 
meadow  land,  as  at  Cuxharri,  but  this  generally  belonged  to  the  lord, 
who,  if  he  let  it  out,  always  charged  an  extra  rent  (and  often  a  very 
high  one),  for  it  was  very  valuable  as  affording  a  good  supply  of  hay 
for  the  winter.  Lastly,  if  the  tenant  could  afford  it  and  wanted  to 
have  other  land  besides  the  common  fields,  where  he  could  let  his 
cattle  lie,  or  to  cultivate  the  ground  more  carefully,  he  could  occupy 
(7)  a  close,  or  a  portion  of  land  specially  marked  off  and  let  separately.  j> 
The  lord  always  had  a  close  on  his  demesne,  and  the  chief  tenants 
would  generally  have  one  or  two  as  well.  The  close  land  was  of 
course  rented,  more  highly  than  land  in  the  common  fields. 

Such,  then,  was  the  manorial  village  and  the  manorial  system 
generally  in  the  eleventh  century,  and  thus  it  lasted  for  two  or  three 
centuries  more.  But  in  the  course  of  time  it  died  out,  though  sur- 
vivals of  it  last  even  to  our  own  day. 


58 


INDUSTRIAL  SOCIETY 
19.    A  DIAGRAM  OF  A  MANOR1 


Suggestion  of  village  with  three  fields  divided  into  furlongs  and  acres: 
the  30  black  acres  represent  one  virgate 


e,  f_ 


A.  A.  Tenants'  messuages 

B.  B.  Natural  meadow 

C.  Hall  and  church 


E.  E.  Wood  and  rough  pasture 
F   F.  Roads 
G'C  Stream 


20.    THE  VILLAIN  AND  THE  FREEMAN2 

The  outward  similarity  in  the  thirteenth  century  between  the 
condition  of  the  small  freeholders  and  that  of  the  villains  was  very 
great.  Side  by  side  they  often  worked  together  on  the  lord's  demesne, 
or  performed  the  duties  of  the  manorial  court,  or  assisted  each  other 

1  Taken  by  permission  from  Henry  Allsopp,  An  Introduction  to  English  Indus- 
trial History,  opposite  p.  1.     (G.  Bell  &  Sons,  Ltd.,  191 2.) 

3  Adapted  by  permission  from  T.  W.  Page,  "The  End  of  Villainage  in 
England,"  Publications  of  the  American  Economic  Association,  3d  Ser.,  Vol.  I 
(1900),  298-314. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  59 

in  the  cultivation  of  their  own  holdings.  It  is  true  that  in  most 
cases  the  services  of  the  freeholders  were  lighter  than  those  of  the 
villains;  sometimes,  indeed,  they  performed  none  at  all,  but  very 
often  the  labor  supplied  and  the  dues  paid  by  the  members  of  the 
two  classes  differed  neither  in  quantity  nor  quality,  so  that  to  dis- 
tinguish the  status  of  these  sons  of  toil,  whose  lives  ran  so  nearly  in 
the  same  channel,  was  no  easy  matter.  And  yet  a  difference  of 
condition  there  was:  The  essence  of  villain  status  consisted  in  the 
subjection  of  the  person  and  the  personalty  of  the  villain  to  the  un- 
certain will  of  his  lord,  a  subjection  that  manifested  itself  in  three 
ways.  

First,  the  villain  was  bound  to  remain  on  the  manor  till  his  lord 
consented  to  his  departure. 

Second,  he  was  bound  to  render  service  to  his  lord  in  the  manner 
and  to  the  amount  that  his  lord  should  command. 

Third,  he  was  bound  to  surrender  to  his  lord  any  or  all  of  his  per- 
sonalty, if  his  lord  saw  fit  to  seize  it. 

It  is  true  that  in  the  thirteenth  century  this  subjection  was  in 
large  measure  limited  by  the  custom  of  the  manor,  but  there  still 
remained  a  considerable  uncertainty  as  to  the  disposal  the  lord  might 
make  of  his  villain's  person  and  possessions.  So  long  as  this  uncer- 
tainty existed,  it  was  impossible  for  the  king's  court  to  determine  the 
degree  of  a  villain's  subjection;  and,  as  a  consequence  of  extreme 
importance  the  only  protection  against  his  lord  that  the  law  of  the 
realm  afforded  him  was  protection  "in  life  and  limb."  His  lord  might 
not  kill  him  nor  maim  him,  but  he  might  beat  him,  confine  him,  eject 
him  from  house  and  home,  or  otherwise  dispose  of  his  person  as 
caprice  dictated,  and  the  law  would  afford  no  remedy.  In  spite  of 
the  outward  similarity,  therefore,  between  the  condition  of  many 
freemen  on  the  manor  and  that  of  villains,  the  difference  between 
them  in  reality  was  great. 

Of  the  three  obligations  perhaps  the  most  important  was  the 
villain's  obligation  to  remain  on  the  manor.  He  was  adscriptus 
glebae,  bound  to  the  soil.  It  does  not  seem,  however,  to  have  been 
very  difficult  in  the  latter  part  of  the  thirteenth  century  for  a  villain  to 
obtain  the  necessary  permission  if  he  wished  to  go  away.  A  small 
payment,  known  as  "chivage"  or  "head-money"  would  suffice  to 
secure  the  lord's  consent.  The  pettiness  of  the  sums  paid  as  chivage 
shows  that  as  a  rule  the  restrictions  imposed  by  his  status  on  a  vil- 
lain's freedom  of  movement  were  almost  nominal;  the  real  restriction 


60  INDUSTRIAL  SOCIETY 

at  that  time  was  of  an  economic  nature  and  consisted  in  a  lack  of 
demand  for  his  labor  elsewhere. 

On  the  third  of  the  villain's  obligations  the  effect  of  the  manorial 
custom  was  in  many  respects  analogous  to  its  effects  on  the  others. 
As  he  was  denied  by  common  law  all  freedom  of  movement,  so  also 
he  was  denied  all  freedom  to  dispose  of  his  possessions.  It  is  true 
that  in  relation  to  all  men  except  his  lord  he  was  treated  as  if  he  were 
free;  in  actions  concerning  his  possessions  third  persons  had  to  deal 
with  him  as  if  he  were  the  owner  of  them.  But  according  to  the  law 
of  the  realm  he  had  no  property  rights  whatsoever  that  his  lord  was 
bound  to  respect.  Whatever  the  villain  possessed  belonged  to  his 
lord;  whatever  he  produced  or  acquired  he  produced  or  acquired  for 
his  lord,  provided  that  his  lord  chose  to  seize  it.  If  the  villain  by 
any  means  came  into  possession  of  a  freehold,  it  might  be  seized  by 
his  lord;  if  he  received  chattels  through  purchase,  gift,  or  bequest, 
his  lord  might  claim  them  as  his  own.  If  the  villain  squandered  or 
alienated  his  goods  and  chattels  without  permission,  he  was  liable 
to  punishment  on  the  ground  that  he  was  wasting  his  lord's  property. 
Such  was  the  law;  but  in  practice  we  find  the  villains  buying  and 
selling,  holding  and  enjoying  the  goods  of  this  world  with  little  inter- 
ference on  the  part  of  their  lords.  Some  of  them  even  acquired  con- 
siderable wealth,  as  is  shown  by  their  being  able  to  purchase  from 
their  lords  important  rights  and  exemptions,  such  as  freedom  from 
laboring  on  the  demesne  or  freedom  from  suit  of  court  or  the  lord's 
promise  that  they  should  not  be  compelled  to  take  an  undesirable 
holding.  Had  the  practice  conformed  to  law,  the  lord  might  have 
seized  the  purchase  money  without  granting  such  privileges  in  return 
for  it. 

In  reality  the  occasions  on  which  a  lord  might  seize  his  villain's 
goods  were  fixed  on  each  manor  by  custom,  a  custom  that  was  seldom 
transgressed.  If  the  lord  did  transgress  it,  however,  the  villain  had 
no  legal  remedy;  so  far  as  the  king's  courts  were  concerned  he  was 
utterly  unprotected  in  the  possession  of  his  goods. 

Now,  although  the  customs  of  different  manors  were  set  at  variance 
on  many  points,  they  were  very  generally  in  agreement  as  to  the 
occasions  when  the  lord  might  seize  the  villain's  goods.  It  might  be 
done,  as  one  would  naturally  suppose,  in  the  event  of  any  grave  vio- 
lation of  the  custom  by  the  villain  himself,  as,  for  example,  his  refusal 
to  perform  the  labor  he  owed,  or  his  denial  that  he  was  the  lord's 
villain,  or  his  continued  absence  from  the  manor  without  permission. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  61 

But  it  was  not  left  to  the  lord  in  such  a  case  to  determine  whether  the 
villain  had  failed  in  his  duty;  that  was  decided  in  the  manorial  court, 
where  the  villains  themselves  acted  as  judges  and  stated  and  inter- 
preted the  manorial  custom.  It  was  only  after  the  lord  had  brought 
suit  and  obtained  judgment  that  custom  warranted  him  in  depriving 
the  villain  of  his  goods  for  neglect  of  duty. 

Now,  the  lord  benefited  little  from  the  villain's  presence  on  the 
manor,  unless  he  received  from  him  goods  or  labor.  Since,  then,  the 
occasions  when  he  seized  the  villain's  goods  were  few  and  fixed  by  a 
custom  that  he  seldom  ventured  to  transgress,  it  is  obvious  that  the 
institution  of  villainage  was  chiefly  intended  to  insure  an  abundant 
supply  of  labor  for  the  cultivation  of  the  demesne,  labor  that  was 
regarded,  however,  only  as  areturn  for  land  assigned  to_the_villain 
for  his  own  use.  In  tKe  accounts  that  give  a  description  of  the  work- 
ing of  theTnahor  from  year  to  year  we  do  not  find  villains  rendering 
labor  if  they  held  no  land.  But,  on  the  other  hand,  we  do  find  men 
on  the  manor  holding  land  who  yet  rendered  no  labor.  In  practice, 
therefore,  whether  the  tenant  worked  for  his  lord  or  not  depended 
on  the  nature  of  his  tenure  and  not  on  his  status. 

That  tenure  through  which  the  lord  derived  the  greater  part  of  the 
labor  he  needed  was  known  as  Customary  Tenure,  Villain  Tenure,  or 
Tenure  in  Villainage,  in  villenagio.  Other  words  were  sometimes 
used.  The  tenant  might  be  said  to  hold  native  or  in  servitute  or  in 
bondagio,  but  these  seem  all  to  have  meant  exactly  the  same  thing. 
The  essence  of  this  tenure  was  that  the  tenant  performed  villain 
services;  and  the  difference  between  these  and  the  services  of  a  free- 
holder consisted,  as  has  been  indicated  above,  not  in  their  character 
nor  in  their  amount — for  the  freeholders  sometimes  performed  as 
much  agricultural  labor  for  the  lord  as  the  villains — but  in.  their 
uncertainty.  The  typical  tenant  in  villainage  did  not  know  in  the 
evening  what  he  would  have  to  do  in  the  morning;  he  might  know  the 
amount  of  labor  that  would  be  required  of  him,  but  he  did  not  know 
how  it  would  be  applied. 

In  speaking  of  these  predial  services  one  thing  should  be  especially 
emphasized:  the  amount  of  labor  due  from  land  held  in  villainage 
differed  greatly  on  different  manors.  Why  this  should  have  been  so 
it  is  often  impossible  to  say  with  certainty.  Greatly,  however,  as 
the  custom  of  one  manor  varied  from  that  of  another  in  this  regard, 
it  was  understood  on  each  before  the  thirteenth  century  ended  how 
much  labor  a  villain  holding  land  there  should  be  called  on  to  do. 


62  INDUSTRIAL  SOCIETY 

Such  was  the  nature  of  villain  services  in  which  the  essence  of 
villain  tenure  consisted.  Following  from  their  one-time  uncertainty 
was  a  characteristic  of  the  tenure  of  great  practical  importance: 
it  was  not  protected  in  the  king's  court.  To  the  freeholder  the  law 
of  the  realm  afforded  protection  in  the  possession  of  his  land;  to  the 
tenant  in  villainage,  if  he  was  ejected  from  his  holding,  whether  he 
was  a  freeman  or  a  villain,  the  law  gave  no  redress.  And,  in  fact, 
the  tenure  of  customary  land,  as  that  held  by  villain  tenure  was 
called,  was  not  so  precarious  as  a  mere  statement  of  the  law  might 
lead  us  to  suppose^.  Against  all  except  the  lord  the  tenant  found 
protection  in  the  manorial  court.  The  lord  himself,  of  course,  this 
court  could  not  bind,  and  it  sometimes  occurred  that  he  seized  the 
villain's  land,  a  proceeding  for  which  there  was  no  remedy  unless  it 
were  in  riots  and  insurrections.  But  such  occurrences  were  rare. 
The  lords  maintained,  but  seldom  exercised,  the  right  to  eject  their 
villains  so  long  as  the  services  were  duly  rendered  and  the  tenements 
were  not  wasted.  The  same  binding  force  of  the  manorial  custom 
that  protected  the  villain  in  his  person  and  his  personalty  gave  him 
protection  also  in  the  possession  of  his  land. 

21.    THE  COTTERS  AND  THEIR  SIGNIFICANCE1 

The  lower  class  of  villeins,  the  cotters,  may  have  descended  some- 
times from  virgaters  in  the  physical  sense,  but  it  is  not  likely  that  the 
two  classes  had  originally  common  obligations  and  similar  holdings. 
A  very  considerable  force  made  for  persistency  of  the  typical  vir- 
gate,  and  it  appears  that  the  small  holdings  of  the  cotters  did  not 
usually  consist  of  acre  strips  in  the  common  fields.  They  were 
"crofters  and  holders  of  plots,"  and  had  "a  very  important  part  to 
play  in  the  economic  life  of  the  manor."  It  seems  probable  that  their 
position  originated  in  three  ways.  First,  manumitted  slaves  may 
have  been  established  on  small  patches  of  land  and  more  occasionally 
endowed  with  a  few  odd  acres  in  the  fields.  Secondly,  similar  pro- 
vision was  made  in  all  probability  for  the  overflow  of  virgate  house- 
holds. Thirdly,  it  is  likely  that  at  the  original  settlement  where  the 
choice  lay  between  enslaving  conquered  Welshmen  and  subjecting 
them  to  service  and  rent  the  latter  alternative  was  preferred,  but 
that  they  were  not  given  full  virgate  holdings.  As  regards  their 
economic  importance  in  the  manorial  system  the  following  points 

1  Taken  by  permission  from  H.  O.  Meredith,  Outlines  of  the  Economic  History 
of  England,  pp.  38-39.     (Sir  Isaac  Pitman  &  Sons,  Ltd.,  1908.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  63 

should  be  noted:  (1)  Their  dissociation  from  the  scheme  of  co- 
operative ploughing  on  the  demesne  made  their  enfranchisement  a 
matter  of  comparatively  small  moment  to  the  manorial  economy.  In 
their  position  there  was  naturally  an  element  of  labour-fluidity,  just  as 
there  was  an  element  of  labour-rigidity  in  the  position  of  the  virgaters. 
(2)  It  was  impossible  for  them  to  live  off  their  small  plots  and  pay 
their  rent  and  the  money  commutation  of  their  labour  services. 
Hence  their  class  is  the  natural  origin  of  three  other  classes  whose 
importance  increased  as  time  went  on:  (a)  agricultural  wage  labour- 
ers; (b)  village  artisans  working  for  local  demand;  (c)  manufacturers 
working  for  an  extra-local  market. 

22.    THE  INDUSTRIAL  ORGANIZATION  OF  THE  MANOR1 

How  the  lands  were  actually  cultivated  we  have  little  informa- 
tion, but  Fleta's  statements  as  to  the  duties  of  bailiff  and  reeve  afford 
some  glimpses  into  a  system  of  common  cultivation,  which  had  prob- 
ably not  varied  in  its  main  features  for  centuries.  The  writer  of 
Fleta  describes  each  manor  belonging  to  a  great  lord  or  corporation 
as  managed  by  three  officers — a  steward,  a  bailiff,  and  a  reeve.  The 
steward,  or  seneschal,  was  not  strictly  a  manorial  officer,  but  the 
lord's  representative  over  a  number  of  manors,  and  his  chief  duty, 
besides  a  general  control  of  the  bailiffs,  was  to  hold  the  manorial 
courts.  But  in  order  to  perform  these  administrative  duties  properly 
he  must  be  acquainted  with  the  condition  of  each  manor.  He  should 
ascertain,  says  Flela,  the  customary  services  due  from  each  tenant, 
find  out  if  any  has  sold  his  holding  without  permission,  and,  if  so, 
who  was  bailiff  at  the  time  and  responsible.  He  should  know  the 
number  of  acres  to  be  ploughed  and  the  amount  of  seed  necessary  for 
sowing,  lest  his  master  be  defrauded  by  "cheating  reeves";  he  should 
know  also  how  many  tenants'  ploughs  should  help  in  tilling  the 
demesne  and  how  often  they  were  to  be  furnished.  Above  all,  he  must 
watch  the  conduct  of  the  bailiffs,  to  see  that  they  do  not  abuse  their 
power  or  injure  their  master's  interests.  It  was  doubtless  only  great 
proprietors  who  had  stewards;  the  lord  of  a  single  manor,  living  in 
the  village,  could  himself  hold  the  courts  and  keep  the  bailiff  in  check. 

The  bailiff  was  the  resident  representative  of  the  lord  in  the 
manor  and  was  especially  charged  with  the  cultivation  of  the  demesne. 

1  Adapted  by  permission  from  W.  J.  Ashley,  An  Introduction  to  English  Eco- 
nomic History  and  Theory:  The  Middle  Ages,  pp.  9-13.  (Longmans,  Green,  &  Co., 
1892.) 


64  INDUSTRIAL  SOCIETY 

"The  bailiff  should  rise  early  in  the  morning,  and  see  that  the  plough- 
teams  are  yoked;  and  then  he  should  walk  round  and  inspect  the 
tilled  fields,  woods,  meadows,  and  pastures.  Then  he  should  visit 
the  ploughs  at  their  work,  and  take  care  that  the  oxen  are  not  unyoked 
till  a  full  day's  work  has  been  done."  He  is  to  direct  the  reaping, 
mowing,  carting,  and  other  work;  to  see  that  the  land  is  properly 
marled  and  manured;  to  prevent  the  horses  being  overworked;  and 
to  watch  the  threshers  in  the  barn. 

Thejeeve,  on  the  other  hand,  is  represented  as  a  sort  of  foreman 
of  the  villagers.  He  was,  according  to  Fleta,  to  be  chosen  by  the 
villata,  or  body  of  villeins,  as  the  man  best  skilled  in  agriculture,  and 
to  be  presented  to  the  lord  or  his  steward  for  his  acceptance.  Respon- 
sible to  the  lord  for  the  due  performance  of  the  villein  services,  he  was 
f  yet  regarded  as  the  representative  of  the  villeins,  and  on  their  behalf 
he  "kept  a  tally  of  the  day-works,  and  reckoned  them  up  with  the 
bailiffs  at  the  end  of  the  week."  He  was  to  see  that  the  demesne 
and  villein  ploughs  were  set  to  work  early;  that  the  land  was  properly 
sown,  and  not  too  lightly;  and  that  it  was  well  manured.  It  may, 
indeed,  be  doubted  whether  the  description  in  Fleta  actually  corre- 
[  sponded  with  the  general  practice — whether  there  were  in  fact  both 
a  bailiff  and  a  reeve  on  every  manor.  It  is  more  likely  that  this  was 
a  lawyer's  generalization,  never  really  true,  or  that,  if  it  ever  had  been 
true,  it  was  already,  by  the  time  the  book  was  written,  ceasing  to  be 
so.  For  certainly,  at  the  beginning  of  the  fourteenth  century  there 
seems  to  have  been  usually  only  one  person  superintending  the 
cultivation  of  the  manor,  who  was  indifferently  called  reeve  or  bailiff. 
But  this  person  clearly  performed  much  the  same  duties  as  are 
ascribed  to  the  bailiff  in  Fleta,  so  that  we  need  not  doubt  the  general 
,  correctness  of  the  picture  of  co-operative  agriculture  there  given  to  us. 

23.    MANORIAL  METHODS  OF  CULTIVATION1 

The  intermixture  of  strips  was  due  to  the  presence  of  a  strong 
element  of  communalism  in  the  mediaeval  village  in  which  the 
principle  of  private  ownership  of  land  received  ample  recognition, 
but  the  free  play  of  individual  enterprise  and  initiative  was  obstructed. 
This  communalist  side  of  village  life  found  further  expression  in  the 
system  of  joint  husbandry.  Mediaeval  tillage  was  co-operative  in 
character,  and  all  the  principal  operations  of  agriculture  were  carried 

1  Taken  by  permission  from  E.  Lipson,  The  Economic  History  of  England: 
The  Middle  Ages,  pp.  66-69.     (A.  &  C.  Black,  Ltd.,  1915.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  65 

on  in  common.  Indeed,  the  association  of  all  the  tenants  in  the  open 
fields  in  a  general  partnership  was  rendered  necessary,  in  any  case, 
by  the  fact  that  a  peasant  would  seldom  possess  sufficient  oxen  to 
do  without  his  neighbours'  assistance.  Accordingly  the  villagers  / 
worked  together,  ploughing  and  reaping  every  strip  as  its  turn  came 
round.  On  the  other  hand,  the  produce  of  the  strips  went  to  the  indi-  >_/ 
vidual  owners,  for  rural  life  was  only  communistic  in  one  direction. 
I  There  was  co-operation  for  purposes  of  production,  but  there  was  no 
communistic  division  of  the  produce  and  no  general  sharing  out  of  the 
crops  among  those  who  had  taken  part  in  the  work. 

However  the  practice  of  strip-holding  may  have  originated, 
there  can  be  little  question  as  to  the  inconvenience  of  a  system  of 
intermixed  ownership.  It  was  wasteful,  unsystematic,  and  in  every 
way  bad  economy.  It  is  difficult  to  understand  how  a  mediaeval 
farmer  could  attend  to  his  land  with  efficiency  when  it  was  scattered 
over  the  whole  village  area.  Instead  of  a  compact  property  he  was 
responsible  for  a  crowd  of  disjointed  plots,  and  proper  supervision 
became  hopelessly  impossible.  Much  valuable  time  was  lost  in 
moving  about  from  one  strip  to  another,  and  a  careful  farmer  was 
also  hampered  by  other  difficulties.  It  was  largely  labour  thrown 
away  to  clean  the  soil  when  he  was  at  the  mercy  of  unthrifty  and 
careless  neighbours,  from  whose  untidy  strips  the  wind  readily  carried 
the  seed  of  thistles  to  his  own.  Time  again  was  wasted  in  quarrels 
between  the  owners  of  coterminous  strips  over  alleged  encroachments 
on  one  another's  land,  for  the  grass  balks  were  no  barrier  to  trespassers. 
But  the  chief  drawback  of  the  common  fields  was  that  they  bound  the 
cultivator  to  a  system  of  common  tillage.  The  compulsory  character 
of  mediaeval  husbandry  affected  all  strip-holders  alike,  whether  the 
lord  of  the  manor,  or  the  freeholder  with  rights  pleadable  in  the  king's 
courts,  or  the  serf  annexed  to  the  soil.  No  one  was  free  to  manage  his 
own  land  in  his  own  way.  The  individual  farmer  was  consciously 
subordinated  to  the  general  will,  and  private  interests  were  sacrificed 
to  the  superior  "  weal "  of  the  community.  Every  villager  had  a  voice  j 
in  the  communal  management  of  the  whole  village  territory,  but  he  l 
was  denied  complete  individual  control  over  his  own  acres.  Cus- 
tomary rules  regulated  primitive  farming,  and  traditional  practices 
became  stereotyped.  Agricultural  operations  and  the  concerns  of 
agrarian  life  were  determined  upon  by  the  community  as  a  whole: 
the  rotation  of  crops  and  the  regulation  of  the  ploughing,  the  sowing, 
and  the  reaping,  the  allotment  of  meadows  and  the  treatment  of  the    ; 


66  INDUSTRIAL  SOCIETY 

common  waste,  the  rules  for  fencing  and  removal  of  hedges,  the 
decisions  as  to  rights  of  way  over  the  "  communal  fields,"  and  the 
maintenance  of  roads  and  paths.  All  this  left  little  room  for  inno- 
vation or  change,  and  the  more  enterprising  farmer,  tied  hand  and 
foot  by  the  tyranny  of  custom  and  his  dependence  upon  his  neigh- 
bours, was  not  allowed  to  use  his  land  to  the  best  advantage.  The 
culture  of  open  fields  afforded  no  scope  for  the  exercise  of  special  skill 
and  no  opportunity  to  try  experiments.  The  husbandman  had  to 
plough  and  reap  at  the  appointed  times  and  work  in  accordance  with 
time-honoured  principles,  however  obsolete  and  futile.  The  system 
of  intermixed  holdings  and  the  practice  of  co-aration  largely  help 
\  to  explain  why  mediaeval  husbandry  remained  for  centuries  so  back- 
ward. 

On  the  other  hand,  it  is  fair  to  remark  that  mediaeval  agriculture 
was  not  altogether  without  its  compensations.  It  served  at  any  rate 
to  prevent  excessive  negligence,  for  a  definite  standard  of  tillage  could 
be  maintained  where  every  peasant  worked  under  the  eyes  of  his 
neighbours,  and  was  subjected  to  the  unremitting  supervision  of  the 
manorial  officials.  Moreover,  village  life  in  the  Middle  Ages,  in  spite 
of  a  certain  isolation  and  self-dependency,  was  much  exposed  to  the 
disturbances  of  war.  The  tiller  of  the  soil  was  often  summoned  away 
from  the  plough  to  meet  his  country's  enemies,  or  to  fight  the  king's 
quarrels  with  a  turbulent  nobility,  and  the  fields  were  then  abandoned 
to  the  care  of  those  who  remained  at  home.  This  would  favour  a 
system  of  joint  husbandry  and  indeed  render  it  an  indispensable 
condition  of  tillage.  But  the  real  merit  of  the  open-field  system  lay 
in  the  advantages  it  afforded  to  the  small  farmer  and  the  rural  labourer. 
Where  the  system  of  scattered  ownership  prevailed,  every  labourer 
enjoyed  an  opportunity  to  occupy  a  few  acres  of  land  and  so  attain 
some  degree  of  economic  independence;  every  cottager  could  strive 
to  improve  his  position,  adding  strip  to  strip  as  economy  and  thrift 
enlarged  his  scanty  resources;  while,  above  all,  rights  of  common 
proved  an  invaluable  provision  for  poor  and  struggling  villagers. 
The  result  of  the  enclosing  movement,  on  the  other  hand,  wasl 
ultimately  to  divorce  the  labourer  from  ownership  of  the  soil,  to] 
develop  the  growth  of  large  farms,  to  accumulate  land  in  the  hands 
of  the  few,  and  to  drive  the  rural  population  from  the  country  into 
the  towns. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  67 

24.    CHARACTERISTICS  OF  THE  MANORIAL  GROUP1 

The  fundamental  characteristic  of  the  manorial  group,  regarded  | 
from  the  economic  point  of  view,  was  its  self-sufficiency,  its  social) 
independence.  The  introduction  of  new  tenants  from  outside  was 
indeed  always  possible,  either  to  take  the  place  of  villeins  who  had 
died  without  children,  or  to  occupy  portions  of  the  demesne  or  waste. 
But  it  was  probably  very  rare;  the  same  families  tilled  the  village 
fields  from  father  to  son.  Each  manor  had  its  own  law  courts  for 
the  maintenance  of  order.  Then,  as  now,  every  village  had  its  church ; 
with  this  advantage  or  disadvantage,  whichever  it  may  be  reckoned, 
as  compared  with  modern  times,  that  the  priest  did  not  belong  to  a 
different  social  class  from  his  parishioners.  Indeed,  in  perhaps  one- 
half  of  the  villages,  he  was  as  poor  as  most  of  them:  for  when  the 
advowson  belonged  to  an  ecclesiastical  body,  the  patrons  took  to  them- 
selves the  tithes,  and  appointed  a  vicar  who  had  often  to  be  contented 
with  the  altar-dues  for  his  subsistence,  so  that  he  was  glad  enough 
to  get  a  few  acres  and  add  to  his  income  by  joining  in  the  common 
agriculture. 

The  village  included  men  who  carried  on  all  the  occupations  and 
crafts  necessary  for  everyday  life.  There  was  always  a  water  mill 
or  a  windmill,  which  the  tenants  of  the  manor  were  bound  to  use, 
playing  dues  which  formed  a  considerable  fraction  of  the  lord's  income./ 
Again  and  again  we  find  the  lord's  servants  seizing  the  handmills  of 
which  the  tenants  had  dared  to  make  use  in  detriment  of  his  rights. 
For  a  long  time  the  lords  kept  the  mills  in  their  own  hands,  under 
the  care  of  bailiffs,  making  what  profit  they  could  thereby,  but  in  the 
twelfth  century  it  began  to  be  the  practice  to  let  the  mill  to  one  of  the 
villeins  at  an  annual  rent,  or  ferm.  Many  villages,  though  not  all, 
had  their  own  blacksmith  and  carpenter,  who  probably  were  at  first 
communal  officers,  holding  land  on  condition  of  repairing  the  ploughs 
of  the  demesne  and  of  the  villagers;  though  in  the  course  of  the  thir- 
teenth and  fourteenth  centuries  this  service  also  came  to  be  commuted 
for  money,  and  the  craftsmen  received  pay  for  each  piece  of  work. 
Another  village  officer,  who  sometimes  appears  as  holding  land  in 
virtue  of  his  high  office,  was  the  pounder. 

The  village  " general  shop"  had  not  yet  come  into  existence;  in 
many  places  it  did  not  appear  until  the  present  century;    partly 

1  Adapted  by  permission  from  W.  J.  Ashley,  An  Introduction  to  English  Eco- 
nomic History  and  Theory :  The  Middle  Ages,  pp.  33-37.  (Longmans,  Green,  &  Co., 
1892.) 


68  INDUSTRIAL  SOCIETY 

because  many  of  the  wants  which  it  meets  were  not  yet  felt,  partly 
because  such  wants  as  were  felt  were  supplied  either  by  journeys  at 
long  intervals  to  some  distant  fair  or  market,  or  by  the  labour  of  the 
family  itself.  The  women  wove  rough  linen  and  woolen  cloth  for 
clothing;  the  men  tanned  their  own  leather. 

Thus  the  inhabitants  of  an  average  English  village  went  on — 
year  in,  year  out — with  the  same  customary  methods  of  cultivation, 
living  on  what  they  produced,  and  scarcely  coming  in  contact  with  the 
outside  world.  The  very  existence  of  towns,  indeed,  implied  that  the 
purely  agricultural  districts  produced  more  than  they  required  for 
r  their  own  consumption;  and  corn  and  cattle  were  regularly  sent,  even 
to  distant  markets,  by  lords  of  manors  and  their  bailiffs,  in  increasing 
quantities  as  the  great  lords  or  corporations  came  to  desire  money 
payments  instead  of  payments  in  kind.  But  the  other  dealings  of  the 
villagers  with  the  outside  world  were  very  few.  First,  there  was  the 
purchase  of  salt,  an  absolute  necessity  in  the  mediaeval  world,  when 
people  lived  on  salted  meat  for  five  months  in  the  year.  The  salt 
most  commonly  used  came  from  the  southern  coast,  especially  the 
Cinque  Ports,  where  it  was  made  by  the  evaporation  of  sea  water. 
The  West  of  England  drew  large  supplies  from  the  salt-works  at 
Droitwich,  belonging  to  Worcester  Priory.  There  was  a  large  impor- 
tation also  of  salt  of  a  better  quality  from  Guienne.  Secondly,  iron 
was  continually  needed  for  the  ploughs  and  other  farm  implements. 
It  was  to  be  had  both  of  home  manufacture,  especially  from  the  weald 
of  Sussex,  and  of  foreign  importation,  chiefly  from  Spain;  and  it  was 
bought  at  fairs  and  markets.  It  was  the  general  practice  for  the 
bailiff  to  make  large  purchases  of  iron  and  keep  it  in  stock,  handing 
over  to  the  blacksmith  the  necessary  quantities  as  they  were  needed 
for  the  repair  of  the  lord's  ploughs.  A  very  dry  summer  caused  much 
wear  and  tear  of  implements,  and  consequently  an  increased  demand 
and  a  higher  price;  so  that  the  bailiff's  accounts  frequently  mention 
the  "dearness  of  iron  on  account  of  drought."  A  further  need  was 
felt  when,  at  the  end  of  the  thirteenth  century,  a  fresh  disease,  the 
[  scab,  appeared  among  the  sheep,  and  tar  became  of  great  importance 
I  as  a  remedy.  It  was  produced  in  Norway,  and  exported  by  the  Hanse 
merchants  from  Bergen  to  the  Norfolk  ports.  In  years  of  murrain  the 
-cost  incurred  under  this  head  was  a  considerable  item  in  the  bailiff's 
expenses.  Perhaps  the  only  other  regular  recurring  need,  which  the 
village  could  not  itself  supply,  was  that  of  millstones.  Of  these  the 
better  qualities  came  from  the  neighborhood  of  Paris,  and  were 


MEDIAEVAL  INDUSTRIAL  SOCIETY  69 

brought  to  the  ports  on  the  Eastern  and  Southern  coasts,  whither  we 
often  find  the  bailiff  or  miller  journeying  to  purchase  them.  The 
duty  of  assisting  the  bailiff  in  conveying  the  millstone  from  the  neigh- 
boring town  was  sometimes  an  obligation  weighing  on  all  the  tenants 
of  a  manor,  free  and  villein  alike. 

Not  only  was  the  village  group  thus  self-contained  and  complete 
within  itself;  the  sense  of  unity  was  so  strong  that  it  was  able  to  act 
as  a  corporate  body.  From  early  times  the  great  lords,  possessing 
manors  at  a  distance  which  they  could  not  easily  inspect  themselves 
or  by  their  stewards,  had  let  them  for  fourteen,  twenty-one,  or  thirty- 
five  years  at  aferm,  or  fixed  annual  payment,  to  men  who  would  take 
the  place  of  the  lord  and  try  to  make  a  profit.  Now,  we  find  many 
cases,  even  as  early  as  11 83,  in  which  the  whole  body  of  villeins,  the 
villata,  of  particular  manors  made  contracts  with  their  lords  identical 
with  those  which  an  individual  firmar  might  have  made,  promising 
an  annual  sum  and  taking  the  management  of  the  land  into  their  own 
hands. 

25.    THE  MANOR  VERSUS  THE  MODERN  VILLAGE1 

It  is  instructive  to  compare  the  village,  as  we  have  seen  it,  with 
the  village  of  today. 

I.  In  one  respect  there  might  seem  to  be  a  close  resemblance. 
Then,  as  usually  now,  the  village  was  made  up  of  one  street,  with  a 
row  of  houses  on  each  side.  But  the  inhabitants  of  the  village  street 
now  are  the  labourers,  the  one  or  two  village  artisans — such  as  a 
tailor,  a  blacksmith,  a  saddler,  a  cobbler — and  one  or  two  small  shop- 
keepers. The  farmers  live  in  separate  homesteads  among  the  fields 
they  rent,  and  not  in  the  village  street.  Then  all  the  cultivators  of 
the  soil  lived  side  by  side. 

II.  Secondly,  notice  the  difference  as  to  the  agricultural  opera- 
tions themselves.  Now  each  farmer  follows  his  own  judgment  in 
what  he  does.  He  sows  each  field  with  what  he  thinks  fit,  and  when 
he  sees  fit,  and  chooses  his  own  time  for  each  of  the  agricultural  opera- 
tions. But  the  peasant  farmer  of  the  period  we  have  been  consider- 
ing, and  for  long  afterwards,  was  bound  to  take  his  share  in  a  common 
system  of  cultivation,  in  which  the  time  at  which  everything  should 
be  done  and  the  way  in  which  everything  should  be  done  were  regu- 
lated by  custom  enforced  by  the  manor  courts. 

1  Taken  by  permission  from  W.  J.  Ashley,  An  Introduction  to  English  Economic 
History  and  Theory:  The  Middle  Ages,  pp.  40-43.  (Longmans,  Green,  &  Co., 
1892.) 


70  INDUSTRIAL  SOCIETY 

III.  A  further  difference  is  seen  in  the  relations  of  lord  and  tenant 
as  to  the  cultivation.  Nowadays  either  the  landlord  does  not  him- 
self farm  any  land  in  the  parish,  or,  if  he  does,  his  management  of  it 
is  as  independent  of  the  cultivation  of  any  other  land  by  any  tenants 
he  may  have  as  that  of  his  tenants  is  of  his  own  farming.  But  then 
almost  all  the  labour  upon  the  demesne  was  furnished  by  the  villein 
tenants,  who  contributed  ploughs,  oxen,  and  men  for  the  bailiff's 
disposal.  Long  after  commutation  of  services  had  largely  taken  place 
the  lords  retained  the  right  to  assistance  in  all  the  more  important 
processes — ploughing,  reaping,  threshing,  carting.  And  the  demesne 
itself  was  often  made  up  in  great  part  of  virgates  in  the  common  fields, 
so  that  the  lord  himself  was  bound  to  submit,  so  far  as  these  were  con- 
cerned, to  the  same  rigid  system  of  joint  cultivation  as  was  main- 
tained by  the  rest  of  the  members  of  the  village  community. 

IV.  Compare,  finally,  the  classes  in  a  manor  with  those  in  a  village 
today.  In  a  modern  parish  there  will  usually  be  a  squire,  some  three 
or  four  farmers — all  of  them  large  farmers  when  compared  with 
peasant  holders — and  beneath  them  a  comparatively  large  number  of 
agricultural  labourers.  Even  when  the  agricultural  labourer  has  a 
good  garden  or  an  allotment,  there  is  still  a  great  gulf  between  him  and 
the  farmer  of  a  couple  of  hundred  acres.  But  in  the  mediaeval  manor, 
as  we  have  seen,  much  the  greater  part  of  the  land  was  cultivated  by 
small  holders.  Between  the  lord  of  the  manor  and  the  villein  tenants 
there  was,  indeed, a  great  gulf  fixed — a  gulf  wider  far  than  that  between 
the  farmer  and  the  squire  of  today.  And  it  was  probably  a  hard 
matter  for  the  cotter  to  rise  to  be  a  yardling.  But,  putting  the  lord 
on  one  side,  there  was  nothing  like  that  social  separation  between  the 
various  classes  of  actual  cultivators  that  there  is  today.  The  yard- 
ling  and  cotter  worked  in  the  same  way;  their  manner  of  life  was 
the  same;  and  in  the  system  of  joint  cultivation  and  the  life  of  the 
village  street  they  were  made  to  feel  their  common  interests. 

It  may  be  well  to  notice  the  non-existence  in  the  village  group  of 
certain  elements  which  modern  abstract  economics  is  apt  to  take  for 
granted.  Individual  liberty,  in  the  sense  in  which  we  understand  it, 
did  not  exist;  consequently,  there  could  be  no  such  complete  compe- 
tition as  we  are  wont  to  postulate.  The  payments  made  by  the  villeins 
are  not  rents  in  the  abstract  economist's  sense,  for  the  economist 
assumes  competition,  assumes  that  landlord  and  farmer  are  guided 
only  by  commercial  principles;  that  there  is  an  average  rate  of  profit, 
which  the  farmer  knows;   that  he  will  not  take  less  and  cannot  get 


MEDIAEVAL  INDUSTRIAL  SOCIETY  71 

more.  However  the  labour  services  came  to  be  fixed,  they  were  fixed 
in  the  eleventh  century;  they  remained  unchanged  till  they  were 
commuted  for  money;  and,  once  commuted,  no  increase  took  place  in 
the  money-rent.  The  chief  thought  of  lord  and  tenant  was  not  what 
the  tenant  could  possibly  afford,  but  what  was  customary.  And, 
finally,  there  was  as  yet  no  capital  in  the  modern  sense.  Of  course 
there  was  capital  in  the  sense  in  which  the  word  is  defined  by  the 
orthodox  economists — "  wealth  appropriated  to  reproductive  employ- 
ment"; for  the  villeins  had  ploughs,  harrows,  oxen,  horses. 


See  also  12.  Household  Economy. 

C.    Town  Economy 
26.    THE  RISE  OF  TOWNS1 

A  great  many  of  the  towns  grew  up  under  manorial  patronage,  so 
that  their  earlier  history  is  really  the  story  of  a  prosperous  manor. 
Indeed,  some  of  our  most  important  towns,  such  as  Sheffield,  grew 
up  and  flourished  under  this  system,  and  Manchester  had  very  little 
of  the  constitutional  character  of  a  town  until  1846.  A  town,  in  this 
constitutional  sense,  was  a  place  where  the  inhabitants  were  collec- 
tively responsible  for  the  king's  taxes  and  came,  in  consequence,  to 
have  considerable  authority  for  local  self-government  in  the  assess- 
ment of  the  quota  which  each  householder  had  to  pay  for  the  royal 
taxes.  A  group  which  had  attained  this  fiscal  character  is  easily 
distinguishable  from  the  manors,  in  each  of  which  the  lord  was  per-j 
sonally  responsible  for  taxation.  * 

The  manor  has  been  spoken  of  as  a  center  of  rural  employment. 
Towns  must  be  regarded  as  centers  of  trade  and  commerce,  and  any 
social  gathering  or  settlement,  affording  opportunities  for  trade,  sup- 
plied a  nucleus  which  might  sooner  or  later  develop  into  a  town. 
The  introduction  of  Christianity,  and  the  struggle  with  the  Danes, 
each  brought  about  social  conditions  which  favoured  their  growth. 
Opportunities  of  trade  were  offered  in  Christian  times  at  places  of 
pilgrimage,  especially  .on  the  days  when  the  patron  saint  was  com- 
memorated, while  the  great  Benedictine  monasteries  formed  large 
establishments,  which  were  often  partially  dependent  on  goods  brought 
from  a  distance.     Norwich  and  Canterbury,  Bury,  Reading,  and 

1  Adapted  by  permission  from  W.  Cunningham  and  E.  A.  McArthur,  Outlines 
of  English  Industrial  History,  pp.  46-49.     (The  Macmillan  Co.,  1895.) 


72  INDUSTRIAL  SOCIETY 

Worcester  are  among  the  towns  which  have  thus  come  into  being 
under  the  shadow  of  a  great  abbey. 

On  the  other  hand,  the  forts,  built  by  the  Danes  or  erected  by 
Edward  the  Elder  and  his  sister,  the  Lady  of  Mercia,  to  hold  the 
country  against  the  Danes,  were  also  centers  of  trade;  and  the  growth 
of  such  towns  as  Leicester  and  Tamworth  may  perhaps  be  traced  to 
these  causes.  But  so  soon  as  active  contest  with  the  Danes  had 
abated,  and  they  were  adopted  as  a  constituent  element  on  English 
soil,  the  progress  of  the  towns  was  rapid.  The  Danes  were  given  to 
seamanship  and  trade,  as  the  English  had  ceased  to  be.  They  brought 
England  into  intercourse  with  their  own  settlements  on  the  Baltic, 
in  Iceland,  and  in  Ireland.  They  seem  to  have  devoted  themselves 
to  industrial  pursuits  and  to  have  furnished  some  common  articles  of 
trade.  The  importance  of  the  Danish  contribution  to  town  life  is 
seen  in  many  ways. 

While  these  influences  made  it  possible  for  town  life  to  arise,  there 
were  various  physical  conditions  which  rendered  one  point  or  another 
especially  favourable  for  the  new  development.  The  English 
rivers  offer  facilities  for  carriage  far  into  the  country,  and  more  than 
one  town  has  arisen  at  the  point  where  the  tide  served  to  bring  the 
small  seagoing  vessels  of  early  days.  Perth  and  Stirling  in  Scotland, 
Ipswich,  Norwich,  and  Chester  may  all  be  regarded  as  illustrations 
in  point.  In  other  cases  the  great  Roman  roads  remained  to  offer 
facilities  of  communication;  and  new  towns  took  their  rise  in  the 
immediate  neighborhood,  or  on  the  very  sites,  of  the  Roman  ruins. 

27.    THE  SIGNIFICANCE  OF  THE  TOWN1 

The  rise  of  the  towns  brought  with  it  a  new  era  in  manufactures. 
In  the  ordinary  village  it  did  not  pay  men  to  specialize  in  the  produc- 
tion of  wares,  as  the  market  was  so  small.  A  shoemaker,  for  instance, 
could  not  make  a  living  by  selling  50  or  100  pairs  of  shoes  a  year.  If 
we  think,  however,  of  a  village  growing  into  a  town  surrounded  by  a 
considerable  country  population,  we  see  that  the  market  has  widened 
into  an  area  of  size  sufficient  to  support  a  number  of  specialists. 
Manufacturing  became  a  profession  to  which  men  devoted  most  of 
their  time.  A  man  could  learn  his  trade  much  more  thoroughly  and 
could  afford  to  make  the  tools  which  would  enable  him  to  exercise 
it  most  efficiently.    The  result  was  an  increase  in  production  which 

1  Adapted  by  permission  from  Clive  Day,  A  History  of  Commerce,  pp.  42-44. 
(Longmans,  Green,  &  Co.,  19 12.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  73 

enabled  the  people  on  a  given  area  to  live  far  more  comfortably  than 
they  had  done  before. 

This  movement  was  bound  to  change  the  conditions  of  life  in  the 
country  districts.  The  people  there  were  freed  from  the  necessity 
of  devoting  part  of  their  time  to  work  which  they  never  did  well; 
they  could  apply  most  of  their  energy  to  agriculture,  and  could  use 
the  surplus  crop  which  they  thus  obtained  for  a  profitable  exchange 
with  the  artisans  of  the  town.  The  growth  of  towns  affected  them 
in  another  way.  In  the  purely  manorial  period  a  serf  could  not  better 
his  condition  by  running  away;  he  had  nowhere  to  go  except  to  other 
manors  like  the  one  he  had  left,  where  his  condition  might  be  actually 
worse  than  before.  In  the  towns,  however,  practically  all  the  popula- 
tion were  free;  the  artisans  were  numerous  and  intelligent  enough 
to  provide  for  their  own  protection,  and  did  not  need  to  subject  them- 1 
selves  to  a  lord.  The  towns  were  islands  of  freedom  in  a  sea  of  serfdom 
or  of  half-freedom.  The  custom  established  itself  that  a  serf  whoj 
could  escape  from  his  lord,  and  who  lived  a  year  and  a  day  within 
the  walls  of  a  town,  became  a  free  man  and  could  not  be  reduced  to 
his  former  position.  Landlords  found  that  they  must  bid  against 
the  attractions  of  the  town  if  they  were  to  keep  the  laborers  in  the 
country,  and  agreed  to  lighten  their  burdens  if  they  would  stay. 
Many  influences  worked  together,  and  the  results  were  modified  by 
many  factors,  especially  of  a  political  kind,  in  various  countries,  but 
the  upward  movement  of  the  country  population  was  general  through- 
out western  Europe.  Free  men  produced  more  than  serfs,  and  this 
was  another  influence  increasing  the  surplus  of  the  country  districts 
and  furthering  trade  thereby. 

28.    THE  AGRICULTURAL  ELEMENT  IN  THE  TOWNS1 

In  the  Middle  Ages  industry  and  commerce  played  a  subordinate 
part  in  the  economic  life  of  the  English  people.  The  wealth  of  Eng- 
land lay  in  her  fields,  not  in  her  workshops  or  factories,  and  the  great 
mass  of  the  nation  followed  the  plough  and  were  tillers  of  the  soil. 
The  typical  figures  of  mediaeval  society  were  the  knight  and  the 
husbandman  rather  than  the  artisan  and  the  trader,  and  while  many 
towns  attained  prosperity,  the  agricultural  element  was  always 
present  and  often  predominant.  At  the  end  of  the  thirteenth  cen- 
tury half  the  inhabitants  of  Colchester  had  no  other  occupation  than 

1  Taken  by  permission  from  E.  Lipson,  The  Economic  History  of  England: 
The  Middle  Ages,  pp.  163-64.     (A.  &  C.  Black,  Ltd.,  1915.) 


74  INDUSTRIAL  SOCIETY 

tillage,  and  everywhere  the  ordinary  pursuits  of  urban  life  were  made 
secondary  to  the  more  important  needs  of  agriculture.  At  London 
the  holding  of  the  Husting  court  was  suspended  in  the  harvest,  and 
a  statute  of  1388  laid  down  that  all  artificers  of  whose  craft  "a  man 
hath  no  great  need  in  harvest  time  shall  be  compelled  to  serve  in 
harvest,  to  cut,  gather,  and  bring  in  the  corn."  As  late  as  the  six- 
teenth century  the  weavers  of  Norwich  were  forbidden  to  work  at 
their  craft  during  the  harvest  month  "for  the  relief  and  help  of  hus- 
bandry," since  tillage  was  said  to  be  "much  decayed  for  want  of 
labourers."  The  sharp  cleavage  between  town  and  country,  in  some 
respects  the  most  striking  feature  of  modern  economic  conditions,  is, 
in  fact,  the  product  of  industrial  forces  which  exerted  but  slight  pres- 
sure in  earlier  times.  For  centuries  English  towns  were  scarcely  more 
than  large-sized  villages,  and  their  pre-eminence  consisted  chiefly 
in  the  fortified  walls  or  mound,  behind  which  the  inhabitants  found 
shelter  and  security;  beyond  these  walls  lay  the  broad  acres  and  open 
fields,  the  meadows  and  pastures,  that  were  part  and  parcel  of  the 
townsmen's  heritage.  In  the  map  of  the  mediaeval  borough  and  in 
the  economy  of  the  mediaeval  burghers  the  town-fields  occupied  a 
place  no  less  important  than  the  restricted  area  where  stood  their 
houses  and  shops. 

29.    A  HISTORY  OF  THE  GILD  MERCHANT1 

As  the  earliest  history  of  the  Gild  is  wrapped  in  obscurity,  we  must 
resort  to  conjecture.  Whether  we  place  the  inception  of  the  fraternity 
immediately  before  or  after  the  Norman  Conquest,  whether  we  make 
it  the  continuation  of  older  Anglo-Saxon  gilds,  or  a  derivative  from 
Normandy,  or  a  wholly  new  and  spontaneous  growth,  it  was  doubt- 
less at  first  merely  a  private  society,  unconnected  with  the  town 
government,  having  for  its  object  the  protection  of  its  members,  the 
tradesmen  of  the  borough,  and  the  maintenance  of  the  newly  invig- 
orated trade  interests. 

During  the  twelfth  century  it  gradually  became  a  recognized 
part  of  the  town  constitution,  thus  entering  upon  its  second  stage  of 
development.  How  this  came  to  pass  can  easily  be  realized  from  the 
later  history  of  the  English  gilds  in  general.  For  in  the  fourteenth 
and  fifteenth  centuries  a  simple  social-religious  gild  at  times  attained 
such  power  in  a  community  that  it  came  to  be  regarded  as  an  impor- 

1  Adapted  by  permission  from  Charles  Gross,  The  Gild  Merchant,  I,  158-64. 
(The  Clarendon  Press,  1890.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  75 

tant  constituent  element  of  the  civic  administration.    Quite  similar 
must  have  been  the  growth  of  the  Gild  Merchant,  which  from  the 
outset  was  doubtless  composed  of  the  most  influential  burgesses  and 
which,  as  the  exponent  of  the  mercantile  interests,  must  always  have 
been  greatly  concerned  in  the  increase  of  the  privileges  and  prosperity 
of  the  borough  in  general.    It  was  very  natural  that  the  town  author- 
ities should  use  such  a  society  for  public  purposes,  entrusting  to  it  \ 
the  surveillance  of  the  trade  monopoly  in  which  its  members  were    \ 
particularly  interested,  allowing  it  to  gradually  become  an  important    / 
part  of  the  civic  administrative  machinery.  / 

The  beginning  of  the  third  and  final  stage  of  development  cannot 
be  definitely  fixed,  for  in  some  places  it  was  of  an  earlier  date  than  in 
others.  The  fourteenth  century  may,  in  general,  be  called  the  period 
of  gradual  transition.  In  the  fifteenth  century  the  transformation 
was  completed.  In  this  and  in  the  following  centuries  the  term  Gilda 
Mercatoria  became  less  and  less  frequent.  In  many  places  it  soon 
wholly  disappeared.  Where  it  continued  to  subsist,  the  Gild  no 
longer  had  an  individuality  of  its  own.  Its  aldermen  and  other  pecul- 
iar officers,  its  whole  organization  as  a  distinctive  entity,  had  van- 
ished. It  had  merged  its  identity  in  that  of  the  general  municipal 
organism.  The  head  of  the  fraternity  was  now  the  head  of  the 
town;  borough  and  Gild,  burgesses  and  gildsmen,  were  now  identical. 
What  had  once  been  a  distinct  integral  part  of  the  civic  body  politic 
became  vaguely  blended  with  the  whole  of  it.  The  old  Gild  Merchant 
was  now  rarely  mentioned  in  connection  with  the  municipal  trade 
restrictions  and  regulations,  the  latter  being  commonly  applied  to 
burgesses,  craftsmen,  freemen,  or  "foreigners." 

This  transformation  was  due  mainly  to  three  causes:  (i)  the 
expansion  of  trade  and  the  multiplication  of  the  craft  and  mercantile 
fraternities,  which  absorbed  the  ancient  functions  of  the  Gild  Mer- 
chants and  rendered  it  superfluous;  (2)  the  growth  of  the  select  govern-1 
ing  body,  which  usurped  most  of  the  privileges  of  the  old  burghers 
at  large,  and  hence  tended  to  obliterate  the  distinction  between  them, 
or  their  less  privileged  successors,  and  the  ancient  gildsmen,  leaving 
both  only  certain  trade  immunities;  (3)  the  decay  of  the  leet — the 
rallying  point  of  the  old  burghers  as  distinguished  from  that  of  the 
gildsmen — the  functions  of  which  passed,  in  part,  to  the  crafts,  but 
mainly  to  the  select  body  and  to  the  justices  of  the  peace. 

Thus,  in  modern  times,  the  machinery  of  the  Gild  Merchant  fell 
to  pieces,  but  its  name  vaguely  clung  either  to  the  aggregate  of  the 


76  INDUSTRIAL  SOCIETY 

craft  fraternities,  to  the  town  polity  as  a  whole,  to  the  narrow  govern- 
ing corporation,  or  to  a  private  social-religious  gild.  In  the  eighteenth 
century  we  meet  the  word  much  less  frequently  than  in  the  seven- 
teenth and  toward  the  beginning  of  the  present  century  it  became  very 
rare.  The  Municipal  Corporations  Commission  in  1835  found  it  still 
used  in  only  a  few  boroughs.  The  remnants  of  the  Gild  Merchant 
and  of  the  craft  fraternities  were  rapidly  vanishing  before  the  new 
ideas  of  a  more  liberal  age — the  age  of  laissez  Jaire. 

30.    ORDINANCES   OF  THE   GILD   MERCHANT  OF 
SOUTHAMPTON1 

[Note. — This  selection  should  be  read  with  the  purpose  of  securing 
evidence  of  the  function  of  the  Gild  Merchant  with  respect  to  the  following 
points:  (1)  the  commercial  monopoly  of  the  brethren;  (2)  the  trading  per- 
mitted to  "foreign"  merchants;  (3)  the  relations  of  the  brethren  to  strangers; 
(4)  the  rights  in  common  of  the  brethren;  (5)  the  control  of  industry  and 
industrial  relations;  (6)  the  regulation  of  non-industrial  activities;  (7)  the 
relation  of  the  Gild  to  the  Borough;  (8)  the  conduct  of  charities  and  the 
development  of  fraternalism.] 

1.  In  the  first  place,  there  shall  be  elected  from  the  Gild  Merchant 
and  established,  an  alderman,  a  steward,  a  chaplain,  four  skevins,  and 
an  usher.  And  the  Gild  shall  meet  twice  a  year:  that  is  to  say,  on 
the  Sunday  next  after  St.  John  the  Baptist's  day,  and  on  the  Sunday 
next  after  St.  Mary's  day. 

3.  And  when  the  Gild  shall  sit,  the  lepers  of  La  Madeleine  shall 
have  of  the  alms  of  the  Gild,  two  sesters  of  ale,  and  the  sick  of  God's 
House  and  of  St.  Julian  shall  have  two  sesters  of  ale.  And  the  Friar's 
Minors  shall  have  two  sesters  of  ale  and  one  sester  of  wine.  And  four 
sesters  of  ale  shall  be  given  to  the  poor  wherever  the  Gild  shall  meet. 

7.  And  when  a  gildsman  dies,  all  those  who  are  of  the  Gild  and  are 
in  the  city  shall  attend  the  services  for  the  dead,  and  gildsmen  shall 
bear  the  body  and  bring  it  to  the  place  of  burial.  And  whoever  will 
not  do  this  shall  pay  according  to  his  oath,  two  pence,  to  be  given  to  the 
poor.  And  those  of  the  ward  where  the  dead  man  shall  be  ought  to 
find  a  man  to  watch  over  the  body  the  night  that  the  dead  shall  lie 
in  his  house.  And  so  long  as  the  service  of  the  dead  shall  last,  that 
is  to  say,  the  vigil  and  the  mass,  there  ought  to  burn  four  candles 

1  Adapted  by  permission  from  University  of  Pennsylvania,  Department  of 
History,  Reprints  from  the  Sources  of  European  History,  1st  Ser.,  Vol.  II,  No.  1, 
pp.  12-17. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  77 

of  the  Gild,  each  candle  of  two  pounds  weight  or  more,  until  the  body 
is  buried.  And  these  four  candles  shall  remain  in  the  keeping  of  the 
steward  of  the  Gild. 

9.  And  when  a  gildsman  dies,  his  eldest  son  or  his  next  heir  shall 
have  the  seat  of  his  father,  or  of  his  uncle,  if  his  father  was  not  a 
gildsman,  and  of  no  other  one;  and  he  shall  give  nothing  for  his  seat. 
No  husband  can  have  a  seat  in  the  Gild  by  right  of  his  wife,  nor 
demand  a  seat  by  right  of  his  wife's  ancestors. 

10.  And  no  one  has  the  right  or  power  to  sell  or  give  his  seat  in 
the  Gild  to  any  man;  and  the  son  of  a  gildsman,  other  than  his  eldest 
son,  shall  enter  into  the  Gild  on  payment  of  ten  shillings,  and  he  shall 
take  the  oath  of  the  Gild. 

11.  And  if  a  gildsman  shall  be  imprisoned  in  England  in  time  of 
peace,  the  alderman  with  the  steward,  and  with  one  of  the  skevins, 
shall  go,  at  the  cost  of  the  Gild,  to  procure  the  deliverance  of  the  one 
who  is  in  prison. 

12.  And  if  any  gildsman  strikes  another  with  his  fist,  and  is 
convicted  thereof,  he  shall  lose  the  Gild  until  he  shall  have  bought  it 
back  for  ten  shillings,  and  taken  the  oath  of  the  Gild  again  like  a  new 
member.  And  if  a  gildsman  strikes  another  with  a  stick,  or  a  knife 
or  any  other  weapon,  whatever  it  may  be,  he  shall  lose  the  Gild  and 
the  franchise,  and  shall  be  held  as  a  stranger  until  he  shall  have  been 
reconciled  to  the  good  men  of  the  Gild  and  has  made  recompense  to 
the  one  whom  he  has  injured;  and  has  paid  a  fine  to  the  Gild  of  twenty 
shillings,  and  this  shall  not  be  remitted. 

14.  And  if  any  stranger  or  any  other  who  is  not  of  the  Gild  nor 
of  the  franchise,  strikes  a  gildsman,  and  is  reasonably  convicted 
thereof,  let  him  be  in  prison  two  days  and  two  nights,  unless  the  injury 
is  such  that  he  should  be  more  severely  punished. 

15.  And  if  a  gildsman  reviles  or  slanders  another  gildsman,  and 
a  complaint  of  it  comes  to  the  alderman,  and,  if  he  is  reasonably  con- 
victed thereof,  he  shall  pay  two  shillings  fine  to  the  Gild,  and  if  he 
he  is  not  able  to  pay  he  shall  lose  the  Gild. 

16.  And  if  anyone  who  is  of  the  franchise  speaks  evil  of  a  gildsman, 
and  is  convicted  of  this  before  the  alderman,  he  shall  pay  five  shillings 
for  a  fine,  or  lose  the  franchise. 

19.  And  no  one  in  the  city  of  Southampton  shall  buy  anything 
to  sell  again  in  the  same  city,  unless  he  is  of  the  Gild  Merchant  or  of 
the  franchise.  And  no  one  shall  be  quit  of  custom  unless  he  proves 
that  he  is  in  the  Gild  or  in  the  franchise. 


78  INDUSTRIAL  SOCIETY 

20.  And  no  one  shall  buy  honey,  fat,  salt  herrings,  or  any  kind 
of  oil  or  millstones,  or  fresh  hides,  or  any  kind  of  fresh  skins,  unless 
he  is  a  gildsman;  nor  keep  a  tavern  for  wine,  nor  sell  cloth  at  retail, 
except  in  market  on  fair  days;  nor  keep  grain  in  his  granary  beyond 
five  quarters,  to  sell  at  retail,  if  he  is  not  a  gildsman;  and  whoever 
shall  do  this  and  be  convicted  shall  forfeit  all  to  the  king. 

21.  No  one  of  the  Gild  ought  to  be  partner  or  joint  dealer  in  any 
of  the  kinds  of  merchandise  before  mentioned  with  anyone  who  is  not 
of  the  Gild,  by  any  manner  of  coverture,  or  art,  or  contrivance,  or 
collusion,  or  in  any  other  manner.  And  whosoever  shall  do  this  and 
be  convicted,  the  goods  in  such  manner  bought  shall  be  forfeited  to 
the  king,  and  the  gildsman  shall  lose  the  Gild. 

2  2 .  If  any  gildsman  falls  into  poverty,  and  has  not  the  wherewithal 
to  live,  and  is  not  able  to  work  or  to  provide  for  himself,  he  shall  have 
one  mark  from  the  Gild  to  relieve  his  condition  when  the  Gild  shall  sit. 

23.  And  no  private  man  or  stranger  shall  bargain  for  or  buy  any 
kind  of  merchandise  coming  into  the  city  before  a  burgess  of  the  Gild 
Merchant,  so  long  as  the  gildsman  is  present  and  wishes  to  bargain 
for  and  buy  this  merchandise;  and  if  anyone  does  so  and  is  convicted, 
that  which  he  buys  shall  be  forfeited  to  the  king. 

24.  And  anyone  who  is  of  the  Gild  Merchant  shall  share  in  all 
merchandise  which  another  gildsman  shall  buy  or  any  other  person, 
whoever  he  is,  if  he  comes  and  demands  part  and  is  there  where  the 
merchandise  is  bought,  and  also  if  he  gives  satisfaction  to  the  seller 
and  gives  security  for  his  part.  But  no  one  who  is  not  a  gildsman 
is  able  or  ought  to  share  with  a  gildsman  without  the  will  of  the 
gildsman. 

28.  And  if  any  gildsman  for  any  debt  which  he  may  owe,  will  not 
suffer  himself  to  be  distrained,  or  when  he  has  been  distrained,  shall 
break  through  or  make  removal  or  break  the  king's  lock  and  be  con- 
victed thereof,  he  shall  lose  his  gildship  until  he  has  bought  it  again 
for  twenty  shillings,  and  this  each  time  that  he  offends  insuch  manner. 
And  he  shall  be  none  the  less  distrained  until  he  has  made  satisfaction 
for  the  debt  he  owes;  and  if  he  will  not  submit  to  justice  as  aforesaid 
and  be  thereof  convicted,  he  shall  go  to  prison  for  a  day  and  a  night 
like  one  who  is  against  the  peace;  and  if  he  will  not  submit  to  justice 
let  the  matter  be  laid  before  the  king  and  his  council  in  manner  afore- 
said. 

29.  And  the  chief  alderman,  and  the  twelve  sworn  men,  or  the 
bailiffs,  each  month,  or  at  least  four  times  a  year,  shall  see  that  the 


MEDIAEVAL  INDUSTRIAL  SOCIETY  79 

assize  of  bread  and  ale  be  well  kept  in  all  points  according  to  the  price 
of  corn. 

32.  Every  year,  on  the  morrow  of  St.  Michael,  shall  be  elected  by 
the  whole  community  of  the  town  assembled  in  a  place  provided,  to 
consider  the  estate  and  treat  of  the  common  business  of  the  town — 
then  shall  be  elected  by  the  whole  community,  twelve  discreet  men 
to  execute  the  king's  commands,  together  with  the  bailiffs,  and  to 
keep  the  peace  and  protect  the  franchise,  and  to  do  and  keep  justice 
to  all  persons,  as  well  poor  as  rich,  natives  or  strangers,  all  that  year. 

63.  No  one  shall  go  out  to  meet  a  ship  bringing  wine  or  other 
merchandise  coming  to  the  town,  in  order  to  buy  anything,  before 
the  ship  be  arrived  and  come  to  anchor  for  unlading;  and  if  any  one 
does  so  and  is  convicted,  the  merchandise  which  he  shall  have  bought 
shall  be  forfeited  to  the  king. 

31.    THE  GILD  MERCHANT  AND  THE  CRAFT  GILDS1 

We  are  particularly  concerned  with  only  one  phase  of  this  sub- 
ject, namely,  the  relation  of  the  craftsmen  or  artisans  and  their  asso- 
ciations to  the  Gild  Merchant.  It  is  necessary  at  the  outset  to 
emphasize  the  fact  that,  generally  speaking,  craftsmen  were  freely 
admitted  to  the  Gild  Merchant  in  the  twelfth,  thirteenth,  and  four- 
teenth centuries.  The  term  merchant,  as  is  well  known,  was  not  in 
those  days  confined  to  large  dealers,  but  embraced  all  who  traded. 
The  line  of  demarcation  between  merchant  and  craftsman  was  not 
yet  sharply  defined.  Every  master  craftsman  was  regarded  as  a 
merchant,  for  he  bought  his  raw  materials  and  sold  the  products  of 
his  handiwork  in  his  shop  or  at  his  stall,  just  as  some  coopers,  shoe- 
makers, bakers,  and  other  tradesmen  still  do  at  the  present  day. 
The  glover  bought  his  skins;  the  baker  his  corn;  the  butcher  sold 
hides  as  well  as  meat;  the  weaver,  fuller,  and  dyer  bought  wool  and 
woad,  and  sold  cloth;  the  tanner  bought  bark  and  hides,  and  sold 
leather.  Craftsmen  were  not  only  admitted  to  the  Gild  Merchant, 
but  also,  in  all  probability,  constituted  the  majority  of  its  members. 

Craft  gilds  are  first  mentioned  during  the  reign  of  Henry  I  [1068- 
1135],  about  a  half  a  century  after  the  first  appearance  of  the  Gild 
Merchant.  The  latter  included  merchants  proper  and  artisans  be- 
longing to  different  trades;  the  craft  gild,  at  first,  included  only 
artisans  of  a  single  trade.    The  position  of  these  craft  fraternities 

1  Adapted  by  permission  from  Charles  Gross,  The  Gild  Merchant,  I,  107-20. 
(The  Clarendon  Press,  1890.) 


80  INDUSTRIAL  SOCIETY 

in  the  town  community  during  the  twelfth  and  thirteenth  centuries 
was  different  from  that  of  the  Gild  Merchant.  They  had  not  yet 
become  official  civic  bodies,  like  the  "Gilda  Mercatoria,"  forming  a 
part  of  the  administrative  machinery  of  the  town.  Their  existence 
was  merely  tolerated  in  return  for  a  yearly  ferm  paid  to  the  crown, 
whereas  the  Gild  Merchant  constituted  a  valuable  burghal  privilege, 
whose  continuance  was  guaranteed  by  the  town  charter.  Still  the 
craft  gilds  occupied  a  more  important  position  in  the  community  than 
that  of  a  mere  private  association  of  today.  For  with  the  grant  of 
a  gild  the  craftsmen  generally  secured  what  in  Germany  was  called 
the  "Zunftzwang"  and  the  "Innungsrecht,"  i.e.,  the  monoply  of 
working  and  trading  in  their  branch  of  industry.  The  craftsmen 
thus  associated  remained  in  the  common  Gild  Merchant,  but  the 
strength  of  the  latter  was  weakened  and  its  sphere  of  activity  was 
diminished  with  every  new  creation  of  a  craft  fraternity,  though  these 
new  bodies  continued  subsidiary  to,  and  under  the  general  regulation 
of,  the  older  and  larger  fraternity.  The  greater  the  commercial  and 
industrial  prosperity  of  a  town  the  more  rapidly  did  this  process  of 
subdivision  into  craft  gilds  proceed,  keeping  pace  with  the  increased 
division  of  labour.  In  the  smaller  towns,  in  which  agriculture  con- 
tinued a  prominent  element,  few  or  no  craft  gilds  were  formed;  and 
hence  the  old  Gild  Merchant  remained  intact  and  undiminished  in 
power  longest  in  this  class  of  boroughs. 

The  period  of  the  three  Edwards  [i 239-1377]  constitutes  an 
important  epoch  in  the  history  of  industry  and  gilds.  With  the  rapid 
development  and  specialization  of  industry,  particularly  under 
Edward  III,  gilds  of  craftsmen  multiplied  and  grew  in  power.  Many 
master  craftsmen  became  wealthy  employers  of  labour,  dealing 
extensively  in  the  wares  which  they  produced.  The  class  of  dealers 
or  merchants,  as  distinguished  from  trading  artisans,  also  greatly 
increased,  forming  themselves  into  separate  fraternities  or  mysteries. 
When  these  various  unions  of  dealers  and  of  craftsmen  embraced  all 
the  trades  and  branches  of  production  in  the  town,  little  or  no  vitality 
remained  in  the  old  Gild  Merchant.  In  short,  the  function  of  guard- 
ing and  supervising  the  trade  monopoly  had  become  split  up  into  vari- 
ous fragments  or  sections,  the  aggregate  of  the  crafts  superseding 
the  old  Gild  Merchant.  A  natural  process  of  elimination,  the  absorp- 
tion of  its  powers  by  other  bodies,  had  rendered  the  old  organization 
*  superfluous.  This  transference  of  authority  from  the  ancient  general 
Gild  Merchant  to  a  number  of  distinct  bodies,  and  the  consequent 


MEDIAEVAL  INDUSTRIAL  SOCIETY  81 

disintegration  and  decay  of  the  former,  was  a  gradual  spontaneous 
movement,  which,  generally  speaking,  may  be  assigned  to  the  four- 
teenth and  fifteenth  centuries,  the  very  period  in  which  the  craft  gilds 
attained  the  zenith  of  their  power. 

In  some  towns  where  the  crafts  took  the  place  of  the  Gild 
Merchant  the  name  of  the  latter  wholly  disappeared,  but  in 
others  it  continued  to  be  used,  not  to  indicate  a  concrete  bond  of 
union  as  of  old,  with  distinct  officers  and  separate  administrative 
machinery,  but  only  as  a  vague  term  applied  to  the  aggregate  of 
the  crafts. 

In  some  towns  the  totality  of  the  crafts  also  appears  in  later  times 
formally  organized  as  a  single  fraternity  with  its  own  officers,  revenues, 
etc.  In  other  words,  the  parts  into  which  the  old  Gild  Merchant 
had  resolved  itself  were  again  fused  into  one  body,  which  occupied 
a  place  in  the  civic  polity  similar  in  many  respects  to  that  of  the  ancient 
Gild  Merchant. 

32.    A  LIST  OF  CRAFT  GILDS  IN  YORK,  14151 

Each  fraternity  or  craft  gild  had  charge  of  one  scene  in  the  whole 
series  and  performed  it  on  a  platform  on  wheels,  successively,  at  each 
appointed  station  in  the  city  on  Corpus  Christi  Day.  As  one  scene 
was  completed,  its  players  moved  on  to  the  next  station,  their  place 
being  taken  by  the  company  having  in  charge  the  next  pageant  in 
the  series.  [The  following  is  a  list  of  the  gilds  taking  part  in  a  play 
in  141 5:] 

Woollen- weavers;  Plasterers;  Armorers;  Parchment  Makers  and  Book- 
binders; Chandlers;  Spurriers  and  Lorimers;  Barbers;  Curriers;  Pouch- 
makers,  Bottlers,  and  Capmakers;  Littesters:  Tilemakers,  Millers, 
Furriers,  Hayresters,  Bowlers;  Winedrawers;  Drapers;  Linen- weavers; 
Innkeepers;  Cardmakers;  Glovers;  Hosiers;  Goldsmiths,  Goldbeaters, 
and  Moneyers;  Vintners;  Ironmongers;  Spinners  and  Vestmakers;  Bow- 
yers  and  Fletchers;  Cooks  and  Watercarriers;  Shearmen;  Carpenters; 
Brokers  and  Wool  packers;  Mercers;  Fullers;  Shipwrights;  Spicers; 
Pewterers  and  Founders;  (Formerly)  The  House  of  St.  Leonard — (Now) 
Masons;  Cutlers,  Bladesmiths,  Sheathers,  Scalers,  Bucklermakers,  and 
Homers;  Pinmakers,  Latten-makers,  and  Painters;  Scriveners,  Illumina- 
tors, Pardoners,  and  Dubbers;  Tanners;  Coopers;  Fishmongers  and 
Mariners;   Tilers;   Marshalls;    Girdlers,   Nailers,  and  Sawyers;    Smiths; 

1  Adapted  by  permission  from  University  of  Pennsylvania,  Department  of 
History,  Reprints  from  the  Sources  of  European  History,  1st  Ser.,  Vol.  II,  No.  1, 
pp.  29-32. 


82  INDUSTRIAL  SOCIETY 

Plumbers  and  Patternmakers;  Bakers;  Cordwainers;  Tapestrymakers  and 
Couchers;  Butchers  and  Poultry  Dealers;  Saddlers,  Glaziers,  and  Joiners; 
Tailors;  Potters. 

33.     CHARACTERISTICS  OF  CRAFT  GILD  ECONOMY1 

I.  It  was  distinguished  from  the  earlier  "family  system"  of  indus- 
try in  that  manufacture  was  carried  on  for  the  purpose  of  supplying 
consumers  outside  the  domestic  group.  There  was  a  market,  in  the 
sense  of  a  number  of  purchasers,  and  therefore  the  goods  produced 
can  be  called  wares,  as  they  could  not  before.  But  the  market  was 
very  limited;  in  most  cases  restricted  to  the  people  of  a  particular 
town  or  district.  Indeed,  looking  at  England  as  a  whole,  it  may  be 
said  that  there  were  then  a  number  of  local  markets,  not  as  there 
tends  to  be  now,  one  market.  Today,  for  instance,  the  price  of 
corn  is  affected  by  the  whole  demand  of  England,  or  rather  of  a  much 
larger  area;  then  it  would  have  been  determined,  but  for  legislative 
action,  by  the  demand  of  a  comparatively  small  area.  It  was  this 
local  limitation  of  demand  that  made  the  regulation  of  prices  and 
methods  of  manufacture  so  much  easier  than  it  would  be  in  modern 
times.  The  same  smallness  of  the  market,  and  the  fact  that  most  of 
the  articles  demanded  were  called  for  by  necessity  and  not  by  fashion, 
caused  demand  to  be  stable:  none  of  the  social  difficulties  now  caused 
by  the  rapid  and  incalculable  fluctuations  in  demand  had  as  yet  begun 
to  show  themselves. 

II.  Capital  played  a  very  small  part.  In  order  to  set  up  as  a 
master-artisan  a  man  needed  to  be  able  to  hire  a  house  and  buy  the 
necessary  tools,  as  well  as,  in  many  crafts,  a  little  money  to  buy 
materials.  But  skill  and  connection,  the  ability  to  produce  good 
wares,  and  the  steady  demand  of  a  small  group  of  customers,  were 
far  more  important.  This  element  of  technical  skill  modern  machin- 
ery has  driven  far  into  the  background. 

III.  There  was  as  yet  no  class  of  wage-labourers,  no  "working 
class  "  in  the  modern  sense  of  the  term.  By  "  working-men  "  we  mean 
a  number  of  men,  from  among  whom  individuals  may  indeed  rise  to 
become  masters,  but  the  majority  of  whom  cannot  hope  ever  to  rise 
to  a  higher  position.  But  in  the  fourteenth  century  a  few  years' 
work  as  a  journeyman  was  but  a  stage  through  which  the  poorer  men 
had  to  pass,  while  the  majority  probably  set  up  for  themselves  as 

1  Taken  by  permission  from  W.  J.  Ashley,  An  Introduction  to  English  Economic 
History  and  Theory:  The  Middle  Ages,  pp.  92-96.  (Longmans,  Green,  &  Co., 
1892.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  83 

master  craftsmen  as  soon  as  apprenticeship  was  over.  There  were, 
therefore,  no  collisions  between  "capital  and  labour,"  though  there 
might  be  occasional  quarrels  between  individuals.  The  hard-working 
journeyman  expected  to  be  able  in  a  few  years  to  become  an  independ- 
ent master;  and  while  he  remained  a  journeyman  there  was  no  social 
gulf  between  himself  and  his  employer.  They  worked  in  the  same 
shop,  side  by  side,  and  the  servant  probably  earned  at  least  half  as 
much  as  his  master. 

IV.  If,  therefore,  we  compare  the  working  class  of  to-day  with 
that  of  the  fourteenth  century,  it  is  not  with  the  journeymen,  but 
with  the  master  craftsmen,  that  the  comparison  must  be  made.  The 
most  important  contrast  that  strikes  us  is  that  the  mediaeval  crafts- 
man was  personally  independent,  in  a  sense  in  which  the  modern 
workman  is  not.  He  worked  in  his  own  shop,  owned  his  own  tools, 
and  worked  at  what  hours  he  pleased,  subject  to  the  restrictions  as 
to  work  at  night  or  on  Sunday.  In  some  crafts,  it  is  true,  he  received 
the  raw  material  from  customers,  giving  back  finished  articles  for  the 
customers'  own  use;  in  some  he  was  more  or  less  dependent  on  the 
men  of  other  crafts,  receiving  half-finished  goods  from  them  and 
returning  them  one  stage  further  advanced.  But  in  many  industries 
the  craftsman  bought  his  own  materials  and  sold  the  goods  to  such 
customers  as  presented  themselves,  i.e.,  he  combined  the  functions 
of  a  trader  with  those  of  a  manufacturer.  The  shopkeeper  class  was 
only  beginning  to  come  into  existence. 

V.  We  have  seen  that  the  gilds  were  not  independent,  but  were 
subject  to  the  control  of  the  municipal  and  central  authorities.  The 
chief  object  of  this  control,  as  of  the  gild  statutes,  was  to  secure  the 
good  quality  of  the  wares  produced.  The  modern  state  has  aban- 
doned the  attempt,  except  in  the  case  of  certain  articles  of  food.  But 
it  must  be  recognized  that  the  task  was  an  easier  one  in  the  Middle 
Ages.  Wants  were  comparatively  few  and  unchanging;  they  were 
supplied  by  neighbouring  craftsmen;  consumer  and  producer  stood 
in  direct  relation  with  one  another.  Such  regulations  had  regard, 
not  only  to  the  interests  of  the  consumers,  but  also  to  those  of  the 
craft  itself,  which  would  be  injured  by  the  knavery  of  individual 
members.  They  only  disappeared  when  production  became  much 
greater  and  aimed  at  satisfying  a  wide  and  changing  market.  As  we 
should  expect,  the  doctrine  caveat  emptor  first  appears  in  the  cloth 
industry:  a  petition  of  the  London  fullers,  in  1369,  urges  that  those 
who  bought  cloths  with  patent  defects  should  do  so  at  their  peril. 


84  INDUSTRIAL  SOCIETY 

VI.  The  supervision  of  the  processes  of  manufacture  was  the  chief 
reason  for  the  action  of  the  central  and  local  authorities  in  encouraging 
and  even  insisting  on  the  separate  organization  of  different  branches 
of  the  same  industry,  and  the  rule  that  every  craftsman  should  choose 
his  craft  and  abide  by  it.  An  Act  of  Parliament  of  1363  ordained 
that  "artificers  and  men  of  mysteries  (mestiers,  i.e.,  crafts)  shall  each 
join  the  craft  he  may  choose  between  this  time  and  the  next  Candle- 
mas"; "trespassers"  were  to  be  punished  by  imprisonment  for  half 
a  year  and  by  a  fine  to  the  king.  This  was  followed  up  by  special 
ordinances  "that  no  dyer  or  weaver  shall  make  any  cloth,"  i.e., 
interfere  with  the  trade  of  the  cloth-finishers.  The  division  was 
sometimes  amusingly  minute:  bowyers  were  not  to  make  arrows, 
that  was  to  be  left  to  the  fletchers;  cordwainers,  "the  craft  of 
workers  in  new  leather,"  were  not  to  retail  or  make  up  old  boots 
and  shoes  for  sale  and  so  interfere  with  the  "cobelers,"  though  the 
cobelers  were  specially  permitted  to  use  new  leather  for  resoling 
old  boots. 

VII.  The  members  of  each  craft  usually  lived  in  the  same  street 
or  neighbourhood.  Thus  in  London  the  saddlers  lived  round  and 
attended  the  church  of  S.  Mar tin-le- Grand;  the  lorimers  lived  in 
Cripplegate,  the  weavers  in  Cannon  Street,  smiths  in  Smithfield, 
and  bucklers  in  Bucklersbury.  So  in  Bristol  there  were  Tucker 
Street,  the  home  of  the  tuckers  or  fullers,  Corn  Street,  Knifesmith 
Street,  Butcher  Row,  Cooks'  Row,  and  the  like.  Such  a  grouping 
must  have  enormously  strengthened  the  sense  of  corporate  life  in 
each  craft  and  must  also  have  made  the  work  of  supervision  compara- 
tively easy. 

So  large  a  part  of  the  manufacturing  work  of  the  country  was 
arranged  on  the  gild  system  that  the  term  may  be  fairly  used  to 
describe  the  whole  organization  of  industry.  But  in  some  occupa- 
tions and  districts,  while  there  was  a  sufficient  demand  for  some  com- 
modity to  induce  men  to  give  up  themselves  to  a  particular  sort  of 
labour,  there  could  never  be  a  demand  large  enough  to  call  into  exist- 
ence a  body  of  men  of  the  same  craft  large  enough  to  form  a  gild  or 
company.  Thus  most  villages  had  a  smith,  but  only  in  the  largest 
town  was  there  a  smiths'  gild.  Isolated  weavers  and  fullers  were 
probably  to  be  found  scattered  up  and  down  the  country.  In  such 
cases  the  individual  craftsman  would  be  without  the  support  and  con- 
trol of  the  gild;  but  the  essential  characteristics  of  his  position  were 
the  same  as  of  the  position  of  the  gild  member.     His  capital  was  very 


MEDIAEVAL  INDUSTRIAL  SOCIETY  85 

small;  he  dealt  directly  with  the  customer;  and  between  himself  and 
the  one  or  two  men  or  boys  he  might  employ,  there  was  no  social 
gulf. 

34.    ORDINANCES  OF  THE  WHITE  TAWYERS  OF  LONDON1 

[Note. — This  selection  should  be  read  with  the  purpose  of  securing 
evidence  of  the  functions  of  the  craft  gild  with  respect  to  the  following 
points:  (1)  Protection  of  consumer  against  defective  wares  and  protection 
of  producer  against  cheap  labor;  (2)  the  duties  and  responsibilities  of  the 
gildsmen  to  each  other  and  to  the  town;  (3)  the  regulation  of  wages  and 
prices;  (4)  religious  and  charitable  duties;  (5)  social  control  of  actions  of 
members.]  , 

In  the  first  place,  they  have  ordained  that  they  will  find  a  wax 
candle,  to  burn  before  Our  Lady  in  the  Church  of  All  Hallows  near 
London  Wall.  Also,  that  each  person  of  the  said  trade  shall  put  in 
the  box  such  sum  as  he  shall  think  fit,  in  aid  of  maintaining  the  said 
candle. 

Also,  if  by  chance  any  one  of  the  said  trade  shall  fall  into  poverty, 
whether  through  old  age,  or  because  he  cannot  labour  or  work,  and 
have  nothing  with  which  to  help  himself,  he  shall  have  every  week 
from  the  said  box  yd.  for  his  support  if  he  be  a  man  of  good  repute. 
And  after  his  decease,  if  he  have  a  wife,  a  woman  of  good  repute,  she 
shall  have  weekly  for  her  support  yd.  from  the  said  box  so  long  as 
she  shall  behave  herself  well  and  keep  single. 

And  that  no  stranger  shall  work  in  the  said  trade,  or  keep  house 
[for  the  same]  in  the  city,  if  he  be  not  an  apprentice,  or  a  man  admitted 
to  the  franchise  of  the  said  city. 

And  that  no  one  shall  take  the  serving  man  of  another  to  work 
with  him,  during  his  term,  unless  it  be  with  the  permission  of  his 
master. 

And  if  any  one  of  the  said  trade  shall  have  work  in  his  house  that 
he  cannot  complete,  or  if  for  want  of  assistance  such  work  shall  be 
in  danger  of  being  lost,  those  of  the  said  trade  shall  aid  him,  so  that 
the  said  work  be  not  lost. 

And  if  any  one  of  the  said  trade  shall  depart  this  life,  and  have 
not  wherewithal  to  be  buried,  he  shall  be  buried  at  the  expense  of 
their  common  box;  and  when  any  one  of  the  said  trade  shall  die,  all 

1  Adapted  by  permission  from  A.  E.  Bland,  P.  A.  Brown,  and  R.  H.  Tawney, 
English  Economic  History:  Select  Documents,  pp.  136-38.  (G.  Bell  &  Sons,  Ltd., 
1914.) 


S6  INDUSTRIAL  SOCIETY 

those  of  the  said  trade  shall  go  to  the  Vigil,  and  make  offering  on  the 
morrow. 

And  if  any  serving  man  shall  conduct  himself  in  any  other  manner 
than  properly  towards  his  master,  and  act  rebelliously  towards  him, 
no  one  of  the  said  trade  shall  set  him  to  work,  until  he  shall  have  made 
amends  before  the  Mayor  and  Aldermen;  and  before  them  such 
misprision  shall  be  redressed. 

Also,  that  the  good  folks  of  the  same  trade  shall  once  in  the  year 
be  assembled  in  a  certain  place,  convenient  thereto,  there  to  choose 
two  men  of  the  most  loyal  and  befitting  of  the  said  trade,  to  be  over- 
seers of  work  and  all  other  things  touching  the  trade  for  that  year, 
which  persons  shall  be  presented  to  the  Mayor  and  Aldermen  for  the 
time  being,  and  sworn  before  them  diligently  to  enquire  and  make 
search,  and  loyally  to  present  to  the  said  Mayor  and  Aldermen  such 
defaults  as  they  shall  find  touching  the  said  trade  without  sparing 
any  one  for  friendship  or  for  hatred,  or  in  any  other  manner. 

Also,  that  all  skins  falsely  and  deceitfully  wrought  in  their  trade, 
which  the  said  overseers  shall  find  on  sale  in  the  hands  of  any  person, 
citizen  or  foreigner,  within  the  franchise,  shall  be  forfeited,  and  the 
worker  thereof  amerced. 

Also,  that  no  one  who  has  not  been  an  apprentice,  and  has  not 
finished  his  term  of  apprenticeship  in  the  said  trade,  shall  be  made 
free  of  the  same  trade;  unless  it  be  attested  by  the  overseers  for  the 
time  being  or  by  four  persons  of  the  said  trade,  that  such  person  is 
able  and  sufficiently  skilled  to  be  made  free  of  the  same. 

Also,  that  no  one  of  the  said  trade  shall  induce  the  servant  of 
another  to  work  with  him  in  the  same  trade,  until  he  has  made  a 
proper  fine  with  his  first  master,  at  the  discretion  of  the  said  overseers, 
or  of  four  reputable  men  of  the  said  trade.  And  if  any  one  shall  do 
to  the  contrary  thereof,  or  receive  the  serving  workman  of  another  to 
work  with  him  during  his  term,  without  leave  of  the  trade,  he  is  to 
incur  the  said  penalty. 

Also,  that  no  one  shall  take  for  working  in  the  said  trade  more  than 
they  were  wont  heretofore,  on  the  pain  aforesaid,  that  is  to  say,  for 
the  dyker  of  Scottes  stagges,  half  a  mark;  the  dyker  of  Yrysshe,  half 
a  mark,  the  dyker  of  Spanysshe  stagges,  ios.;  for  the  hundred  of 
gotesfelles,  20s.;  the  hundred  of  rolether,  16s.;  for  the  hundred  skins 
of  hyndescalves ,  &s.;  and  for  the  hundred  of  kiddefelles,  8s. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  87 

35.    GILD  MERCHANT  REGULATIONS  VS.  CRAFT  GILD 
REGULATIONS1 

We  have  seen  that  the  chief  functions  of  the  gild  merchant  were 
to  regulate  the  economic  life  of  the  town  and  to  represent  its  members 
in  dealings  with  other  towns.  In  regard  to  regulation,  trade  rather 
than  production  was  the  object.  We  do  not  find,  on  the  otHerTiand, 
those  elaborate  regulations  of  quality,  process,  and  price  which  were 
so  important  to  the  later  craft  gilds,  and  this  distinction  is  a  clue  to 
the  causes  which  promoted  the  change  from  one  method  of  organisa- 
tion to  another.  The  operative  cause  seems  to  have  been  a  gradual 
widening  of  the  market  as  the  population  of  the  towns  increased  and 
and  their  trading  area  became  larger. 

I.  If  we  go  back  for  a  moment  to  the  village  artisan  we  shall  see 
that  this  single  producer  working  for  a  small  number  of  consumers 
will  not  need  elaborate  and  defined  rules,  although  his  economic 
status  may  be  strictly  limited  by  custom.  On  the  one  hand,  compara- 
tively little  of  his  time  will  be  spent  on  turning  out  "graded"  com- 
modities in  expectation  of  custom.  For  the  most  part  he  will  work 
to  order,  and  it  will  seldom  happen  that  one  order  will  be  precisely 
identical  with  another.  This  by  itself  will  make  detailed  regulation 
more  difficult.  More  important,  however,  is  the  fact  of  his  relation 
to  the  village.  He  has  no  body  of  fellow-workers  with  interests 
identical  with  his  own  but  antagonistic  to  the  rest  of  the  world.  If 
he  scamps  his  work  or  extorts  more  than  the  customary  fair  price,  he 
injures  members  of  the  class  from  whom  his  friends,  if  he  have  any, 
must  inevitably  be  drawn. 

II.  As  the  village  grows  into  the  town,  as  population  and  the 
demand  for  specialised  work  increase,  the  situation  gradually  alters. 
Five  or  six  smiths  or  carpenters  may  now  be  found  working  side  by 
side  at  similar  tasks,  and  as  their  number  increases  a  double  possi- 
bility of  friction  emerges.  On  the  one  hand,  they  may  cheat  one 
another;  on  the  other,  they  may  combine  together  against  the  general 
public.  The  development,  however,  of  these  difficulties  will  be  slow, 
for  the  community  will  still  be  so  small  that  each  individual  will  feel 
the  interests  of  the  whole  more  strongly  than  the  interests  of  his  own 
trade.  Still  it  will  be  convenient  to  take  measures  that  no  one  of 
these  craftsmen  shall  secure  a  monopoly  of  raw  material,  and  therefore 
each  shall  have  a  right  to  share  in  a  bargain  made  by  another.    Again, 

1  Taken  by  permission  from  H.  O.  Meredith,  Outlines  of  the  Economic  History 
of  England,  pp.  56-58.     (Sir  Isaac  Pitman  &  Sons,  Ltd.,  1908.) 


S8  INDUSTRIAL  SOCIETY 

we  will  make  the  market  as  easily  cognisable  as  may  be  to  each  of  them 
and  to  the  general  public,  and  therefore  we  will  forbid  them  to  sell, 
except  openly;  will  have  their  workshops  all  in  one  street,  and  assign 
a  certain  position  to  them  in  the  market.  We  have  reached,  in  fact, 
the  stage  at  which  the  gild  merchant  is  desirable  and  can  still  do  all 
that  is  necessary. 

III.  But  the  numbers  in  each  craft  increase  still  more  in  spite  of 
progressive  subdivision  of  labour.  The  individual  is  less  and  less 
well  known  to  the  majority  of  his  customers.  He  may  continue  to 
sell  directly  to  the  consumer  or  to  take  his  orders,  but  he  meets  him 
on  a  business  footing.  His  friends  are  other  men  of  his  own  calling. 
Again,  as  consumption  increases,  the  making  of  roughly  "graded" 
commodities  grows  in  importance.  A  customer  wishes  a  length 
of  cloth,  or  a  knife,  or  a  pair  of  spurs.  He  knows  what  he  wants,  but 
knows  little  of  its  make,  and  can  easily  be  imposed  upon  by  inferior 
quality.  The  demand  for  more  elaborate  regulation  comes  from  both 
sides.  The  individual  craftsman  himself  is  usually  anxious  to  be 
protected  from  unfair  competition;  the  consumer  wishes  protection 
from  unfair  extortion.  Even  if  he  still  considers  himself  a  judge  of 
the  article  when  he  sees  it,  he  knows  that  he  can  no  longer  bring  to 
bear  the  direct  personal  pressure  which  was  possible  when  men  were 
fewer.  A  complexity  of  economic  life  has  been  reached  which  the 
simple  gild  merchant  is  no  longer  competent  to  deal  with,  and  gradu- 
ally the  specialised  organisation  of  trade  or  craft  emerges. 

36.    THE  CRAFT  OF  THE  MEDIAEVAL  CRAFTSMAN1     . 

Sentimentalists  imagine  the  mediaeval  workman  loved  a  piece  of 
good  work  for  its  own  sake  and  never  scamped  a  job.  Nothing  could 
be  further  from  the  truth.  The  mediaeval  craftsman  was  not  called 
a  man  of  craft  for  nothing!  He  had  no  more  conscience  than  a 
plumber,  and  his  knowledge  of  ways  that  are  dark  and  tricks  that  are 
vain  was  extensive  and  peculiar.  The  subtle  craft  of  the  London 
bakers,  who,  while  making  up  their  customers'  dough,  stole  a  large 
portion  of  the  dough  under  their  customers'  eyes  by  means  of  a  little 
trap-door  in  the  kneading  board  and  a  boy  sitting  under  the  counter, 
was  exceptional  only  in  its  ingenuity.  Cloth  was  stretched  and 
strained  to  the  utmost  and  cunningly  folded  to  hide  defects;  a  length 
of  bad  cloth  would  be  joined  onto  a  length  of  superior  quality,  or  a 

1  Taken  by  permission  from  L.  F.  Salzmann,  English  Industries  of  the  Middl 
Ages,  pp.  203-6.     (Houghton  Mifflin  Co.,  1913.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  89 

whole  cheap  cloth  substituted  for  the  good  cloth  which  the  customers 
had  purchased;  inferior  leather  was  faked  up  to  look  like  the  best  and 
sold  at  night  to  the  unwary;  pots  and  kettles  were  made  of  bad  metal 
which  melted  when  put  on  the  fire;  and  everything  that  could  be 
weighed  or  measured  was  sold  by  false  measure. 

In  1390  it  was  pointed  out  that  the  frauds  of  the  west  country 
clothiers  had  not  only  endangered  the  reputations  and  even  the  lives 
of  merchants  who  bought  them  for  export,  but  had  brought  dis- 
honour on  the  English  name  abroad.  Two  years  later  it  was  the 
reputation  of  Guildford  cloths  that  had  been  damaged  by  sharp 
practices.  The  worsteds  of  Norfolk  had  early  come  into  favour  on 
the  Continent,  but  in  1410  the  Flemish  merchants  became  exasper- 
ated at  their  bad  quality,  and  thirty  years  later  the  foreign  demand 
for  worsteds  had  been  almost  killed,  while  in  1464  English  cloth  in 
general  was  in  grave  disrepute,  not  only  abroad,  but  even  in  its  native 
land,  foreign  cloth  being  largely  imported.  To  give  them  their  due, 
the  gilds  recognized  the  importance  to  their  own  interests  of  main- 
taining a  high  standard  of  workmanship,  and  co-operated  loyally 
with  the  municipal  authorities  to  that  end. 

37.    MERITS  AND  DEFECTS  OF  THE  CRAFT  GILD1 

It  has  been  possible  to  bestow  praise  upon  the  craft  gild  in  spite 
of  the  fact  that  its  fundamental  principles  are  in  many  respects  so 
completely  at  variance  with  modern  ways  of  thinking.  It  is  contended 
that  the  pressure  of  the  gild  system  in  a  primitive  age,  accustomed 
to  the  rudest  forms  of  deceit,  fashioned  a  public  opinion  in  favour  of 
those  social  and  economic  virtues  that  have  now  become  a  common- 
place, and  schooled  men  to  recognize  elementary  maxims  of  honesty 
in  trade  and  industry.  It  would  then  follow  that  with  all  its  uncom- 
promising and  rigid  harshness  the  gild  system  could  be  justified  as 
an  indispensable  stage  in  our  development.  We  scarcely  know,  how- 
ever, sufficient  of  the  factors  which  have  moulded  the  national 
temperament  and  created  a  social  conscience  to  postulate  this  view 
with  certainty.  But  what  we  can  do  is  to  recognize  that  the  gild 
system  had  certain  qualities  which  may  still  afford  an  inspiration  to 
our  own  age,  and  certain  defects  which  may  still  furnish  a  warning. 
Both  praise  and  criticism  alike  must  take  into  account  the  economic 
environment  under  which  the  gild  system  grew  up  and  flourished,  the 

1  Adapted  by  permission  from  E.  Lipson,  The  Economic  History  of  England: 
The  Middle  Ages,  pp.  388-90.     (A.  &  C.  Black,  Ltd.,  1915.) 


90  INDUSTRIAL  SOCIETY 

current  conceptions  of  morality  so  widely  different  from  the  classical 
postulates  of  modern  economics,  and  the  conditions  which  facilitated 
their  application.  On  the  one  hand,  for  the  purposes  of  a  local  mar- 
ket the  craft  gild  was  admirably  designed  to  achieve  its  object, 
the  limited  production  of  a  well- wrought  article.  Apprenticeship 
afforded  ample  opportunities  for  a  thorough  system  of  technical 
training,  and  the  inspection  of  workshops  stimulated  and  encouraged 
a  high  standard  of  craftsmanship.  The  regulation  of  wages  and  con- 
ditions of  labour,  if  often  prompted  in  the  interests  of  the  masters, 
would  tend  to  protect  the  journeymen  against  arbitrary  oppression 
and  to  set  up  a  standard  which  was  probably  on  the  whole  not  unrea- 
sonable or  unfair.  Again,  the  determination  of  prices  and  the  quality 
of  wares  sought  to  protect  both  the  seller  and  the  buyer  and  to  estab- 
lish rates  of  remuneration  for  the  craftsmen  that  were  commensurate 
with  the  labour  involved.  It  has  often  been  remarked  that  mediaeval 
authorities  endeavoured  to  fix  prices  according  to  the  cost  of  produc- 
tion. Starting  from  the  conviction  that  the  labourer  was  worthy 
of  his  hire,  their  principle  was  to  reward  him  with  a  recompense  suit- 
able to  his  station.  They  did  not  hold  what  we  may  call  the  theory 
of  minimum  subsistence — the  iron  law  of  wages — where  wages  are 
forced  down  to  the  lowest  level  at  which  the  workman  can  subsist. 
Instead,  they  seem  to  have  recognized  that  wages  should  be  made  to 
conform  to  a  fit  and  proper  standard  of  life.  Another  feature  of  the 
gild  system  was  that  the  scope  of  individual  enterprise  was  restricted 
on  the  ground  that  the  interests  of  the  community  were  paramount. 
The  chief  criticism  against  the  craft  gild,  however,  is  that  it 
fostered  a  spirit  of  monopoly  and  promoted  an  unreasoning  jealousy 
of  the  "stranger  within  the  gates,"  which  undoubtedly  militated 
against  the  expansion  of  industry.  Its  monopoly  indeed  has  met  on 
every  hand  with  severe  condemnation,  and  the  subsequent  efforts 
of  the  gilds  to  confine  membership  to  a  narrow  and  selfish  clique 
merit  the  censure  they  have  received.  But  in  the  earlier  stages  of 
craft  development  the  gilds,  as  we  have  already  contended,  can  hardly 
be  blamed  for  excluding  from  their  privileges  those  who  were  reluctanl 
to  share  their  charges.  The  responsibility,  if  any,  must  lie  with  the 
crown  or  the  municipality,  which  employed  the  gilds  as  the  instru- 
ments of  their  exactions.  Moreover,  we  have  to  remember  that  the 
town  authorities  enjoyed  the  right  to  control  the  privileges  of  th( 
craft  gilds  in  the  interests  of  the  community  and  could  take  steps 
to  avoid  the  dangers  of  a  monopoly. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  91 

But  whatever  opinion  we  may  form  as  to  the  merits  and  defects 
of  the  gild  system,  we  can  at  any  rate  do  justice  to  its  most  admirable 
feature,  the  institution  of  apprenticeship.  Whatever  its  drawbacks, 
the  gild  has  bequeathed  to  us  the  ideal  of  technical  training  and  sound 
craftsmanship,  an  ideal  binding  on  all  alike  who  work  with  hand  or 
brain. 

38.    THE  GILDS  AND  THE  MODERN  TRADE  UNION1 

I.  The  craft  gild. — Some  writers  have  endeavoured  to  establish 
a  connexion  between  the  gild  system  and  trade  unionism,  but  there 
are  many  striking  differences  between  mediaeval  craft  gilds  and 
modern  trade  unions,  not  only  in  regard  to  membership,  but  also  in 
functions.  In  one  respect  they  are  similar,  for  both  alike  are  industrial 
organizations  concerned  ultimately  with  the  same  fundamental 
purpose,  the  maintenance  of  "  the  standard  of  life."  The  chief  object 
of  the  trade  union  is  to  organize  the  workers,  in  order  to  raise  the 
standard  of  living  and  by  the  co-operation  of  forces  prevent  the  degra- 
dation of  their  social  and  economic  status.  The  craft  gilds  were  no 
less  concerned  with  securing  to  every  one  of  their  members  oppor- 
tunities for  a  fair  and  just  remuneration  of  their  labour.  Both  bodies 
rest  in  principle  upon  the  conviction  that  combined  action  can  alone 
ensure  adequate  maintenance  for  the  workers;  to  this  degree  the  trade 
unions  carry  on  the  tradition  of  the  older  gild  system.  Here,  however, 
the  resemblance  ends. 

1.  The  craft  gilds  comprised  only  skilled  artisans,  but  outside 
their  ranks  lay  an  ever-growing  body  of  unskilled  workmen,  devoid 
of  organization,  in  receipt  of  inferior  wages,  and  altogether  on  a  lower 
plane  than  their  more  favoured  fellows.  The  craft  gilds  were,  in 
fact,  select  bodies  whose  members  were  the  competent  men  of  the 
trade,  and  at  no  time  apparently  did  they  contain  within  their  ranks 
the  whole  body  of  workers  within  the  town.  It  is  this  aspect  of  the 
gild  as  an  exclusive  organization,  restricted  as  a  general  rule  to  skilled 
workmen,  that  constitutes  one  of  its  most  essential  characteristics. 
The  class  of  " uncovenanted "  labour,  or  "working  class,"  grew  as 
the  gild  began  artificially  to  limit  its  membership.  It  must  also  be 
borne  in  mind  that  membership  of  a  craft  gild  was  confined  to  those 
who  enjoyed  citizen  rights.  In  practice,  however,  this  limitation  was 
unimportant,  since  admission  to  the  gild  enabled  the  stranger  to 
attain  burgess-ship  as  a  matter  of  course. 

1  Adapted  by  permission  from  E.  Lipson,  The  Economic  History  of  England: 
The  Middle  Ages,  pp.  343-46,  363-64.     (A.  &  C.  Black,  Ltd.,  1915.) 


02  INDUSTRIAL  SOCIETY 

2.  Again,  the  craft  gild  was  distinctly  an  urban  institution, 
an  industrial  group  consisting  of  the  men  of  a  particular  locality. 
Normally  its  membership  extended  only  to  those  who  dwelt  within 
the  walls  of  one  and  the  same  town;  this  was  in  accordance  with  the 
characteristics  of  an  age  in  which  economic  life  was  organized  on 
the  basis  of  the  borough  and  the  manor.  We  must  avoid,  however, 
the  temptation  to  lay  down  hard  and  fast  rules.  There  are  grounds 
for  believing  that  the  craft  gild  sometimes  included  country  workmen. 
However  this  may  be,  the  members  of  a  trade  union  are  drawn  from 
a  wider  area,  which  may  even  cover  the  whole  kingdom.  This 
difference  measures  the  whole  extent  of  progress  from  one  stage  of 
social  evolution  to  another,  from  the  city  state  to  the  country 
state. 

3.  Further,  membership  of  the  mediaeval  gild  was  not  voluntary 
but  compulsory,  and  the  authorities  of  the  gild  were  empowered  to 
force  every  skilled  artisan  to  become  a  member.  The  modern  trade 
union  is  a  voluntary  association  of  workers,  based  upon  community 
of  interests  and  the  sense  of  solidarity. 

4.  But  the  vital  difference  between  the  two  institutions  is  that 
the  craft  gild  did  not  consist,  like  the  trade  union,  of  one  grade  of 
producers  only,  the  hired  worker,  but  of  all  grades:  the  manual 
worker,  the  middleman,  and  the  entrepreneur.  The  modern  trade 
union  is  a  combination  of  manual  workers,  while  the  gild  embraced 
also  the  masters. 

5.  Apart  from  differences  in  the  constitution  of  the  two  bodies, 
there  is  a  striking  difference  in  their  functions.  The  trade  union  is 
concerned  with  the  interests  of  the  workers  and  not  with  those  of  the 
public  as  such.  It  has  been  defined  by  the  historians  of  trade  union- 
ism as  "a  continuous  association  of  wage-earners  for  the  purpose  of 
maintaining  or  improving  the  conditions  of  their  employment." 
Trade  unions  are  thus  at  present  primarily  fighting  organizations, 
though  in  some  cases  they  are  beginning  to  display  a  growing  sense 
of  responsibility  for  the  work  done  by  their  members.  The  craft  gild, 
on  the  other  hand,  showed  care,  not  only  for  the  manufacturer,  but 
for  the  customer,  reconciling  so  far  as  possible  the  interests  of  producer 
and  consumer,  and  insisting  on  sound  workmanship;  good  quality, 
and  a  just  price,  reasonable  alike  to  buyer  and  seller.  In  order  to 
ensure  an  adequate  standard  of  materials  and  technical  skill,  the 
wardens  of  the  gild  enforced  apprenticeship,  attested  the  compe- 
tence of  strangers,  and  carried  out  a  rigorous  system  of  search. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  93 

Of  the  other  functions  served  by  the  craft  gilds — religious,  educa- 
tional, and  the  like — we  have  already  spoken. 

6.  Lastly,  the  craft  gilds  were  semi-public  bodies,  subordinate 
but  integral  parts  of  municipal  administration.  At  the  same  time 
they  were  in  theory  and  largely  in  practice  under  the  control  of  town 
authorities,  and  their  efforts  to  emancipate  themselves  from  this 
control  were  severely  checked.  Occasionally  also  the  gilds  were 
employed  as  agents  of  national  supervision. 

II.  The  journeyman  gild. — At  this  point  we  may  inquire  how  far 
the  journeymen  gilds  can  be  compared  with  trade  unions.  It  is  clear 
that  there  is  a  very  striking  similarity.  Unlike  the  craft  gilds,  the 
journeymen  gilds  comprised  only  the  class  of  wage-earners  banded 
together  in  defiance  of  their  employers,  and  their  efforts  to  secure  an 
improvement  of  their  economic  position  make  the  parallel  to  trade 
unionism  still  more  evident.  The  vital  difference  lies  in  the  fact  that 
the  journeymen  failed  to  establish  a  stable  and  permanent  organiza- 
tion. To  some  extent  their  failure  is  accounted  for  by  the  repressive 
policy  adopted  towards  them  both  by  the  municipality  and  the  state. 
But  a  more  important  reason  is  that,  while  it  was  becoming  increas- 
ingly difficult  for  the  hired  workers  as  a  body  to  achieve  independence 
and  mastership,  yet  the  way  was  always  open  to  the  more  enterprising 
among  them  to  do  so.  So  long  as  it  was  possible  for  a  certain  number 
of  journeymen  to  become  masters,  a  permanent  and  efficient  asso- 
ciation was  out  of  the  question.  The  leaders  of  the  journeymen,  with 
greater  intelligence  and  capacity  than  their  fellows,  would  constantly 
be  absorbed  into  the  higher  grades  of  the  fellowship.  When,  more- 
over, a  transformation  took  place  in  the  character  and  constitution 
of  the  yeomen  gild,  when  it  came  to  consist  mainly  of  small  masters — 
or  even  men  of  substance  serving  their  period  of  probation  before 
admission  into  the  livery — and  when,  above  all,  it  came  to  be  con- 
trolled from  above  by  the  livery,  then  all  resemblance  to  trade  unions 
entirely  ceased.  Throughout  the  eighteenth  century  occasional 
combinations  were  formed  among  artisans,  but  it  was  not  till  the 
Industrial  Revolution  decided  the  final  victory  of  industrial  capitalism, 
taking  away  from  the  worker  his  economic  independence,  divorcing 
him  from  the  soil,  and  depriving  him  of  other  sources  of  livelihood 
in  times  of  industrial  distress,  that  trade  unionism  at  length  attained 
coherence  and  assumed  a  permanent  and  stable  form  of  organization. 


94  INDUSTRIAL  SOCIETY 

39.    AN  INDENTURE  OF  APPRENTICESHIP,  14591 

This  indenture  made  between  John  Gibbs  of  Penzance,  in  the 
county  of  Cornwall,  of  the  one  part,  and  John  Goffe,  Spaniard,  of  the 
other  part,  witnesses  that  the  aforesaid  John  Goffe  has  put  himself  to 
the  aforesaid  John  Gibbs  to  learn  the  craft  of  fishing,  and  to  stay  with 
him  as  apprentice  and  to  serve  from  the  feast  of  Philip  and  James  next 
to  come  after  the  date  of  these  presents  until  the  end  of  eight  years 
then  next  ensuing  and  fully  complete;  throughout  which  term  the 
aforesaid  John  Goffe  shall  well  and  faithfully  serve  the  aforesaid 
John  Gibbs  and  Agnes  his  wife  as  his  masters  and  lords,  shall  keep 
their  secrets,  shall  everywhere  willingly  do  their  lawful  and  honour- 
able commands,  shall  do  his  masters  no  injury  nor  see  injury  done 
to  them  by  others,  but  prevent  the  same  as  far  as  he  can,  shall  not 
waste  his  master's  goods  nor  lend  them  to  any  man  without  his  special 
command.  And  the  aforesaid  John  Gibbs  and  Agnes  his  wife  shall 
teach,  train,  and  inform  or  cause  the  aforesaid  John  Goffe,  their 
apprentice,  to  be  informed  in  the  craft  of  fishing  in  the  best  way 
they  know,  chastising  him  duly  and  finding  for  the  same  John,  their 
apprentice,  food,  clothing,  linen  and  woolen,  and  shoes,  sufficiently, 
as  befits  such  an  apprentice  to  be  found,  during  the  term  aforesaid. 
And  at  the  end  of  the  term  aforesaid  John  Goffe  shall  have  of  the 
aforesaid  John  Gibbs  and  Agnes  his  wife  20s.  sterling  without  any 
fraud.  In  witness  whereof  the  parties  aforesaid  have  interchangeably 
set  their  seals  to  the  parts  of  this  indenture. 

40.    HOUSEHOLD,  TOWN,  AND  NATIONAL  ECONOMY 
COMPARED2 

It  will  contribute  to  a  better  understanding  if,  by  a  comparison  of 
some  of  the  leading  phenomena,  we  concisely  review  the  fundamental 
features  of  the  three  stages. 

The  most  prominent  of  these  features  is  that  in  the  course  of 
history  mankind  sets  before  itself  ever  higher  economic  aims  and 
finds  the  means  of  attaining  these  in  a  division  of  the  burden  of  labour 
which  constantly  extends  until  finally  it  embraces  the  whole  people 
and  requires  the  services  of  all  for  all.  This  co-operation  is  based, 
in  the  case  of  household  economy,  upon  blood-relationship,  of  town 

1  Taken  by  permission  from  A.  E.  Bland,  P.  A.  Brown,  and  R.  H.  Tawney, 
English  Economic  History:  Select  Documents,  p.  147.     (G.  Bell  &  Sons,  Ltd.,  1914O 

2  Adapted  by  permission  from  Carl  Bucher,  Industrial  Evolution,  pp.  141-46. 
(Henry  Holt  &  Co.,  1901.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  95 

economy  upon  contiguity,  and  of  national  economy  upon  nationality. 
It  is  the  road  traversed  by  mankind  in  passing  from  clanship  to  society, 
which,  as  far  as  we  can  see,  ends  in  an  ever-tightening  social  organi- 
zation. On  this  road  the  means  for  satisfying  the  wants  of  the  indi- 
vidual continually  grow  in  fulness  and  variety,  and  at  the  same  time 
in  dependence  and  complexity.  The  life  and  labour  of  every  indi- 
vidual becomes  more  and  more  entwined  with  the  life  and  labour  of 
many  others. 

At  the  stage  of  houshold  economy  every  commodity  is  consumed 
in  the  place  of  its  origin;  at  the  stage  of  town  economy  it  passes  imme- 
diately from  the  producer  to  the  consumer;  at  the  stage  of  national 
economy,  both  in  its  production  and  thereafter,  it  passes  through 
various  hands — it  circulates.  In  the  course  of  the  whole  evolution 
the  distance  between  production  and  consumption  increases.  At  the 
first  stage  all  commodities  are  consumption  goods;  at  the  second, 
part  of  them  become  articles  of  exchange;  at  the  third,  most  of  them 
are  wares. 

The  individual  household  at  the  first  stage  is  a  producing  and  con- 
suming community  in  one;  at  the  stage  of  town  economy  this  stage 
of  things  continues  in  so  far  as  the  journeyman  craftsman  and  the 
peasant  workman  make  part  of  the  household  of  the  person  employ- 
ing them;  in  national  economy  community  in  production  and  com- 
munity in  consumption  become  distinct.  The  former  is  a  business 
undertaking  from  whose  returns,  as  a  rule,  several  independent  house- 
holds are  supported. 

When  outside  labour  is  necessary,  it  is  at  the  first  stage  in  a  perma- 
nent relation  of  subjection  to  the  producer  (as  slaves  and  serfs),  at  the 
second  in  one  of  service,  and  at  the  third  the  relationship  is  con- 
tractual. Under  the  independent  household  system  the  consumer 
is  either  himself  a  labourer  or  the  owner  of  the  labourer;  in  town 
economy  he  makes  a  direct  purchase  of  the  workman's  labour  (wage 
work),  or  of  the  product  of  his  labour  (handicraft);  in  national  econ- 
omy he  ceases  to  stand  in  any  relation  to  the  labourer,  and  purchases 
his  goods  from  the  entrepreneur  or  merchant,  by  whom  the  labourer 
is  paid. 

As  for  money,  it  is  in  independent  domestic  economy  either  entirely 
absent  or  an  article  of  direct  use  and  a  means  for  storing  up  wealth; 
in  town  economy  it  is  essentially  a  medium  of  exchange;  in  national 
economy  it  becomes  a  medium  of  circulation  and  of  profit-making  as 
well.    The  three  categories,  payment  in  kind,  money  payment,  and 


I 


96  INDUSTRIAL  SOCIETY 

payment  based  upon  credit,  correspond  with  the  various  roles  played 
by  money,  though  they  do  not  exhaust  them. 

Capital  scarcely  exists  at  the  first  stage;  we  meet  only  with  con- 
sumption goods.  At  the  second  stage  implements  of  labour  may  be 
classed  under  the  usual  heads  of  business  capital,  but  this  is  by  no 
means  generally  true  of  the  raw  materials.  Acquisitive  capital  proper 
exists  only  in  the  form  of  trade  capital.  At  the  third  acquisitive 
capital  represents  the  means  whereby  goods  are  raised  from  one  stage 
or  division  of  labour  to  the  next  and  impelled  through  the  whole 
process  of  circulation.  Here  everything  becomes  capital.  From 
this  point  of  view  we  might  describe  the  independent  household 
economy  as  lacking  capital,  town  economy  as  hostile  to  capital,  and 
national  economy  as  capitalistic. 

At  the  stage  of  household  economy  the  division  of  labour  is  con- 
fined to  the  household  establishment;  at  the  stage  of  town  economy 
it  consists  either  in  the  formation  of,  and  division  into,  trades  within 
the  town,  or  in  a  partition  of  production  between  town  and  country; 
while  the  prominent  features  of  the  stage  of  national  economy  are 
increasing  division  of  production,  subdivision  of  work  within  the 
various  establishments,  and  displacement  of  labour  from  one  business 
to  another. 

Industry  as  an  independent  occupation  is  not  found  at  the  first 
stage,  the  whole  transformation  of  raw  material  being  merely  house- 
work. In  the  town  economy  we  indeed  find  labourers  pursuing  some 
special  industrial  occupation,  but  entrepreneurs  are  lacking;  industry 
is  either  wage-work  or  handicraft,  and  he  who  wishes  to  ply  it  must 
first  master  it.  In  national  economy  industry  carried  on  in  factories 
and  under  the  commission  system  is  preponderant;  and  this  presup- 
poses extensive  capital  and  an  entrepreneur  with  mercantile  skill. 
Technical  mastery  of  the  process  of  production  by  the  entrepreneur 
is  not  indispensable. 

In  similar  fashion  a  change  occurs  in  the  forms  under  which 
trade  is  pursued.  Corresponding  to  the  household  system  is  itin- 
erant trade,  to  town  economy  market  trade,  and  to  national  econ- 
omy trade  with  permanent  establishment.  If  at  the  first  t) 
stages  trade  is  merely  supplementary  to  an  otherwise  autonomoi 
system  of  production,  it  becomes  in  national  economy  a  necessai 
link  between  production  and  consumption.  It  draws  away  froi 
transportation,  which  now  attains  an  independent  position  anc 
organization. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  07 

Commercial  services  were,  to  be  sure,  not  lacking  in  the  ancient 
slave  and  the  mediaeval  manorial  systems;  they  devolved  upon 
special  slaves  or  serfs.  In  the  Middle  Ages  we  find  town  messengers 
who  were  originally  in  the  exclusive  service  of  the  municipal  author- 
ities, but  later  added  the  carriage  of  private  correspondence.  At 
the  threshold  of  modern  times  stands  the  postal  service,  at  first 
restricted  to  state  purposes,  by  and  by  extended  to  the  public.  In 
our  century  follow  the  railway,  telegraph,  telephone,  and  steamship 
lines — with  which  the  state  interferes  in  the  interest  of  economy — 
and  along  with  them  the  most  varied  private  undertakings  for 
facilitating  communication.  At  all  stages,  however,  certain  com- 
mercial services  have  been  organized  by  the  sovereign  administra- 
tion, in  the  initial  instance  always  for  its  own  special  requirements. 
Credit  is  at  the  first  stage  purely  consumption  credit,  and  can  be 
obtained  only  by  the  person  pledging  himself  and  all  his  property. 
At  the  second  stage,  in  the  matter  of  personal  credit,  servitude  for 
debt  is  softened  to  imprisonment  for  debt.  Along  with  consumption 
credit  appears  a  type  of  credit  on  the  return  from  immovables  which 
is  met  in  garb  of  a  purchase,  and  must  be  considered  as  the  normal 
form  of  credit  under  town  economy.  Business  or  productive  credit, 
the  distinctive  form  of  credit  in  modern  times,  is  first  developed  in 
trade,  whence  it  spreads  to  every  sphere  of  industrial  life.  State 
credit  appears  in  the  States  of  antiquity  naturally  as  a  forced  loan; 
in  the  mediaeval  towns  as  the  sale  of  annuities  and  redeemable 
claims;  in  the  modern  States  as  the  disposing  of  perpetual  rents  or 
of  redeemable  interest-bearing  bonds. 

In  the  domain  of  public  services  similar  stages  may  also  be  pointed 

out.    Legal  protection  is  at  first  a  matter  for  the  clan,  later  for  the 

feudal  lord;  in  the  Middle  Ages  the  towns  form  districts  of  separate 

jurisdiction;  at  present  the  enforcement  of  law  and  police  protection 

ire  functions  of  the  State.    The  same  is  the  case  with  education. 

At  the  first  stage  education  devolves  upon  the  family,  as  it  still  does 

.oday  in  Iceland.    The  Roman  paedogogus  is  a  slave.    In  the  Middle 

Vges  it  is  autonomous  household  establishments,  namely,  the  monas- 

eries,  that  organize  the  educational  system;  later  arise  the  municipal 

nd  cathedral  schools;  peculiar  to  modern  times  are  the  concen- 

ration  and  supervision  of  instruction  in  State  institutions.    This 

evelopment  is  even  more  apparent  in  the  arrangements  for  defence. 

mong  many  peoples  still  at  the  stage  of  economic  isolation  each 

jparate  house  is  fortified  (for  example,  the  palisades  of  the  Malays 


98  industrial  society 

and  Polynesians),  and  in  early  mediaeval  times  the  manor  is  protected 
by  wall  and  moat.  At  the  second  economic  stage  each  city  is  a 
fortress;  at  the  third  a  few  fortifications  along  the  borders  secure 
the  whole  State.  It  is  sufficiently  significant  that  Louvois,  the 
creator  of  the  first  system  of  border  fortification,  was  a  contemporary 
of  Colbert,  the  founder  of  modern  French  national  economy. 

D.    Trade  and  Commerce 
41.    THE  MERCHANT  OF  THE  EARLY  MIDDLE  AGES1 

We  know  even  less  of  the  person  of  the  merchant,  in  this  period 
(about  1000  a.d.),  than  of  the  wares  that  he  carried.  It  is  certain  at 
any  rate  that  the  merchant  was  not  the  specialist  that  he  afterwards 
became,  but  was  a  Jack-of-all-trades.  He  might  be  wholesaler  and 
retailer,  transporter  and  peddler,  and  often  an  artisan  too.  Nothing 
like  the  country  store  of  the  present  day  existed,  and  trade  outside 
the  few  centers  where  markets  had  been  established  was  carried  on 
by  peddlers,  who  carried  their  wares  on  the  back  or  on  a  pack  animal. 
Every  merchant  was  sure  to  be  something  of  a  soldier,  as  he  was 
thrown  largely  on  his  own  resources  for  self-defence,  and  he  often 
assumed  the  garb  of  a  missionary  or  pilgrim  to  get  the  help  of  the 
church  in  carrying  on  his  trade.  The  pilgrim  was  exempt  froi 
many  burdens  laid  on  the  ordinary  traveler  or  merchant,  and  thougl 
this  exemption  had  later  to  be  abolished  because  it  was  so  frequently 
abused,  it  seems  to  have  been  of  great  use  in  helping  commerc 
through  its  early  stages.         

See  also  76.    The  Rise  of  Functional  Middlemen. 
42.    TRAVEL2 

Travelling  at  that  time  was  very  different  from  what  it  is  no^ 
and  we  who  have  only  to  sit  in  a  railway  train  and  let  it  carry  us  t( 
our  destination  can  hardly  conceive  the  difficulties  of  a  journey  thei 
The  condition  of  the  roads  in  busy  thriving  towns  was  far  wors 
than  anything  which  could  be  seen  in  the  tiniest  village  today. 

One  of  the  reasons  for  this  lamentable  state  of  things  was  th( 
difficulty  of  forcing  those  responsible  for  the  upkeep  of  the  roa( 

1  Taken  by  permission  from  Clive  Day,  A  History  of  Commerce,  pp.  38-35 
(Longmans,  Green,  &  Co.,  1912.) 

2  Adapted  by  permission  from  A.  Abram,  English  Life  and  Manners  in  the 
Middle  Ages,  pp.  248-59.     (George  Routledge  &  Sons,  Ltd.,  1913.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  99 

and  bridges  to  fulfil  their  obligations;  it  was  one  of  the  duties  of 
Feudal  landowners,  but  they  often  neglected  it,  and  as  the  Feudal 
System  decayed  there  were  fewer  of  them  to  perform  it.  Sometimes 
the  authorities  did  not  even  know  who  was  to  blame.  In  the 
thirteenth  year  of  Henry  TV's  reign  both  the  town  of  Beverley  and 
the  Chapter  of  the  Minster  were  presented  at  the  Sheriff's  Tourn 
for  not  repairing  a  certain  street  in  Beverley,  but  it  was  found  that 
neither  of  them  were  liable  for  it.  Money  was  often  given  or 
bequeathed  by  pious  persons  for  the  maintenance  of  roads  and 
bridges;  it  was  regarded  as  a  species  of  almsgiving  and  considered 
quite  as  praiseworthy  as  feeding  the  hungry  or  clothing  the  naked, 
but  contributions  of  this  kind  were  by  their  nature  spasmodic  and 
uncertain. 

Even  more  to  be  dreaded  than  the  risk  of  injury  from  accidents 
were  the  attacks  of  robbers. 

The  majority  of  people  travelled  on  horseback,  probably  because 
it  was  the  method  best  suited  to  the  roads.  In  the  fifteenth  century 
women  rode  either  side-saddle  or  astride,  and  sometimes  "be-hynde 
a  man";  they  (and  men  too)  had  big  saddles  with  high  pommels 
and,  in  pictures,  look  as  if  they  were  sitting  in  chairs  on  the  horses' 
backs,  and  perhaps  the  pommels  kept  them  in  their  seats  when 
their  steeds  stumbled.  Low  two -wheeled  carts,  drawn  by  two, 
three,  or  even  four  horses  were  much  used,  and  from  an  illustration 
in  Lydgate's  Falle  of  Prynces  it  appears  that  wooden  erections  with 
open  sides  and  covered  tops  were  sometimes  placed  inside  them, 
but  as  we  have  not  seen  any  other  carts  of  this  kind  in  other  manu- 
scripts they  may  have  been  due  to  the  imagination  of  the  illuminator. 
A  few  rich  people,  like  the  Duchess  of  Buckingham  and  the  Earl  of 
Derby,  had  carriages.  In  1485  Henry  VII  entered  London  in  a 
closed  "chariot"  drawn  by  several  horses;  state  carriages  were 
expensive  luxuries,  one  made  for  Eleanor,  sister  of  Edward  III, 
cost  £1,000.  Such  carriages  were  very  elaborately  decorated  both 
inside  and  out,  as  may  be  seen  in  a  picture  of  a  coach  in  the  Lutterell 
Psalter,  but  they  were  very  heavy  and  cumbersome  and  must  have 
jolted  horribly  over  those  badly  made  roads.  Horse-litters  were 
ilso  used  by  grandees.  Merchants  who  had  purchased  wares,  and 
lobles  who  were  moving  from  their  country  seats  to  their  town 
louses,  had  a  great  deal  of  luggage;  it  was  packed  in  chests  or  mails 
md  was  carried  either  by  baggage-horses  or  in  carts.  The  "ridinge 
lousholde"    of   the   Duke   of   Clarence,   brother   of    Edward   IV, 


100  INDUSTRIAL  SOCIETY 

consisted  of  one  hundred  and  eighty-eight  persons,  and  amongst  his 
horses  were  included  eight  "coursers  for  his  sadelle,"  two  ambling 
palfreys,  "a  maile  horse  and  a  bo  tell  horse  .  .  .  four  sompters, 
.  .  .  seven  chariotte  horses,"  and  two  for  the  litter. 

The  rate  of  travelling  was  as  a  rule  somewhat  slow.  The  Canter- 
bury pilgrims  took  from  three  to  four  days  to  go  from  London  to 
Canterbury,  a  distance  of  fifty-four  and  a  half  miles. 

Roads  were  not  the  only  means  of  communication  between 
different  places;  waterways  were  very  much  used.  It  would  not 
occur  to  the  Londoners  of  today  to  take  a  boat  if  they  wanted  to  go 
on  business  from  the  Strand  to  Westminster,  or  to  Lambeth  or  to 
other  districts  lying  near  the  banks  of  the  Thames,  though  they 
might  take  an  occasional  pleasure  trip  to  Hampton  Court  when 
time  was  no  object  to  them,  but  in  the  Middle  Ages  people  did  it 
continually.  When  there  was  no  river  available  people  put  out  to 
sea  and  sailed  along  the  coast  from  one  port  to  another. 

Persons  too  poor  to  keep  horses  or  too  ill  to  sit  upon  them  must 
have  found  the  boats  that  went  up  and  down  the  rivers  a  great 
convenience,  for  the  cost  of  travelling  by  them  was  smaller,  and  the 
motion  far  less  fatiguing,  and  it  was  perhaps  easier  for  men  in  a  boat 
than  for  men  on  land  to  defend  themselves  against  attack.  But  even 
on  the  rivers  travellers  were  not  always  safe;  a  complaint  was  made 
in  the  reign  of  Henry  VI  that  Welshmen  and  other  persons  dwelling 
near  the  Severn  had  seized  boats  on  that  river,  had  "hewed"  them  in 
pieces,  "and  with  force  and  arms"  had  beaten  the  people  in  them. 

Travelling  by  sea  had  many  drawbacks;  little  sailing  vessels 
such  as  they  had  could  easily  be  driven  out  of  their  course  by  the  wind, 
and  so  often  did  this  happen  that  the  Magnus  Intercursus,  Hem 
VII's  great  commercial  treaty  with  Flanders,  contained  a  claus 
stipulating  that  English  fisherman  who  took  shelter  in  Flemisl 
ports  on  account  of  storms  or  for  any  other  reason  should  be  allowec 
to  depart  freely.  There  was  also,  of  course,  the  graver  danger  of 
shipwreck,  which  was  greater  than  it  is  today  because  their  ships 
were  so  much  more  fragile  than  ours,  and  there  were  many  minoi 
discomforts;  our  big  steamers  remain  comparatively  steady  even 
a  fairly  heavy  sea,  and  everything  that  science  can  suggest  is  done 
to  prevent  them  from  rolling,  but  their  light  craft  must  have  beei 
tossed  like  cockle  shells  when  there  was  any  swell. 

Pirates  were  always  on  the  lookout  for  plunder;    there  were 
numbers  of  them,  and  the  English,  French,  and  Italians  were  par- 


MEDIAEVAL  INDUSTRIAL  SOCIETY  IOI 

ticularly  active.  The  Bretons  on  one  side  of  the  Channel  and  the 
English  on  the  other  made  "the  narrow  sea"  a  terror  to  sailors. 
Many  of  our  south  coast  towns  were  nests  of  pirates.  No  one  was 
safe  from  them,  and  they  were  not  content  with  stealing  men's 
goods,  but  sometimes  seized  their  persons  also  and  imprisoned  them 
until  ransoms  were  paid,  and  occasionally  they  murdered  their 
victims. 

43.    FAIRS  AND  MARKETS1 

In  the  Middle  Ages  the  greater  part  of  the  internal  trade  of  the 
country  was  carried  on  at  fairs  and  markets,  and  the  history  of  their 
organization  and  growth  occupies  an  important  chapter  in  the  develop- 
ment of  mediaeval  commerce.  For  many  centuries  they  were  the 
chief  centres  of  traffic  and  the  main  channels  of  commercial  inter- 
course. But  the  period  during  which  their  activity  was  at  its  height 
was  that  of  the  twelfth,  thirteenth,  and  fourteenth  centuries,  when 
England  became  covered  with  a  network  of  markets  and  fairs,  of 
which  some  rivaled  in  fame  even  the  great  French  fairs  of  Champagne 
and  Lyons.  Their  importance  indeed  can  scarcely  be  overestimated, 
for  at  a  time  when  the  stream  of  commerce  was  fitful  and  scanty 
they  furnished  what  was  commonly  the  sole  opportunity  for  the 
purchase  and  sale  of  distant  products.  They  represent,  in  fact,  a 
phase  of  commerce  which  can  best  be  described  as  periodic;  where 
distribution  and  exchange  take  place  at  periodical  gatherings  and 
not  in  permanent  centres.  In  the  most  primitive  stages  of  commercial 
activity,  when  human  needs  were  less  intense,  the  scope  of  production 
and  distribution  alike  was  restricted  to  the  satisfaction  of  the  most 
pressing  wants.  In  later  stages  commercial  dealing  gradually 
became  part  and  parcel  of  the  everyday  life  of  the  community. 
Between  the  earliest  and  the  ultimate  stages  lay  an  intermediate 
stage  in  which  the  growing  desires  of  society  were  met  by  increasing 
skill  in  production  and  an  ever-widening  circle  of  distribution.  But 
opportunities  of  distribution  were  still  confined  to  fixed  periods,  for 
while  the  exchange  of  commodities  had  become  a  recognized  practice, 
social  disorders  and  the  difficulties  of  transport  impeded  their  rapid 
and  unceasing  circulation. 

In  their  first  beginnings  fairs  and  markets  appear  as  a  religious 
rather  than  as  a  commercial  institution.  They  originated  in  the 
religious  assemblies  of  pious  worshippers  who  congregated  round 

1  Adapted  by  permission  from  E.  Lipson,  The  Economic  History  of  England: 
The  Middle  Ages,  pp.  196-222.     (A.  &  C.  Black,  Ltd.,  1915.) 


I 


102  INDUSTRIAL  SOCIETY 

famous  shrines  on  the  feast  days  of  saints.  Indeed,  between  the 
festival  and  the  fair  there  is  a  close,  almost  inseparable,  relation. 
"There  is  no  great  festival  without  a  fair,  no  fair  without  a  festival." 
The  concourse  of  strangers  from  distant  parts  afforded  opportunities 
for  the  exchange  of  products,  and  the  pilgrim  was  often  also  a  trader. 
These  periodical  gatherings  became  the  natural  centres  for  commercial 
dealings,  and  merchants  were  always  assured  of  the  presence  of 
buyers  in  an  age  when  population  was  scattered  and  seldom  concen- 
trated in  large  groups.  Moreover,  the  ostensible  purpose  for  which 
the  assemblies  were  held  threw  over  the  trader  the  cloak  of  religion 
and  ensured  a  degree  of  security  which  induced  him  the  more  willingly 
to  brave  the  risks  inseparable  from  his  calling.  The  influence  of  the 
Church  was  undoubtedly  a  powerful  factor  in  fostering  the  temporary 
peace  to  which  the  fair  usually  owed  its  rise. 

The  development  of  markets  and  fairs  was  enormously  facilitated 
by  the  protection  which  the  Church  and  the  monarchy  extended  to 
those  who  frequented  them,  and  the  market-cross  became  the  emblem 
of  the  peace  of  commercial  intercourse.  They  constituted  the  cases 
of  commercialism  in  "a  wilderness  of  militancy."  The  importance 
of  the  peace  of  the  fair  finds  expression  in  the  numerous  charters  in 
which  it  was  accorded  special  prominence. 

Other  factors  contributed  greatly  to  the  formation  of  markets 
and  fairs,  and  among  these  was  the  importance  attached  in  Angk 
Saxon  law  to  the  presence  of  witnesses  at  all  purchases  and  sales,  ii 
order  to  avoid  traffic  in  stolen  goods.  From  the  earliest  times  wc 
find  legislative  enactments  reiterating  the  prohibition  against  secrel 
transactions. 

These  injunctions  served  to  consolidate  the  market  system  b} 
gathering  the  people  together  on  fixed  days  in  the  week  or  year  foi 
purposes  of  buying  and  selling.  The  effort  to  concentrate  trade  ii 
recognized  centres  rendered  the  market  a  natural  medium  for  al 
commercial  dealings.  The  exigencies  of  the  royal  exchequer  tendec 
in  the  same  direction  and  acted  as  a  powerful  lever  in  forcing  the 
internal  trade  of  the  country  into  artificial  channels,  in  order  t( 
facilitate  the  collection  of  tolls. 

The  exclusive  monopoly  of  trade  which  towns  in  the  Middk 
Ages  so  jealously  asserted  affords  a  further  explanation  of  the  rapic 
development  of  mediaeval  markets  and  fairs.  The  townsmen  care- 
fully guarded  their  commercial  privileges  and  were  reluctant  tc 
extend  them  to  the  stranger  in  their  midst.    At  fairs  and  markets 


MEDIAEVAL  INDUSTRIAL  SOCIETY  103 

on  the  other  hand,  full  freedom  of  traffic  was  accorded  indifferently 
to  alien  and  native,  to  burgess  and  stranger;  and  it  was  this  policy 
of  free  trade  and  the  open  door  which  attracted  traders  and  afforded 
scope  for  the  unrestricted  play  of  commercial  forces.  Moreover, 
the  stringent  provisions  contained  in  borough  custumals  against 
trading  outside  the  walls  of  the  town  were  commonly  relaxed  in 
favour  of  the  great  marts,  and  this  concession  enabled  burgesses  to 
carry  their  wares  to  distant  centres. 

The  classical  doctrine  as  enunciated  in  the  pages  of  Coke  and 
Blackstone  lays  down  that  markets  and  fairs  can  only  be  set  up  in 
virtue  of  a  royal  grant  or  by  long  and  immemorial  usage  and  pre- 
scription which  presupposes  such  a  grant.  This  doctrine  also  held 
good  in  the  Middle  Ages,  and  it  was  among  the  duties  of  justices  of 
the  eyre  to  inquire  "if  any  new  market  had  been  set  up  without  the 
license  of  our  lord  the  king."  The  grant  of  a  market  or  fair  was 
essentially  a  royal  prerogative  and  was  usually  embodied  in  a  formal 
charter  or  letters  patent.  In  a  feudal  organization  of  society  the 
sovereign  was  easily  induced  to  alienate  the  royal  rights  of  the  Crown, 
and  no  privilege  perhaps  was  more  lavishly  conceded  than  the  grant 
of  fairs  and  markets.  These  grants  were  conferred  upon  towns  and 
churches  and  individuals.  Many  towns  set  up  their  own  fairs  and 
markets,  but  their  privilege  rested  upon  the  royal  license.  The 
great  stimulus  to  their  creation  was  the  recognition  that  they  were  a 
lucrative  source  of  income  to  their  owners.  It  is  exceptional  to  find 
a  free  fair  where  neither  toll,  custom,  nor  stallage  was  taken  from 
traders. 

Questions  affecting  the  duration  of  the  mart  were  of  vital  moment 
to  the  lord  and  to  the  trader.  On  this  account  they  merit  some 
attention,  for  from  the  apparently  dry  and  insignificant  details 
gleaned  from  records  and  charters,  civil  pleadings  and  inquisitions, 
is  built  up  the  living  story  of  the  growth  of  English  commerce.  JThe 
market,  held  once  a  week  and  occasionally  more  often,  lasted  a 
single  day;  the  fair  was  an  annual  institution,  though  several 
fairs  were  sometimes  held  in  the  same  place  during  the  course 
of  the  year.  Nottingham  had  two  fairs;  Eton  College  two;  Bristol 
and  Cardiff  had  three,  and  Wells  four,  which  belonged  to  the 
bishop.  The  duration  of  the  fair  varied  considerably  in  different 
parts  of  the  country;  sometimes  it  was  limited  to  two,  three,  and  four 
days,  but  more  commonly  it  was  spread  over  a  week.  Frequently 
the  period  of  the  original  grant  was  lengthened  by  royal  favour. 


I 


104  INDUSTRIAL  SOCIETY 

As  English  trade  developed  and  the  needs  of  society  grew  apace, 
the  tendency  was  for  the  fair  to  become  more  and  more  important 
and  to  extend  over  longer  periods  of  time.  From  this  standpoint 
the  protraction  of  the  fair  has  a  marked  significance,  and  it  became 
increasingly  common  for  the  fair  to  extend  over  a  month. 

An  important  difference  emerges  between  the  fair  and  the  market. 
In  principle  they  were  alike,  for  each  was  a  periodical  gathering, 
distinct  from  permanent  centres  of  trade  on  the  one  hand  and  from 
occasional  and  irregular  marts  on  the  other,  but  in  their  degrees  of 
importance  they  differed  widely.  The  market  supplied  the  wants 
of  the  locality  and  was  attended  only  by  the  inhabitants  of  the 
neighbourhood;  its  commodities  were  country  produce  and  the 
wares  of  everyday  life.  The  fair  was  often  of  national  and  sometimes 
of  international  repute,  and  its  stalls  exposed  for  sale  everything 
that  was  rare  and  costly.  A  statute  of  Henry  VII  relates  that: 
" There  be  many  fairs  for  the  common  weal  of  your  people"  who 
resort  to  them  "to  buy  and  purvey  many  things  that  be  good  and 
profitable,  as  ornaments  of  Holy  Church,  chalices,  books,  vestments 
....  and  also  for  household,  as  victuals  for  the  time  of  Lent  and 
other  stuff  as  linen  cloth,  woollen  cloth,  brass,  pewter,  bedding,  osmund, 
iron,  flax,  and  wax,  and  many  other  necessary  things,  the  which 
might  not  be  forborne."  Foreign  wares  could  only  be  purchased  at 
fair- time,  and  traders  flocked  to  these  shores  from  all  parts  of  Europe; 
merchants  from  Venice  and  Genoa  with  costly  spices  from  the  East 
and  silks  and  velvets  and  "things  of  complacence,"  the  Flemish 
weaver  with  linen  cloth,  the  Spaniard  with  iron,  the  Norwegian  with 
tar,  the  Gascon  with  wine,  and  the  Teuton  with  furs  and  amber. 
At  the  fairs  also  was  gathered  native  produce — wool,  the  source  of 
England's  wealth  in  the  Middle  Ages;  tin  from  Cornwall;  salt  from 
the  Worcestershire  springs,  lead  from  the  Derbyshire  mines;  iron 
from  the  Sussex  forges;  and  cloth  which  the  drapers  were  wont  tc 
purchase  "at  home  and  abroad  about  Michaelmas  for  the  fairs 
ensuing."  Here  the  bailiff  purchased  his  farm  implements  and  ston 
of  salt  and  sheep-medicines  and  fish  for  Lent,  the  noble  his  armoui 
and  steed  and  falcons,  the  lady  her  robes  and  dresses. 

The  importance  of  the  fair  is  indicated,  not  only  in  the  attendana 
of  foreign  traders,  but  by  the  fact  that  the  ordinary  activities  of 
municipal  life  were  commonly  suspended  while  the  more  important 
fairs  were  being  held.  At  London  the  court  of  Husting  suspendec 
its  sittings  during  the  fairs  of  Bartholomew,  St.  Giles,  and  St.  Botolph, 


MEDIAEVAL  INDUSTRIAL  SOCIETY  105 

and  at  Leicester  the  members  of  the  merchant  gild  were  excused 
from  attendance  on  the  same  ground.  But  the  significance  of  the 
fair  lies  deeper.  It  was  a  cosmopolitan  gathering,  and  association 
with  men  from  distant  parts  must  have  enormously  broadened  the 
horizon  and  widened  the  outlook  of  those  who  frequented  it.  As 
the  common  hearth  of  the  nation  it  must  have  fostered  mental 
progress  and  stimulated  a  keen  and  active  interest  in  the  world 
that  lay  beyond. 

44.    GRANT  OF  A  FAIR  AT  ST.  IVES,  12021 

John,  by  the  grace  of  God,  King  of  England,  etc.,  greeting.  Know 
ye  that  we,  for  our  salvation  and  for  the  souls  of  our  ancestors  and 
successors,  have  granted  and  by  our  present  charter  have  confirmed 
to  God  and  the  church  of  St.  Mary  and  St.  Benedict  of  Ramsey,  and 
to  the  abbot  and  monks  there  serving  God,  a  fair  at  St.  Ives,  to 
begin  on  the  fourth  day  before  the  feast  of  St.  Lawrence  and  to 
endure  for  eight  days;  to  have  and  to  hold  forever,  so  nevertheless 
that  it  be  not  to  the  nuisance  of  neighboring  fairs. 

45     GRANT  OF  A  MARKET  AT  ST.  IVES,  12032 

Edward,  by  the  grace  of  God,  King  of  England,  lord  of  Ireland 
and  Duke  of  Aquitaine,  to  archbishops,  bishops,  abbots,  priors, 
earls,  barons,  justices,  sheriffs,  reeves,  ministers,  and  all  his  bailiffs 
and  faithful,  greeting.  Know  ye  that  we  haw  granted  and  by  this 
our  charter  confirmed  to  our  beloved  in  Christ,  the  abbot  and 
convent  of  Ramsey,  that  they  and  their  successors  forever  have  a 
market  every  week  on  Monday  at  their  manor  of  St.  Ives  in  the 
county  of  Huntingdon,  unless  that  market  be  to  the  nuisance  of 
neighboring  markets. 

46.    THE  MARKETS  OF  LONDON* 

Not  till  long  after  London  had  become  a  chief  resort  of  merchants 
do  they  seem  to  have  made  it  a  permanent  residence  for  purposes  of 
trade,  and  even  then  their  dealings  were  carried  on  in  public  markets 
long  before  we  hear  of  shops  and  warehouses.    The  London  of  the 

1  Adapted  by  permission  from  A.  E.  Bland,  P.  A.  Brown,  and  R.  H.  Tawney, 
English  Economic  History:  Select  Documents,  pp.  158-59.  (G.  Bell  &  Sons,  Ltd., 
•914.) 

'Ibid. 

3Adapted  by  permission  from  H.  R.  Fox  Bourne,  English  Merchants,  pp.  17-19. 
Chatto  &  Windus,  1886.) 


106  INDUSTRIAL  SOCIETY 

Plantagenets — all  included,  of  course,  within  the  city  walls,  and  then 
with  plenty  of  vacant  space  in  it — was  full  of  markets.  There  were 
the  Chepe,  or  West  Chepe,  now  Cheapside,  where  bread,  cheese, 
poultry,  fruit,  hides,  onions,  garlic,  and  like  articles  were  sold  by 
dealers  at  little  wooden  stalls,  not  more  than  two  and  a  half  feet 
wide,  arranged  along  the  roadside;  and  the  Corn  Hill,  where  grains 
and  all  articles  manufactured  of  wood  and  iron  were  harboured  at 
similar  stalls;  while  Soper's  Lane,  now  Queen  Street,  Cheapside, 
was  the  chief  resort  of  the  pepperers  or  grocers;  and  the  Poultry,  on 
the  other  side,  was  assigned  to  poulterers,  who  were  freemen  of  the 
city,  Leaden  Hall  being  the  special  market  for  dealers  in  fowls  and 
game,  who  were  not  citizens.  The  Pavement  at  Grace  Church  and 
the  Pavement  before  the  Convent  of  the  Minorite  Friars  at  New 
Gate  were  for  miscellaneous  dealings,  and  thither  merchants  of  all 
sorts  were  avowed  to  come  and  take  up  their  temporary  stations. 
The  market  of  Saint  Nicholas  Flesh  Shambles,  the  precursor  of  our 
modern  Newgate  and  headquarters  of  the  butchers,  and  the  Stocks- 
market  on  the  site  of  the  present  Mansion  House,  both  of  them 
furnished  with  permanent  stalls,  were  appropriated  to  butchers  on 
flesh  days  and  to  fishmongers  on  fish  days.  Near  to  the  Stocks- 
market  was  the  yet  more  important  mart  of  Wool-Church-Haw, 
close  to  Saint  Mary  Woolchurch,  the  great  meeting-place  of  wool 
and  cloth  merchants,  while  in  any  part  of  the  city,  with  the  exception 
of  Corn  Hill,  carts  might  stand  loaded  with  firewood,  timber,  and 
charcoal.  Dealers  of  all  sorts,  of  course,  might  halt  or  loiter  as  they 
chose  in  the  uninhabited  suburbs  of  the  city,  in  Moor-Fields,  or  on 
the  banks  of  the  Old-Bourne,  by  Fleet-Ditch  or  round  the  Holy- 
Well,  midway  in  the  dismal  unfrequented  Strand;  and  far  away  to 
the  west,  in  the  independent  city  of  Westminster,  was  a  nest  of 
separate  markets,  the  principal  being  at  the  gates  of  old  Westminster 
Hall.  As  London  grew  and  there  was  need  of  places  for  retail  pur- 
chase nearer  to  the  more  out-of-the-way  houses  than  were  the  central 
markets  it  became  the  fashion  for  tradesmen  to  throw  open  the 
lower  front  rooms  of  their  dwelling-houses  and  stock  them  with 
articles  for  sale.  In  this  way  shops  came  into  fashion.  And  in 
like  manner,  to  make  space  for  the  storage  of  goods,  many  upper 
rooms  came  to  be  enlarged  by  pent-houses,  or  projections,  reaching 
nearly  into  the  middle  of  the  streets,  but  with  their  floors  nine  feet 
above  the  ground,  "so  as  to  allow  of  people  riding  beneath."  Muc 
larger  than  these  were  the  selds  or  shields,  great  sheds  erected  by 


uch 


MEDIAEVAL  INDUSTRIAL  SOCIETY  107 

more  important  dealers  for  their  single  use,  or  by  several  merchants 
in  company,  for  the  sake  of  separate  commodities.  One  in  Friday 
Street,  for  instance,  was,  in  Edward  the  Third's  reign,  appropriated 
to  traffic  in  hides,  while  another,  known  as  the  Winchester  Seld, 
adjoining  the  Wool-Church-Haw  market,  seems  to  have  been  the 
chief  place  of  resort  for  the  merchants  of  Winchester,  Andover,  and 
other  towns,  and  to  have  been  used  by  them  for  the  stowage  and 
sale  of  all  sorts  of  goods.  Towards  the  end  of  the  thirteenth  century 
its  keeper  was  one  William  de  Wool-Church-Haw.  "This  William," 
we  are  told,  "although  bound  by  oath  to  abstain  from  all  mal- 
practices, was  in  the  habit,  immediately  upon  the  arrival  of  a  new- 
comer with  wares  for  sale,  of  shutting  the  doors  of  the  seld,  opening 
out  the  goods,  and  himself,  or  by  his  underlings,  making  his  bargain 
with  the  vendor.  The  price  duly  arranged,  the  goods  were  exposed 
for  sale  to  the  public  by  the  merchant-strangers  as  though  their  own 
and  not  already  sold — of  which  the  consequence  was  that  the  goods 
were  sold  at  a  higher  price  than  they  ought  to  be,  the  public  having 
to  pay  two  profits,  one  to  the  merchant-stranger,  another  to  William 
de  Wool-Church-Haw.  It  was  an  even  greater  crime,  no  doubt,  in 
the  eyes  of  the  King's  officers  that,  in  defiance  of  the  royal  preroga- 
tive, this  William  -had  had  the  audacity  to  set  up  a  tron  of  his  own 
for  the  weighing  of  wool  and  had  taken  tronage,  or  toll,  for  the  same." 
As  the  numbers  of  markets,  shops,  and  selds  increased,  the 
varieties  of  trades  and  callings,  of  course,  became  likewise  more 
numerous.  But  the  separation  between  wholesale  and  retail  dealers, 
merchants,  and  tradesmen  was  much  less  clearly  marked  then  than 
it  now  is;  and  those  who  bought  goods  in  large  quantities,  either 
from  foreign  merchants  for  sale  at  home  or  from  the  English  pro- 
ducers for  exportation,  for  the  most  part  dealt  promiscuously  in 
articles  of  all  sorts.  The  divisions  of  commerce,  however,  were 
gradually  becoming  more  distinct;  and  even  now  there  was,  at  any 
rate,  the  one  broad  separation  of  trades  in  articles  of  food  from  trades 
in  articles  of  clothing  and  the  like. 

47.    MEDIAEVAL  SHOPS1 

Mediaeval  shops  would  appear  to  us  rather  primitive,  but  their 
evolution  is  very  interesting  and  affords  an  index  of  the  growth  of 
tde.    According  to  Mr.  Addy,  they  were  originally  below  the  surface 

Taken  by  permission  from  A.  Abram,  English  Life  and  Manners  in  the  Later 
lie  Ages,  pp.  92-93.     (George  Routledge  &  Sons,  Ltd.,  1913.) 


108  INDUSTRIAL  SOCIETY 

of  the  street,  like  cellars.  In  London,  Stow  tells  us,  speaking  of  the 
fishmongers  and  the  butchers,  they  had  at  first  only  movable  boards 
or  stalls  which  they  set  out  on  market  days  to  show  their  goods,  but 
they  procured  license  to  set  up  sheds  which  "grew  to  shops."  A 
movable  stall,  "situate  beneath  the  gate  of  Ludgate,"  was  let  on 
lease  in  1375  for  ten  years  at  a  rent  of  forty  shillings  a  year,  but 
rents  were  much  higher  in  London  than  elsewhere.  A  lease  of  a 
plot  of  ground  nine  feet  by  five  was  granted  to  a  butcher  of  Colchester 
to  make  a  stall  thereon,  and  he  paid  a  rent  of  two  shillings  a  year. 
When  it  became  necessary  to  have  permanent  shops,  stalls  were 
often  fixed  onto  the  front  of  the  lower  part  of  the  house  and  provided 
with  hinges  so  that  they  could  be  let  down  when  they  were  not  in 
use.  An  ordinance  of  the  City  of  London,  in  the  reign  of  Edward 
II,  decreed  that  they  should  not  be  more  than  two  and  a  half  feet 
wide.  They  must  have  been  something  like  the  adjustable  flaps  we 
have  on  gateleg  tables.  Sometimes  a  sloping  wooden  roof  protected 
them,  and  sometimes  the  projecting  upper  stories  of  the  house  served 
the  same  purpose.  As  business  increased  the  room  to  which  the 
stall  was  attached  was  used  as  a  shop,  as  well  as  the  stall  itself; 
and  sometimes  there  was  a  cellar  or  a  storeroom  under  the  shop. 
The  shops  in  Butchers'  Row,  Shrewsbury,  which  Mr.  Parker  says 
were  built  in  the  fifteenth  century,  consist  of  good-sized  rooms, 
divided  into  three  parts  by  stanchions;  one  opens  into  the  street, 
and  the  upper  portions  of  the  other  two  form  the  shop  window. 
Each  shop  had  its  sign  hanging  outside  it  to  indicate  the  trade  of 
its  owner.  A  survival  of  the  custom  may  be  seen  today  in  tht 
pawnbroker's  three  balls.  Men  of  the  same  trade  congregatec 
together  in  the  same  street,  and  some  of  the  streets  of  London  am 
other  towns  still  owe  their  names  to  the  occupations  of  their  formei 
inhabitants.  The  makers  of  the  rosaries  which  were  called  Pater- 
nosters lived  in  Paternoster  Row,  and  Lombard  Street  was  the  abod< 
of  the  Lombard  brokers. 

48.  PEDLARS,  MERCHANTS,  AND  CHAPMEN1 

Wayfarers  there  were  in  whom  both  characteristics  were  unitec 
the  slowness  of  pace  of  the  merchant  and  the  lightness  of  heart 
the  messenger.    These  were  the  pedlars,  a  very  numerous  race  in  tht 
J"Middle  Ages,  one  of  the  few  sorts   of   wanderers   that  have  not 

1  Adapted  by  permission  from  J.  J.  Jusserand,  English  Wayfaring  Life  in  t) 
Middle  Ages,  pp.  231-44.     (T.  Fisher  Unwin,  1892.     Author's  copyright.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  109 

yet  disappeared.  A  jovial  race  they  seem  to  have  been;  they  are 
so  now,  most  of  them,  for  their  way  to  success  is  through  fair 
speech  and  enticing  words,  and  how  could  they  be  enticing  if  they 
did  not  show  good  humour  and  entrain? 

They  swarmed  along  the  roads  in  the  Middle  Ages.  There  were 
not  then  as  now  large  shops  in  every  village  with  all  the  necessaries 
of  life  ready  provided  for  the  inhabitants.  The  shop  itself  was 
itinerant,  being  nothing  else  than  the  pack  of  travelling  chapmen. 
In  the  same  way  as  the  literature  minstrels  would  propagate,  as  news, 
tales,  letters,  pardons  from  Rome,  and  many  other  things,  so  house- 
hold wares  were  carried  about  the  country  by  indefatigable  wayfarers. 
A  host  of  small  useful  things  were  concealed  in  their  unfathomable 
boxes.  The  contents  of  them  are  pretty  well  shown  by  a  series  of 
illuminations  in  a  fourteenth-century  manuscript,  where  a  pedlar  is 
represented  asleep  at  the  foot  of  a  tree,  while  monkeys  have  got  hold 
of  his  box  and  help  themselves  to  the  contents.  They  find  in  it 
vests,  caps,  gloves,  musical  instruments,  purses,  girdles,  hats,  cut- 
lasses, pewter  pots,  and  a  number  of  other  articles.  As  to  the  means 
by  which  pedlars  came  by  their  goods,  several  were  familiar  to  them, 
and  purchase  seems  to  have  been  only  one  among  many. 

The  regular  merchants  whom  Langland  and  Chaucer  describe, 
with  business  enough  to  be  in  debt,  adorned  with  Flaundrisch  hats 
and  forked  beards,  were  a  very  different  sort  of  people;  but  though 
no  mere  wanderers,  they,  too,  were  great  wayfarers.  Many  of 
them  had  had  to  visit  the  Continent  to  find  a  market  for  their  goods 
and  for  their  purchases. 

The  importance  of  this  intercourse  with  the  continent,  which 
fortunately  the  variations  in  the  law  of  the  land  were  unable  to  check, 
gave  prominence  to  the  English  merchant  in  the  community.  He 
was  already  in  the  fourteenth  century,  and  has  been  ever  since,  one  of 
the  main  supports  of  the  State.  While  the  numerous  applications 
of  Edward  III  to  Lombard  bankers  for  ready  money  are  well  known, 
it  is  sometimes  overlooked  how  often  he  had  recourse  to  English 
merchants,  who  supplied  him  with  that  without  which  his  archers' 
bows  would  have  remained  unstrung.  The  advice  and  good-will  of 
the  whole  class  of  merchants  could  not  be  safely  ignored,  therefore 
their  attendance  was  constantly  requested  at  Westminster  to  discuss 
mey  and  other  State  matters.  Some  families  among  them  rose 
to  eminence,  such  as  the  De  la  Poles  of  Hull,  who  became  earls  of 

folk  with  descendants  to  be  killed  at  Azincourt,  to  be  checked 


HO  INDUSTRIAL  SOCIETY 

by  Joan  of  Arc  at  Orleans,  to  be  made  dukes,  and  to  be  impeached 
for  high  treason.  It  was,  too,  the  time  of  "thrice  Lord  Mayor  of 
London"  Dick,  afterwards  Sir  Richard  Whittington.  Another  man 
of  the  same  sort  a  little  later  was  the  famous  William  Canynge,  of 
Bristol,  who  made  there  a  large  fortune  in  trading  with  foreign 
countries.  One  of  the  boats  of  this  Canynge  was  called  the  Mary 
Redcliffe,  a  name  as  well  as  his  own  since  associated  with  the  memory 
of  the  Bristol  boy-poet,  Thomas  Chatterton. 

Below  men  in  such  exalted  situation  the  bulk  of  the  merchant 
community  throve  as  best  they  could.  One  of  the  necessities  of 
their  avocation  was  constant  travelling.  They  were  to  be  met 
about  the  roads  almost  as  much  as  their  poorer  brothers,  the  pedlars. 
They  also  made  great  use  of  the  watercourses  and  carried  their 
goods  by  boat  whenever  there  was  any  possibility.  Hence  the 
constant  interference  of  the  Commons  with  the  erection  of  new 
mills,  weirs,  and  other  hindrances  on  rivers  by  lords  of  the  adjoining 
lands.  The  reasons  that  merchants  preferred  such  a  conveyance 
were  that  the  cost  of  carriage  was  less;  except  for  the  occasional 
meeting  of  unexpected  locks  and  weirs,  they  were  more  certain  than 
on  ordinary  roads  to  find  before  them  a  clear  course;  and  they  were 
better  able  to  protect  themselves  against  robbers.  They  could  not, 
however,  go  everywhere  by  water  and,  willingly  or  not,  they  had  tc 
betake  themselves  to  the  roads  and  incur  all  the  mischances  that 
might  turn  up  on  the  way  or  at  the  inn. 

Between  the  "male"  of  these  chapmen  and  the  mere  pack  of 
the  pedlar  the  difference  is  not  very  considerable;  it  is  not  vei 
great  either  if  compared  to  the  "male"  of  the  merchant  we  have 
met  before,  who  travels  slowly  on  account  of  it,  and  who  is  repn 
sented  by  the  poet  as  the  emblem  of  "men  that  ben  ryche."  S( 
that  these  three  links  kept  pretty  close  together  the  chain  of  the 
itinerant  trading  community.  They  all  had  to  go  about  and  tc 
experience  the  gaieties  or  dangers  of  the  road,  the  latter  being  of 
course  better  known  to  the  richer  sort  than  to  the  poor  Bob  Jakii 
of  the  day.  The  reasons  for  this  constant  travelling  were  numerous; 
the  same  remark  applies  to  merchants  of  the  fourteenth  century  as 
to  almost  all  other  classes;  there  was  much  less  journeying  thai 
today  for  mere  pleasure's  sake,  but  very  much  more,  comparatively, 
out  of  necessity.  We  cannot  underrate  the  causes  of  personal 
journeys  which  the  post  and  telegraph,  with  the  money  facilities 
they  have  introduced,  have  suppressed.    But  besides  this  considera- 


MEDIAEVAL  INDUSTRIAL  SOCIETY  in 

tion,  in  the  fourteenth  century  the  staple  and  fairs  were  among  the 
causes  impelling  merchants  to  move  about. 

49.    THE    SIGNIFICANCE   OF   ENGLAND'S   FOREIGN   TRADE1 

In  turning  now  to  consider  the  beginnings  of  England's  foreign 
trade,  we  must  steadily  bear  in  mind  that,  though  the  interest  of 
the  subject  is  great,  both  for  the  light  it  casts  on  the  conditions  of 
the  time  and  also  because  of  the  dominant  part  which  foreign  trade 
was  destined  ultimately  to  play  in  English  development,  its  bulk 
was  relatively  very  small  throughout  the  Middle  Ages,  in  comparison 
with  the  total  economic  activity  of  the  nation.  England  remained 
on  the  whole  a  self-sufficing  country.  Export  carried  away  only 
such  surplus  raw  produce  as  the  land  itself  did  not  require,  especially 
wool;  and  import  brought  chiefly  luxuries,  such  as  silks,  furs,  fine 
and  dyed  woollen  cloth,  and  French  wines,  purchased  by  a  very 
limited  upper  class,  together  with  the  spices,  which  rendered  more 
palatable  the  food  and  drink  of  the  well-to-do.  Probably  the  only 
imported  article  in  general  use  among  the  masses  of  the  people  was 
the  Norwegian  tar  which  was  employed  as  dressing  for  sheep  in 
cases  of  scab;  this  seems  to  have  been  introduced  at  the  end  of  the 
thirteenth  century.  Down  to  the  close  of  the  Middle  Ages,  England 
was  far  inferior  to  certain  other  parts  of  Europe — to  the  Rhineland 
and  to  the  great  cities  of  North  and  South  Germany  on  the  one  side; 
to  the  Italian  republics,  such  as  Genoa  and  Venice  on  the  other — in 
manufacturing  skill,  in  accumulated  capital,  in  commercial  enterprise, 
in  knowledge  of  the  arts  of  navigation  and  of  accounting,  and  in  the 
possession  of  shipping.  It  was  really  only  in  the  seventeenth  century 
that  England  began  to  compete  with  the  other  nations  of  Western 
Europe  on  anything  like  equal  terms,  and  only  in  the  eighteenth 
century  that  it  took  the  place  of  Holland  and  became  the  great 
carrying  and  entrepot  nation  of  the  world. 

50.    THE  STAPLERS2 

The  staplers  were  merchants  who  had  the  monopoly  of  exporting 
the  principal  raw  commodities  of  the  realm,  especially  wool,  woolfels, 
leather,  tin,  and  lead,  wool  figuring  most  prominently  among  these 

1  Taken  by  permission  from  W.  J.  Ashley,  The  Economic  Organization  of 
England,  pp.  68-69.    (Longmans,  Green,  &  Co.,  1914.) 

2  Adapted  by  permission  from  Charles  Gross,  The  Gild  Merchant,  I,  140-47. 
(The  Clarendon  Press,  1890.) 


I 


112  INDUSTRIAL  SOCIETY 

"staple"  wares.  The  merchants  of  the  staple  used  to  claim  that 
their  privileges  dated  from  the  time  of  Henry  III,  but  existing  records 
do  not  refer  to  the  staple  before  the  time  of  Edward  I.  Previous  to 
this  reign  the  export  trade  was  mainly  in  the  hands  of  the  German 
Hanse  merchants. 

The  staples  were  the  towns  to  which  the  above-mentioned  wares 
had  to  be  brought  for  sale  or  exportation.  Sometimes  there  was 
only  one  such  mart,  and  this  was  situated  abroad,  generally  at  Bruges 
or  Calais,  occasionally  at  Antwerp,  St.  Omer,  or  Middleburgh. 
From  the  reign  of  Richard  II  until  1558  the  foreign  staple  was  at 
Calais.    The  list  of  home  staples  was  also  frequently  changed. 

The  many  changes  in  the  location  of  the  staples — especially  the 
foreign  staples,  during  the  fourteenth  century — were  often  due  to 
political  rather  than  to  economic  considerations,  the  removal  of  the 
staple  mart  being  employed  by  the  English  king  as  a  weapon  of 
coercion  or  reprisal  against  foreign  princes. 

It  is  evident  that  the  staple  was  primarily  a  fiscal  organ  of  the 
crown,  facilitating  the  collection  of  the  royal  customs.  It  also 
ensured  the  quality  of  the  goods  exported  by  providing  a  machinery 
for  viewing  and  marking  them;  it  stimulated  commerce  by  providing 
alien  merchants  with  a  special  tribunal  and  protecting  them  in  other 
ways,  "to  give  courage  to  merchant  strangers  to  come  with  their 
wares  and  merchandises  into  the  realm." 

It  is  likewise  evident,  from  the  ordinance  of  27  Edward  III  and 
from  other  records,  that  the  mayor  and  constables  of  the  home 
staples  were  public  functionaries  of  the  king,  originally  distinct 
from  the  municipal  authorities,  although  in  course  of  time  it  became 
customary  in  some  towns  for  the  mayor  of  the  borough  to  act  ex  officio 
as  mayor  of  the  staple. 

We  are  particularly  concerned  with  the  organization  of  the 
staplers  as  a  company  or  gild.  There  can  be  no  doubt  that  they 
constituted  one  general  fraternity  or  fellowship,  although  few  modern 
writers  allude  to  this  fact,  and  some  expressly  deny  it.  Indeed,  the 
Company  of  the  Staple  of  England  is  still  in  existence,  although  it  is 
•now  shorn  of  all  its  ancient  trade  functions,  its  members  assembling 
only  to  feast  together. 

The  home  staples  of  England  and  Wales  individually  do  not 
seem  to  have  constituted  separate  fraternities,  though  they  often 
acted  jointly,  as,  for  example,  in  electing  their  mayors  and  constables. 
In  Ireland,  on  the  other  hand,  during  the  fifteenth  and  sixteenth 


MEDIAEVAL  INDUSTRIAL  SOCIETY  113 

centuries,  the  staplers  of  a  town  were  generally  incorporated  as  a 
company  or  a  fraternity.  The  charter  granted  by  the  king  to  such 
a  fellowship  generally  allowed  its  members  annually  to  elect  a  mayor 
and  two  constables,  to  make  by-laws,  to  have  charge  of  the  king's 
beam  for  the  weighing  of  wares,  and  to  take  recognizances  of  the 
staple.  It  was  the  custom  in  some  Irish  boroughs  to  appoint  the 
retiring  mayor  of  the  town  mayor  of  the  staple  and  the  retiring 
bailiffs  of  the  town  constables  of  the  staple. 

The  increase  of  home  manufactures  and  the  corresponding 
diminution  in  the  export  of  wool  sapped  the  foundations  of  the 
staple  system.  The  prohibition  of  the  export  of  wool  in  1660  must 
have  given  a  finishing  blow  to  the  staple  as  an  active  organism. 
But  there  were  still  some  survivals  of  the  home  staples  in  the  first 
half  of  the  present  century,  and,  as  I  have  already  pointed  out,  the 
Company  of  the  Staple  of  England  is  still  in  existence. 

51.    THE  MERCHANT  ADVENTURERS1 

It  is  often  assumed  that  English  foreign  commerce  was  almost 
completely,  if  not  altogether,  in  the  hands  of  aliens,  at  any  rate 
until  the  fourteenth  century  was  far  advanced.  But  there  are 
grounds  for  believing  that  the  extent  to  which  English  merchants 
carried  on  foreign  trade  and  competed  with  aliens  in  earlier  times 
has  been  greatly  underestimated.  They  were  by  no  means  excluded 
from  the  export  trade,  and  they  had  a  greater  share  in  the  beginnings 
of  English  commerce  than  is  usually  recognized.  As  early  as  Stephen's 
reign  the  men  of  Newcastle  had  their  own  ships,  and  one  rich  burgess 
engaged  in  trading  ventures  with  his  own  merchant  vessels. 

Among  the  different  groups  of  English  merchants  who  carried 
native  wares  to  foreign  countries  the  most  prominent  were  the 
Merchant  Adventurers,  who  rose  to  great  commercial  importance. 

The  Merchant  Adventurers  were  trading  capitalists;  they  were 
engaged  in  foreign  trade  and  left  the  internal  trade  of  the  country 
in  the  hands  of  the  livery  companies.  "  No  person  of  this  fellowship," 
ran  an  ordinance,  shall  "sell  ....  by  retail  ....  nor  shall  keep 
>pen  shop."  The  government  of  the  society  appears  to  have  been 
;ated,  not  in  London,  but  on  the  continent.  It  has  been  stated 
lat  the  Mercers  of  London  formed  the  nucleus  of  the  company, 
>ut  in  any  case  the  members  were  drawn  from  many  towns.     "The 

Adapted  by  permission  from  E.  Lipson,  The  Economic  History  of  England: 
"he  Middle  Ages,  pp.  486-92.     (A.  &  C.  Black,  Ltd.,  1915.) 


114  INDUSTRIAL  SOCIETY 

Company  of  the  Merchant  Adventurers  consisteth  of  a  great  number 
of  wealthy  and  well-experimented  merchants  dwelling  in  divers 
great  cities,  maritime  towns,  and  other  parts  of  the  realm,  to  wit, 
London,  York,  Norwich,  Exeter,  Ipswich,  Newcastle,  Hull,  etc.  These 
men  of  old  time  linked  and  bound  themselves  together  in  company 
for  the  exercise  of  merchandise  and  sea-fare,  trading  in  cloth,  kersey, 
and  all  other  ....  commodities  vendible  abroad."  At  the  end  of 
the  sixteenth  century  the  Merchant  Adventurers  were  said  to  number 
three  thousand  five  hundred  persons,  "inhabiting  London  and  sundry 
cities  and  parts  of  the  realm."  The  Merchant  Adventurers  of 
other  towns  were  to  all  appearance  distinct  but  affiliated  bodies. 

The  Merchant  Adventurers  constituted  a  regulated  company,  that 
is,  membership  was  open  to  all  who  were  willing  to  pay  its  admission 
fees  and  acquiesce  in  its  authority.  Within  its  sphere  of  influence 
the  company  had  a  complete  monopoly  of  trade,  and  no  outsider  or 
" interloper"  was  tolerated.  This  monopoly  was  backed  by  the 
authority  of  the  English  state.  It  was  intended  to  develop  "a 
well-ordered  and  ruled  trade"  in  which  production  was  limited, 
prices  were  high  and  stable,  and  commodities  were  well-wrought. 
This  was  the  ideal  of  mediaeval  commerce.  The  Merchant  Staplers, 
for  example,  prided  themselves  on  the  fact  that  they  had  "kept 
and  maintained  the  prices  of  the  said  commodity  (wool)  in  utterance 
thereof  to  the  strangers  as  much  as  in  them  hath  lain."  Again,  the 
Merchant  Adventurers  claimed  credit  on  the  ground  that  they  did 
"keep  up  the  price  of  our  commodities  abroad  by  avoiding  an  over- 
glut  of  our  commodities  whereto  they  trade,  ....  whereas  con- 
trariwise when  trade  is  free,  many  sellers  will  make  ware  cheap  and 
of  less  estimation."  The  system  of  chartered  companies  had  certain 
definite  advantages.  It  gave  to  merchants  in  the  pursuit  of  their 
trade  a  recognized  status  as  the  members  of  a  wealthy  and  powerful 
company,  able  to  maintain  its  privileges  and  to  resist  oppression. 
It  prevented  excessive  competition  among  traders,  which  flooded 
the  market  with  commodities  and  lowered  prices  to  the  benefit  of 
foreign  buyers.  Merchants  abroad  were  forbidden  to  sell  or  buy 
secretly;  and  their  transactions  were  conducted  in  the  presence  of 
brokers,  who  were  to  make  a  report  to  the  governor  and  so  prevent 
strife  or  disputes  arising  among  them.  It  was  also  the  duty  of  the 
governor  to  demand  evidence  from  traders  that  they  had  paid  custom 
duty  on  English  exports.  At  the  same  time  the  regulated  company 
afforded  the  government  an  instrument  by  which  it  could  direct 


MEDIAEVAL  INDUSTRIAL  SOCIETY  115 

trade  into  the  proper  channels  and  advance  the  interests  of  the 
state  as  they  were  then  understood.  Its  great  drawback  was  that 
it  retarded  the  expansion  of  trade;  it  curtailed  competition  and 
checked  enterprise.  It  is  commonly  said  in  its  defence  that  the 
market  was  limited,  and  the  demand  for  commodities  fairly  stable. 
In  so  far  as  this  was  the  case  the  evil  was  not  perhaps  unduly  great, 
but  it  is  difficult  to  determine  how  far  opportunities  for  individual 
enterprise  and  initiative  were  restricted  to  the  real  detriment  of  the 
oversea  trade.  The  enemies  of  the  chartered  company  were  the 
interlopers  who  were  outside  their  fellowship,  but  "intermeddled" 
with  their  trade.  They  appealed  to  the  traditional  "Englishman's 
liberty"  and  defied  the  Adventurers'  monopoly.  Their  activities 
were  most  marked  in  the  seventeenth  century,  but  they  were  already 
in  existence  in  the  sixteenth. 

52.    MEDIAEVAL  AND  EARLY  MODERN  BUSINESS 
ASSOCIATIONS1 

The  need  of  association  was  felt  especially  in  the  Middle  Ages 
because  it  was  necessary  that  a  merchant  or  his  representative  should 
accompany  his  wares  on  the  road.  It  was  often  difficult  for  a  mer- 
chant to  look  after  a  commercial  venture  in  person;  he  could  not 
trust  it  to  a  hireling;  and  the  slight  development  of  the  carrying  and 
commission  profession  made  it  impossible  for  him  to  leave  it  to  a 
class  of  persons  who  nowadays  make  it  their  business  to  attend  to  such 
matters.  The  merchant  would  choose  by  preference  a  member  of  his 
family,  and  family  partnerships  were  the  prevailing  form  of  association 
at  first.  With  the  growth  of  commerce,  however,  greater  freedom  of 
association  was  demanded,  and  the  group  ceased  to  be  limited  by 
considerations  of  relationship. 

By  joining  together,  two  or  more  men  could  follow  different  lines; 
one  would  stay  at  home  while  another  could  accompany  the  wares, 
and  perhaps  still  another  could  attend  to  sales  in  a  distant  city.  The 
advantages  of  this  are  apparent,  and  of  not  less  importance  are  the 
benefits  arising  from  the  better  utilization  of  capital.  A  person  who 
had  accumulated  wealth,  but  who,  on  account  of  advanced  age, 
physical  disability,  or  other  circumstance,  could  not  himself  employ 
it  in  commerce,  would  join  with  him  a  man  who  contributed  to  the 

(enterprise  the  necessary  business  activity. 
1  Adapted  by  permission  from  Clive  Day,  A  History  of  Commerce,  pp.  1 15-17, 
143-48.     (Longmans,  Green,  &  Co.,  191 2.) 


n6  INDUSTRIAL  SOCIETY 

Capitalists  gained  also  in  another  way,  for  they  were  enabled  by 
association  to  share  the  risks  of  an  enterprise.  A  man  who  put  all 
his  money  into  one  ship  or  cargo  ran  the  risk  of  being  ruined;  the 
dangers  in  the  path  of  commerce  were  by  no  means  slight.  By 
distributing  his  capital  in  a  number  of  enterprises,  however,  as  could 
easily  be  done  if  he  entered  into  association  with  others,  he  could  hope 
to  make  up  for  any  probable  loss  by  the  profits  of  his  successful 
ventures,  and  can  be  regarded  as  insuring  himself.  We  find,  in  fact, 
that  the  shipping  business  was  for  the  most  part  carried  on  in  this  way. 

Commercial  association  took  ordinarily  the  form  of  a  "com- 
menda"  (Latin  commendare,  entrust).  The  " commendator "  con- 
tributed capital  in  the  form  of  money,  wares,  or  a  ship,  while  the  other 
party,  called  the  "  tractator, "  contributed  only  his  personal  services  to 
the  enterprise;  of  the  profits  one  fourth  went  to  the  tractator  and 
the  remainder  to  the  commendator.  The  tractator  who  saved  his 
earnings  could  in  time  also  contribute  capital,  and  was  given  a  greater 
share  of  the  profits  and  more  freedom  in  conducting  the  business. 

The  commenda,  corresponding  to  a  "silent  partnership,"  was 
older  and  of  more  importance  in  commercial  undertakings  than  the 
ordinary  partnership  of  the  present  day;  but  the  latter  form  of 
association  grew  up  also  at  this  time,  and  was  used  in  commerce  as 
well  as  in  industry.  The  joint-stock  corporation  belongs  in  its 
important  applications  to  a  later  period. 

The  different  forms  of  partnership  developed  especially  in  Italy 
in  the  last  few  centuries  of  the  Middle  Ages,  when  the  growth  of 
commerce  was  most  rapid,  and  they  became  extraordinarily  extensive 
and  important.  From  Italy  the  practice  of  association  spread  to  the 
North  of  Europe,  and  it  became  practically  universal  in  commercial 
undertakings. 

We  have  now  to  study  the  rise  of  great  companies  which  form  a 
connecting  link  with  the  corporations  and  trusts  of  the  present  day. 

Among  the  reasons  for  the  rise  of  great  commercial  companies  the 
following  are  to  be  noted:  (i)  Distant  commerce  was  exposed  con- 
stantly to  armed  attack.  It  was  essentially  military  in  character,  and 
required  for  successful  prosecution  greater  military  force  than  a  small 
group  of  men  could  afford.  (2)  Partly  because  of  dangers  suggested 
above,  partly  because  of  the  natural  perils  of  the  sea  under  the  con- 
ditions of  navigation  at  the  time,  partly  because  of  the  very  novelty 
of  the  trade,  distant  commerce  was  very  hazardous.  If  five  men  sent 
out  a  ship  they  might  make  a  great  fortune,  but  they  might  lose 


MEDIAEVAL  INDUSTRIAL  SOCIETY  117 

everything.  If  they  associated  themselves  with  ninety-five  others 
and  together  sent  out  twenty  ships  they  were  pretty  sure  to  lose  some 
of  these,  but  they  were  pretty  sure  to  make  from  the  other  ships 
enough  to  return  large  profits. 

It  was  natural,  under  the  circumstances,  that  associations  of  men 
should  spring  up  for  carrying  on  commerce  in  distant  parts.  We  must 
note  further,  however,  that  these  associations  were  required  by  Euro- 
pean governments,  that  a  certain  field  was  assigned  to  each  company 
in  which  it  was  given  a  monopoly,  and  that  in  this  field  trade  by 
individuals  and  by  other  associations  was  prohibited.  The  reasons 
for  this  course  were,  in  brief,  as  follows: 

1.  The  peoples  of  distant  countries  did  not  distinguish  between 
individual  merchants.  As  all  Chinamen  look  alike  to  us,  so  all 
Englishmen  or  even  all  Europeans  were  alike  to  them.  An  unscru- 
pulous trader  who  cheated,  robbed,  or  killed  a  native,  escaped  the 
consequences  of  his  crime  and  left  them  to  be  borne  by  his  countrymen 
who  sought  later  to  carry  on  the  trade.  The  home  government  could 
not  punish  such  offences,  and  it  could  not  afford  to  let  them  continue. 
It  secured,  therefore,  that  a  man  proposing  to  trade  to  a  distant 
country  should  have  an  interest  in  the  permanent  welfare  of  the  trade, 
by  making  him  contribute  money  tP  the  association  and  subscribe 
to  its  rules. 

2.  The  government  could  diminish  the  risks  of  distant  commerce 
by  assuring  merchants  who  spent  money  in  building  up  a  trade  that 
they  should  not  be  deprived  of  the  fruits  of  their  labours  by  newcomers 
who  had  made  no  sacrifices.  It  seemed  as  proper  to  encourage  in 
this  way  the  investment  of  capital  in  commerce  as  to  encourage 
investment  in  manufactures  by  granting  patents. 

3.  Finally,  governments  were  led  naturally  to  apply  the  prevalent 

f  ideas  of  gild  regulation  to  distant  commerce,  and  found  some  practical 
advantages  in  doing  this;  it  was  easier  to  tax  and  to  regulate  an 
association  of  men  than  a  number  of  individuals. 

Many  of  the  objects  enumerated  above  could  be  obtained  by 

inion  in  what  was  called  a  "regulated  company."    The  regulated 

:ompany  had  a  monopoly  of  a  certain  field  of  trade,  and  established 

regulations  which  were  binding  on  the  members  trading  in  that  field. 

iVeryone,  however,  who  secured  admission  by  paying  the  entrance  fee 

md  promising  obedience  to  the  rules,  traded  thenceforth  with  his  own 

ipital,  and  kept  his  profits  for  himself;  there  was  no  pooling  of  capi- 

il  or  profits.    The  character  of  such  a  company  may  be  suggested 


Ii8  INDUSTRIAL  SOCIETY 

to  readers  by  the  organization  of  the  modern  stock  exchange.  No 
one  who  is  not  a  member  can  trade  on  the  exchange,  and  every 
member  is  bound  to  follow  certain  rules  in  his  dealings,  but  every 
member  keeps  his  capital  and  profits  distinct  from  those  of  the  others. 

The  regulated  company  was  at  best  a  loose  association.  Individ- 
ual traders  had  no  greater  interest  in  it  than  the  amount  of  their 
entrance  fees,  and  regarded  their  momentary  individual  interests  as 
more  important  than  the  permanent  interests  of  the  group.  This 
weakened  the  control  of  the  company  over  the  associates,  and  rendered 
difficult  the  prevention  of  abuses.  A  strong  and  active  policy  was 
hardly  possible,  moreover,  when  associates  kept  the  bulk  of  their 
capital  in  their  own  hands,  and  could  withdraw  in  periods  of  adversity, 
so  that  the  resources  available  to  push  the  interests  of  the  association 
diminished  when  most  needed. 

The  problem  set  before  Europe  in  this  condition  of  affairs  was  as 
important  as  it  was  difficult.  The  future  of  European  commerce, 
even  of  European  civilization,  depended  on  some  solution  which 
would  make  from  the  individual  impulse  to  gain,  the  instinctive 
selfishness  of  every  man,  a  collective  force  which  would  enable  a 
number  of  men  to  work  for  gain  together.  The  partnership  had 
united  the  interests  of  a  very  few  men,  simplifying  the  problem  by 
starting  with  members  of  the  same  family,  who  were  naturally  bound 
together.  The  relation  of  merchant  and  factor  was  another  move  in 
the  right  direction,  as  it  united  in  loyal  support  of  each  other  two  men 
separated  by  considerable  distance,  and  with  no  other  common  interest 
than  that  of  their  business.  The  principle  of  association  must, 
however,  be  extended  far  beyond  the  bounds  of  factorship,  or  partner- 
ship, or  of  the  regulated  company,  if  Europe  was  to  rise  to  the  opportu- 
nity presented  by  trade  with  distant  countries. 

The  problem,  reviewed  briefly,  was  to  get:  (a)  a  permanent  stock 
of  capital,  (b)  so  large  that  it  must  be  contributed  by  a  very  consider- 
able number  of  people,  (c)  under  the  management  of  a  few  people 
who  would  employ  it  efficiently  and  for  the  advantage  of  all  the 
contributors.  The  solution  was  the  joint-stock  company.  Early 
examples  of  this  form  of  association  are  to  be  found  in  Italy,  but  it 
developed  north  of  the  Alps  only  after  the  founding  of  the  Dutch  and 
English  East  India  companies  about  1600. 

Let  us  see  how  the  stock  company  meets  the  demands  for  an 
improved  form  of  association  which  were  imperative  at  this  time. 
(1)   It  insures  permanence  of  operation.    Individual  stockholders 


MEDIAEVAL  INDUSTRIAL  SOCIETY  1 19 

or  managers  may  die,  but  the  company  does  not  die  with  them; 
their  places  are  filled,  and  the  company  continues  with  its  original 
capital.  (2)  The  contributor  does  not,  like  a  partner,  need  to  be  a 
business  man;  does  not,  like  a  silent  partner,  need  to  have  especial 
trust  in  the  person  of  the  managers.  The  contributor  may  be  a 
foreigner,  a  child,  or  a  woman,  and  the  sources  from  which  capital 
may  be  drawn  are  thus  immensely  extended.  (3)  Capitalists  of  every 
class  are  willing  to  contribute  to  the  undertaking  because  of  the 
peculiar  safeguards  which  this  form  of  association  offers  to  them. 
In  the  first  place,  though  the  investment  is  permanent,  from  the 
standpoint  of  the  company,  and  so  enables  the  management  to  carry 
out  far-sighted  plans,  yet  it  endures,  from  the  standpoint  of  the 
individual  subscriber,  only  so  long  as  he  pleases.  The  system  of 
transferable  shares  enables  a  stockholder  to  sell  out  his  interest  at 
any  time,  and  so  change  his  investment.  In  the  second  place,  the 
stockholders  have  a  voice  in  the  management  of  the  company  pro- 
portionate to  their  interest  in  it.  They  choose  the  persons  to  whom 
they  will  intrust  the  active  direction  of  affairs,  require  periodical 
reports  on  the  course  of  business  from  the  managing  directors,  and 
have  the  power  to  change  the  directors  if  the  conduct  of  affairs  is  not 
satisfactory. 

The  reader  would  err  if  he  assumed  that  all  the  advantages 
suggested  above  were  secured  immediately  on  the  founding  of  the 
first  stock  companies.  Experiments  of  various  kinds  were  tried  at 
the  start,  and  only  gradually  did  the  companies  take  the  form  which 
they  have  assumed  in  modern  law.  The  English  East  India  Company, 
for  instance,  which  was  founded  in  1600  as  a  regulated  company, 
was  made  over  into  a  joint-stock  company  by  degrees,  and  could  not 
be  regarded  as  permanently  established  on  this  basis  for  over  fifty 
years.  Generations  of  bitter  experience  were  required  to  teach 
people  the  possible  dangers  as  well  as  the  possible  benefits  of  this  form 
of  association. 

Incompetence  and  corruption  were  prevalent  in  the  management 
of  affairs.  The  worst  abuses  of  our  modern  corporations  give  one 
but  a  faint  idea  of  the  enormities  that  were  perpetrated  in  the  early 
period  of  joint-stock  history.  In  spite  of  all,  the  joint-stock  companies 
accomplished  the  purpose  for  which  they  were  created;  they  attracted 
ipital  at  home,  stimulated  the  prosecution  of  a  definite  policy 
ibroad,  and  extended  commercial  interests  as  individuals  or  other 
>rms  of  association  would  have  been  unable  to  do.    The  American 


120  INDUSTRIAL  SOCIETY 

reader  may  remember  that  Virginia  was  founded  and  Massachusetts 
was  developed  by  joint-stock  companies.  Other  forms  of  association, 
especially  partnership,  were  more  suitable  for  many  purposes,  and 
increased  constantly  in  number;  but  alongside  them  several  hundred 
stock  companies  grew  up  in  Europe  of  which  perhaps  a  hundred  were 
founded  to  develop  great  commercial  and  colonial  undertakings. 

53.    MEDIAEVAL  CURRENCY1 

One  of  the  serious  obstacles  to  the  development  of  commerce 
was  the  character  of  the  currency  in  the  various  countries  of  Europe. 
Assuming  that  the  reader  appreciates  the  importance  of  money  as 
facilitating  the  operations  of  exchange  and  knows  the  qualities  of 
good  money,  we  may  confine  ourselves  to  pointing  out  some  of  the 
characteristic  faults  of  mediaeval  currency. 

1.  Merchants  could  not  rely  upon  the  government  to  maintain 
the  standard  of  value.  In  many  countries  the  kings  debased  the 
coinage  again  and  again  to  secure  the  means  of  carrying  on  war  or 
paying  public  expenses  of  other  kinds.  Every  debasement,  as  it 
left  the  coins  with  less  pure  metal,  lowered  their  purchasing  power 
and  raised  prices;  many  innocent  people  suffered,  and  everybody 
grew  reluctant  to  make  bargains  and  contracts. 

2.  In  many  countries,  especially  those  on  the  Continent,  the 
privileges  of  the  great  feudal  lords  included  the  right  to  keep  a  mint 
and  to  issue  coins.  The  central  government  restricted  this  right  as 
it  grew  stronger,  but  in  general  the  currency  of  mediaeval  Europe 
was  made  up  of  a  vast  variety  of  coins  of  standards  even  less  reliable 
than  that  of  the  king's  coinage.  There  was  danger  that  a  coin, 
even  if  it  was  of  good  weight,  could  not  be  passed  at  its  full  value 
outside  the  locality  where  it  was  minted. 

3.  Even  in  countries  like  England,  where  feudal  coinage  was 
put  down  and  where  debasement  by  the  government  was  excep- 
tional, counterfeits  were  not  rare,  and  the  clipping  of  coin  was 
very  common. 

These  characteristics  of  mediaeval  currency  made  the  money- 
changer a  necessary  figure  in  the  commercial  world;  he  was  to  be 
found  everywhere,  even  in  the  small  towns,  buying  and  selling  the 
various  coins  in  circulation. 

1  Adapted  by  permission  from  Clive  Day,  A  History  of  Commerce,  pp.  11 8-21. 
(Longmans,  Green,  &  Co.,  191 2.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  12 1 

While  the  money-changer  facilitated  payments  in  any  given 
place,  he  was  not  of  much  assistance  to  a  merchant  desirous  of  making 
a  payment  in  a  distant  town  or  country.  The  merchant,  it  is  true, 
could  buy  from  him  foreign  money  with  which  to  make  the  payment; 
but  the  transportation  of  the  actual  coin  was  not  only  dangerous 
and  expensive,  but  also  subject  to  legal  restriction,  and  was  to  be 
avoided  if  possible.  The  merchant  would  probably  prefer  to  send 
instead  of  money  some  ware  which  he  could  sell  to  advantage  at 
the  destination,  and  then  with  the  proceeds  make  his  payment. 
For  example,  when  Michael  Behaim  of  the  Nuremberg  Company 
wanted  to  send  1,000  gulden  from  Breslau  to  Nuremberg,  he  found  it 
expedient  to  buy  an  amount  of  wax  which  he  could  sell  in  Nuremberg 
for  the  required  sum,  and  he  shipped  that  instead  of  money. 

It  might  not,  however,  always  be  convenient  for  a  man  to  meet 
his  obligations  in  this  way;  he  might  not  have  the  commercial 
knowledge,  or  perhaps  he  might  have  no  good  opportunity  to  ship 
a  ware.  Behaim,  in  the  case  cited,  had  in  fact  resorted  to  the  wax 
shipment  only  from  necessity,  after  he  found  it  impossible  to  make 
his  payment  by  the  means  of  remittance  now  become  general,  the 
bill  of  exchange. 

Suppose  that  B  in  Breslau  owed  the  1,000  gulden  to  A  in  Nurem- 
berg for  spice;  and  suppose  that  D  in  Breslau  was  the  creditor  of 
another  Nuremberg  merchant  C  to  the  extent  of  1,000  gulden, 
perhaps  for  furs.  It  would  be  absurd  for  B  to  ship  the  money  or  to 
go  out  of  his  way  to  ship  wax  to  A,  and  for  C  to  ship  the  same  value 
to  D,  when  the  payments  could  be  made  to  cancel  each  other.  Why 
should  not  B  pay  to  D  in  Breslau  the  1,000  guldens  due  him  and 
tell  C  to  pay  the  same  amount  to  A  in  Nuremberg  ?  This  could  be 
accomplished  by  means  of  bills  of  exchange;  D  could  write  out  an 
order  to  C  directing  him  to  pay  the  money  and  sell  it  to  B,  who 
would  thus  have  the  means  of  paying  his  debt  in  Nuremberg 
to  A. 

Such  an  operation  implies,  however,  not  only  regular  commerce 
of  considerable  volume  but  also  mutual  confidence  among  the  par- 
ticipants. How  could  B  know  whether  D  actually  had  a  correspond- 
tt  in  a  distant  place  who  would  meet  his  obligations  promptly  ?  It 
is  not,  in  fact,  until  the  thirteenth  century  that  bills  of  exchange 
rere  used  to  any  considerable  extent;  then  they  were  developed  in 
[taly  and  spread  from  there. 


122  INDUSTRIAL  SOCIETY 

In  Italy,  also,  the  money-changers  developed  other  forms  of 
banking.  As  they  were  dealers  in  money,  business  men  in  want  of 
capital  for  their  operations  naturally  sought  it  of  them.  The  money- 
changers might  lend  it  from  their  own  stock  or  act  as  brokers  and 
secure  the  money  from  some  man  who  had  a  surplus.  The  short 
step  from  this  to  the  common  form  of  modern  banking  was  made 
when  merchants  deposited  their  surplus  cash  with  the  money-changer, 
and  he  had  thus  a  considerable  stock  which  he  could  lend  so  long  as 
he  kept  sufficient  reserve  to  meet  the  demands  of  depositors.  It 
soon  became  unnecessary  for  money  to  pass  at  all  in  large  transactions. 
A  man  could  get  a  loan  from  a  bank  simply  by  having  a  deposit 
ascribed  to  him  on  the  books  and  could  assign  this  loan  to  others 
as  he  chose  to  pay  it  out.  The  characteristic  danger  of  banking, 
the  attempt  to  make  a  great  deal  of  credit  out  of  a  little  capital, 
appears  early  in  Italy,  with  its  results  of  failures  and  crises.  The 
advantages  of  the  banking  system,  however,  the  economizing  of 
time  and  money,  and  the  facilitating  of  business  operations  were  so 
clear  that  banking  kept  its  place  and  spread,  toward  the  close  of  the 
Middle  Ages,  from  Italy  to  other  countries. 

54.    THE  LAW  MERCHANT1 

The  law  by  which  the  commercial  life  of  the  mediaeval  trader 
was  governed  was  not  the  common  law  of  the  land  but  the  law  mer- 
chant, aptly  termed  by  Maitland  "the  private  international  law  of 
the  Middle  Ages,"  and  identified  by  a  fifteenth-century  chancellor 
with  the  law  of  nature.  This  was  a  special  body  of  legal  usages  and 
doctrines  binding  on  merchants  throughout  Europe  in  their  mer- 
cantile relations.  While  at  the  outset  a  uniform  system  of  law  was 
only  gradually  developed  out  of  the  conflicting  practices  of  the 
different  localities,  there  ultimately  grew  up  a  definite  body  of  law 
distinct  from  common  law  and  of  international  bearing.  It  had 
several  well-defined  features,  and  foremost  among  these  the  author 
of  a  treatise  on  the  Lex  Mercatoria  places  the  summary  nature  of 
its  procedure.  Again,  it  was  unwritten,  customary  law,  created  by 
the  merchant  "out  of  his  own  needs  and  his  own  views,"  though  to 
some  extent  it  may  have  come  under  the  influence  of  statute  law. 
In  certain  respects  it  openly  diverged  from  the  common  law  of  the 
land  and  in  some  degree  anticipated  modern  commercial  practices. 

1  Adapted  by  permission  from  E.  Lipson,  The  Economic  History  of  England: 
The  Middle  Ages,  pp.  224-32.     (A.  &  C.  Black,  Ltd.,  1915.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  123 

Especially  characteristic  was  the  payment  of  a  God's  penny  to  bind  a 
purchase;  once  the  parties  to  a  contract  had  paid  "earnest"  or  assur- 
ance money,  neither  could  withdraw  from  it.  Its  principle  appears 
to  be  that  of  the  festuca,  or  symbol  of  possession,  which  the  seller  of 
land  handed  to  the  purchaser  in  token  of  the  change  of  ownership. 

Another  mercantile  institution  was  that  of  promissory  notes,  an 
institution  of  extreme  importance  in  the  development  of  trade  and 
finance.  The  procedure  of  mercantile  law  was  still  often  formal  and 
marked  by  the  retention  of  antiquated  survivals.  Thus  in  1287  the 
party  to  a  suit  at  the  fair  of  St.  Ives  lost  his  case  because  one  of  the  com- 
purgators in  taking  the  oath  made  a  slip  in  the  name,  saying  Robert 
for  Henry.  None  the  less,  in  certain  directions  there  was  a  departure 
from  established  usage.  Notably  was  this  the  case  in  the  production 
of  proof  by  tally,  or  by  evidence  based  on  the  examination  of  witnesses 
in  the  open  court,  while  professional  pleaders  were  afforded  scope  for 
their  activities.  For  these  various  reasons  the  piepowder  court,  and 
the  law  which  it  administered,  merit  the  most  considerable  attention. 
Throughout  the  Middle  Ages  and  beyond  England  was  covered 
with  a  network  of  courts,  which  in  number  and  energy  were  scarcely 
inferior  to  the  rural  courts  of  the  townships.  At  the  same  time  they 
must  have  contributed  enormously  to  the  consolidation  of  a  body  of 
mercantile  law,  which  in  its  turn  has  been  an  important  source  of 
modern  jurisprudence. 

The  holding  of  a  piepowder  court  was  not  the  prerogative  of 
the  fairs  alone.  They  were  often  set  up  in  boroughs  to  provide 
expeditious  justice  "for  merchants  and  foreigners  passing  through" 
in  matters  affecting  "covenants,  contracts,  trespasses,  and  debts." 
The  promise  of  speedy  justice  was  one  of  the  concessions  extended 
to  aliens  in  the  Carta  Mercatoria  (1303).  Cambridge  held  a  court 
"between  merchants  and  merchants  concerning  their  merchandises" 
from  day  to  day  and  from  hour  to  hour,  according  to  the  exigencies 
of  the  complaint.  London  also  took  measures  to  facilitate  speedy 
judgment  in  order  that  foreign  merchants  might  not  be  delayed  by 
a  long  series  of  pleadings. 

The  president  of  the  court  was  the  mayor  or  bailiff  of  the  borough, 
or  the  steward  where  the  franchise  was  not  under  municipal  control. 
With  the  president,  who  executed  the  judgment  of  the  court,  was 
associated  a  varying  number  of  assessors  who  helped  to  administer 
justice,  and  in  cases  affecting  alien  merchants  half  of  them  were 


124  INDUSTRIAL  SOCIETY 

themselves  merchants,  and  in  accordance  with  mediaeval  procedure 
they  were  the  suitors  who  gave  the  verdict  and,  whenever  difficulties 
arose,  declared  the  law.  There  was  commonly,  though  not  invariably, 
an  appeal  from  their  judgment  to  the  supreme  courts.  The  com- 
petence of  the  court  covered  a  great  variety  of  pleas  arising  from 
debts,  contracts,  trespasses,  breaches  of  the  assizes  of  bread  and  ale; 
sometimes  it  also  extended  to  pleas  of  land;  but  pleas  of  the  Crown 
were  excepted.  Besides  commercial  litigation,  it  dealt  with  the 
collection  of  tolls  and  the  maintenance  of  peace  and  order.  Offenders 
were  presented  for  assault,  for  opprobrious  epithets,  and  for  undue 
encroachment,  for  example,  "annoying  the  beast  market  with  carts." 

55.    EVILS  RESULTING  FROM  A  LACK  OF  COMMERCE1 

It  will  be  well  to  consider  the  results  of  a  system  which  was 
based  on  the  lack  of  commerce.  With  regard  to  the  main  product, 
food  staples,  the  result  was  an  alternation  of  waste  and  want.  A 
good  year  brought  a  surplus  for  which  there  was  no  market  outside 
the  village,  and  which  could  not  be  worked  up  inside  for  lack  of 
manufacturing  skill  and  implements.  A  bad  harvest,  on  the  other 
hand,  meant  serious  suffering,  because  there  was  no  opportunity  to 
buy  food  supplies  outside  the  manor  and  bring  them  to  it.  Nearly 
every  year  was  marked  by  a  famine  in  one  part  or  another  of  a 
country,  and  famine  was  often  followed  by  pestilence.  Diseases 
now  almost  unknown  in  the  civilized  world,  like  leprosy  and  ergotism 
or  St.  Anthony's  fire,  were  not  infrequent.  The  food  at  best  was 
coarse  and  monotonous;  the  houses  were  mere  hovels  of  boughs 
and  mud;  the  clothes  were  a  few  garments  of  rude  stuff.  Nothing 
better  could  be  procured  so  long  as  everything  had  to  be  produced 
on  the  spot  and  made  ready  for  use  by  the  people  themselves.  Finally, 
these  people  were  coarse  and  ignorant,  with  little  regard  for  personal 
cleanliness,  and  with  practically  no  interests  outside  the  narrow 
bounds  of  the  little  village  in  which  they  lived. 

56.    MEDIAEVAL  VS.  MODERN  TRADE  AND  INDUSTRY2 

In  comparing  the  conditions  of  trade  and  industry  inside  the 
towns  with  those  of  the  present  day,  very  wide  differences  appear. 
Commonplaces  of  this  century,  such  as  capital,  labour,  employer, 

1  Adapted  by  permission  from  Clive  Day,  A  History  of  Commerce,  p.  36. 
(Longmans,  Green,  &  Co.,  191 2.) 

2  Taken  by  permission  from  G.  T.  Warner,  Landmarks  in  English  Industrial 
History,  pp.  60-62.     (Blackie  &  Son,  Ltd.,  191 2.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  1 25 

competition,  have  very  little  meaning  as  applied  to  the  thirteenth 
century.  Employer  and  labourer  are  one;  the  craftsman  works  at 
his  craft  assisted  by  apprentices  who  will,  in  their  turn,  become 
craftsmen;  the  retail  shop  is  practically  unknown,  for  each  craftsman 
sells  the  goods  he  makes;  there  is  little  change  in  fashion,  and  demand 
is  steady;  large  stocks  are  not  made  or  held;  ther,e  is  no  underselling 
or  cutting  out  of  rivals  by  improved  process  or  specious  goods; 
there  are  no  wealthy  employers  struggling  to  become  still  wealthier. 
On  the  contrary,  townsmen  live  much  the  same  lives  and  aim  at 
standing  well  with  their  gild  rather  than  exciting  envy  by  their 
individual  prosperity.  Craftsmen  work  year  after  year  on  the  same 
method  with  the  same  materials.  It  is  not  competition  which 
determines  price,  but  usage  and  regulation.  The  price  of  any  ware  is 
to  be  a  fair  price,  fair  to  the  producer  and  fair  to  the  buyer,  and 
this  was  far  more  easy  to  estimate  then  than  it  is  now.  Under  the 
diverse  conditions  of  modern  production,  the  idea  of  justice  as  a 
determining  factor  of  price  has  gone;  we  do  not  trouble  over  what 
is  the  right  price;  we  accept  the  price  under  usual  conditions  as 
being  right.  But  when  craftsmen  lived  similar  lives  and  produced 
on  a  similar  scale  with  similar  advantages  of  market  and  situation 
and  with  similar  costs  of  production,  a  just  price  was  not  so  difficult 
to  determine.  Thus  the  trade  of  the  time  is  pervaded  with  a  morality 
that  is  unfamiliar  to  our  day.  Now,  trade  is  not  immoral,  but  it  is 
unmoral;  price  is  left  to  competition,  to  the  conditions  of  the  market. 
But  in  the  thirteenth  century  current  opinion,  if  not  perhaps  on  so 
high  a  level  as  St.  Thomas  Aquinas  would  have  had  it,  when  he  urged 
the  wickedness  of  selling  defective  articles  without  indicating  the 
defects  to  the  buyer,  or  of  asking  a  high  price  when  there  was  a 
temporary  scarcity,  yet  made  strongly  against  deceit,  fraud,  and 
concealment.  Neither  buyer  nor  seller  was  to  take  advantage  of 
the  other's  necessities,  but  payment  was  to  be  fair  return  for  the 
labour  expended  upon  honest  work. 


126  INDUSTRIAL  SOCIETY 

E.    Social  Control  of  Industrial  Activity 

See  also  378.     Conscious  and  Unconscious  Social  Control. 

57.  THE  POWER  OF  THE  CHURCH  AS  AN  AGENCY  OF 
CONTROL1 

We  must  now  consider  the  mediaeval  Church  as  a  completed 
institution  at  the  height  of  its  power  in  the  twelfth  and  thirteenth 
centuries. 

The  mediaeval  Church  was  very  different  from  modern  churches, 
whether  Catholic  or  Protestant. 

1.  In  the  first  place,  every  one  was  required  to  belong  to  it,  just 
as  we  all  must  belong  to  the  state  today.  One  was  not  born  into  the 
Church,  it  is  true,  but  he  was  ordinarily  baptized  into  it  before  he  had 
any  opinion  in  the  matter.  All  western  Europe  formed  a  single 
religious  association,  from  which  it  was  a  crime  to  revolt.  To  refuse 
allegiance  to  the  Church  or  to  question  its  authority  or  teachings  was 
reputed  treason  against  God  and  was  punishable  with  death. 

2.  The  mediaeval  Church  did  not  rely  for  its  support,  as  churches 
usually  must  today,  upon  the  voluntary  contributions  of  its  members. 
It  enjoyed,  in  addition  to  the  revenue  from  its  vast  tracts  of  lands  and 
a  great  variety  of  fees,  the  income  from  a  regular  tax,  the  tithe.  Those 
upon  whom  this  fell  were  forced  to  pay  it,  just  as  all  must  now  pay 
taxes  imposed  by  the  government. 

3.  It  is  obvious,  moreover,  that  the  mediaeval  Church  was  not 
merely  a  religious  body,  as  churches  are  today.  Of  course,  it  main- 
tained places  of  worship,  conducted  devotional  exercises,  and  culti- 
vated the  spiritual  life;  but  it  did  far  more.  It  was,  in  a  way,  a  state, 
for  it  had  an  elaborate  system  of  law  and  its  own  courts,  in  which  it 
tried  many  cases  which  are  now  settled  in  our  ordinary  tribunals.  It 
had  also  its  prisons,  to  which  it  might  sentence  offenders  to  lifelong 
detention. 

4.  The  Church  not  only  performed  the  functions  of  a  state;  it 
had  the  organization  of  a  state.  Unlike  the  Protestant  ministers  of 
today,  all  churchmen  and  religious  associations  of  mediaeval  Europe 
were  under  one  supreme  head,  who  made  laws  for  all  and  controlled 
every  church  officer,  wherever  he  might  be,  whether  in  Italy  or  Ger- 
many, Spain  or  Ireland.    The  whole  Church  had  one  official  language, 


1  Adapted  by  permission  from  J.  H.  Robinson,  An  Introduction  to  the  History 
of  Western  Europe,  pp.  201-2.     (Ginn  &  Co.,  1903.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  127 

Latin,  in  which  all  communications  were  dispatched  and  in  which  its 
services  were  everywhere  conducted. 

58.    THE  CHURCH  AND  BUSINESS  ACTIVITY1 

The  teaching  of  the  Gospel  as  to  worldly  goods  had  been  unmis- 
takable. It  had  repeatedly  warned  men  against  the  pursuit  of  wealth, 
which  would  alienate  them  from  the  service  of  God  and  choke  the 
good  seed.  It  had  in  one  striking  instance  associated  spiritual  per- 
fection with  the  selling  of  all  that  a  man  had  that  he  might  give  it  to 
the  poor.  It  had  declared  the  poor  and  hungry  blessed,  and  had 
prophesied  woes  to  the  rich.  Instead  of  anxious  thought  for  the  food 
and  raiment  of  the  morrow,  it  had  taught  trust  in  God;  instead  of 
selfish  appropriation  of  whatever  a  man  could  obtain,  a  charity  which 
gave  freely  to  all  who  asked.  And  in  the  members  of  the  earliest 
Christian  Church  it  presented  an  example  of  men  who  gave  up  their 
individual  possessions  and  had  all  things  in  common. 

We  cannot  wonder  that,  with  such  lessons  before  them,  a  salutary 
reaction  from  the  self-seeking  of  the  pagan  world  should  have  led  the 
early  Christian  Fathers  to  totally  condemn  the  pursuit  of  gain.  It 
took  them  further — to  the  denial  to  the  individual  of  the  right  to  do 
what  he  liked  with  his  own,  even  to  enjoy  in  luxury  the  wealth  he 
possessed.  The  highest  moral  and  legal  philosophy  of  the  ancient 
world  strengthened  this  purely  religious  feeling  by  bringing  to  its 
aid  the  doctrine  of  a  "law  of  nature." 

If,  however,  to  seek  to  enrich  one's  self  was  sinful,  was  trade 
itself  justifiable?  This  was  a  question  which  troubled  many  con- 
sciences during  the  Middle  Ages.  On  the  one  hand,  the  benefits 
which  trade  conferred  on  society  could  not  be  altogether  overlooked, 
nor  the  fact  that  with  many  traders  the  object  was  only  to  obtain 
what  sufficed  for  their  own  maintenance.  On  the  other  hand,  they 
saw  that  trade  was  usually  carried  on  by  men  who  had  enough  already, 
and  whose  chief  object  was  their  own  gain.  "If  covetousness  is 
removed,"  argues  Tertullian,  "there  is  no  reason  for  gain,  and,  if 
there  is  no  reason  for  gain,  there  is  no  need  of  trade."  Moreover,  as 
the  trader  did  not  seem  himself  to  add  to  the  value  of  his  wares,  if 
he  gained  more  for  them  than  he  had  paid,  his  gain,  said  S.  Jerome, 
must  be  another's  loss;  and,  in  any  case,  trade  was  dangerous  to  the 

1  Adapted  by  permission  from  W.  J.  Ashley,  An  Introduction  to  English 
Economic  History  and  Theory:  The  Middle  Ages,  pp.  126-32, 155-63.     (Longmans, 


128  INDUSTRIAL  SOCIETY 

soul,  since  it  was  scarcely  possible  for  a  merchant  not  sometimes  to 
act  deceitfully. 

To  all  these  reasons  was  added,  by  many  of  the  more  saintly 
churchmen,  yet  another,  which,  had  it  been  listened  to,  would  have 
put  an  end  to  secular  activity  altogether.  The  thought  of  the  supreme 
importance  of  saving  the  individual  soul  and  of  communion  with 
God  drove  thousands  into  the  hermit  life  of  the  wilderness  or  into 
monasteries;  and  it  led  even  such  a  man  as  Augustine  to  say  that 
" business"  was  in  itself  an  evil,  for  "it  turns  men  from  seeking  true 
rest,  which  is  God." 

Such  was  the  general  character  of  the  teaching  of  the  Church  on 
economic  matters  during  the  early  Middle  Ages.  The  condition  of 
western  Europe  long  after  the  establishment  of  the  Teutonic  king- 
doms was  such  that  it  could  do  but  little  harm,  and  probably  did  great 
good.  It  could  do  little  harm,  because  there  was  scarcely  any  com- 
merce, and  such  commerce  as  there  was,  was  directed  to  the  supply 
of  articles  of  luxury  for  princes  and  nobles.  The  condemnation  of 
trade,  therefore,  if  indeed  the  clergy  continued  to  repeat  it,  might 
weigh  hardly  upon  individuals,  but  did  not  impede  any  useful  circu- 
lation of  goods.  And  by  stimulating  the  clergy  to  rebuke  the  greed 
and  violence  of  the  powerful,  by  creating  a  public  opinion  on  the  side 
of  contentment  and  charity,  the  teaching  of  the  Church  on  worldly 
goods  could  not  fail  to  be  beneficial. 

In  the  eleventh  century  began  a  great  moving  of  the  stagnant 
waters.  The  growth  of  towns,  the  formation  of  merchant  bodies,  the 
establishment  of  markets,  even  if  they  did  no  more  than  furnish  the 
peasant  and  the  lord  of  the  manor  with  a  market  for  their  surplus 
produce,  brought  men  face  to  face  with  one  another  as  buyer  and  seller 
in  a  way  they  had  not  been  before.  But  they  did  more;  they  pre- 
pared the  way  for  the  growth  of  a  new  class,  a  class  of  craftsmen,  who 
could  exist  only  on  condition  that  they  were  able  to  sell  their  manu- 
factures. At  the  same  time  new  needs  for  money  appeared  both  in 
crusades  and  in  the  passion  for  churchbuilding,  which  the  religious 
revival  of  the  tenth  century  brought  with  it.  Hence,  economic 
questions,  especially  such  as  concerned  the  relations  of  seller  and 
buyer,  of  creditor  and  debtor,  became  of  the  first  importance. 

With  these  new  dangers  before  them,  churchmen  began  once  more 
to  turn  their  attention  to  economic  matters  and  to  meet  what  they 
regarded  as  the  evil  tendencies  of  the  Roman  law,  "the  principle  of 
the  world,"  by  a  fresh  application  of  Christian  principles.     On  two 


MEDIAEVAL  INDUSTRIAL  SOCIETY  120. 

doctrines  especially  did  they  insist — that  wares  should  be  sold  at  a 
just  price,  and  that  the  taking  of  interest  was  sinful.  They  enforced 
them  from  the  pulpit,  in  the  confessional,  in  the  ecclesiastical  courts; 
and  we  shall  find  that  by  the  time  that  the  period  begins  of  legislative 
activity  on  the  part  of  the  secular  power,  these  two  rules  had  been  so 
impressed  on  the  consciences  of  men  that  Parliament,  municipality, 
and  gild  endeavored  of  their  own  motion  to  secure  obedience  to  them. 
Now,  speaking  generally,  it  may  be  said  that  during  the  period 
from  the  eleventh  to  the  fourteenth  century  there  was  but  a  very  small 
field  for  the  investment  of  capital.  In  the  trading  centres  there  were, 
indeed,  during  the  later  part  of  the  period,  occasional  opportunities 
for  a  man  to  take  part  in  a  commercial  venture,  and  no  obstacle  was 
put  by  the  Church  or  public  opinion  to  a  man's  investing  his  money 
in  this  way  when  no  definite  interest  was  stipulated  for,  but  he  became 
a  bona  fide  partner  in  the  risk  as  well  as  the  gain.  But  such  oppor- 
tunities were  very  rare.  We  must  not  forget  that  England  was, 
almost  entirely,  an  agricultural  country  and  that  its  agriculture  was 
carried  on  under  a  customary  system  which  gave  little  opportunity 
for  the  investment  of  capital.  Even  in  the  rising  manufactures  of 
the  time  there  was  little  room  for  "enterprise"  or  "extension  of  busi- 
ness"; the  demand  was  too  small,  the  available  workmen  too  few, 
for  any  such  rapid  increase  in  production  as  we  are  nowadays  familiar 
with.  Under  such  circumstances,  when  money  was  borrowed,  it 
was  usually  to  meet  some  sudden  stress  of  misfortune  or  for  "unpro- 
ductive" expenditure,  e.g.,  by  a  knight  to  go  on  crusade  or  by  a 
monastery  to  build  a  church. 

»In  some  cases  like  these  it  seemed  unjust  that  a  person  possessing 
oney  which  he  could  put  to  no  productive  use  himself  should  make 
gain  out  of  the  necessities  or  piety  of  another.  Ample  security  was 
usually  given  for  the  return  of  the  money  lent;  and  as  the  alternative 
to  lending  was  that  the  money  remained  idle  in  the  hands  of  its  posses- 
sor, he  was  in  just  the  same  position  when  his  money  came  back  to 
him  as  if  he  had  never  parted  with  it.  Surely,  under  these  circum- 
stances, we  cannot  blame  the  moralists  who  thought  that  the  evils 
)f  usury  were  so  great  that  they  did  well  to  prohibit  the  payment  of 
iterest  altogether.  And  such  an  opinion  was  likely  to  be  strength- 
led  by  the  grievous  results  before  their  eyes  of  such  usury  as  was 
emitted — that  exercised  by  the  Jews.  The  Jews  of  history  were 
)t  cringing  cowards,  but  too  often  merciless  bullies,  confident  of  the 
)yal  protection.     We  can  hardly  blame  them.    They  were  shut  out 


130  INDUSTRIAL  SOCIETY 

by  law  or  prejudice  in  almost  every  country  from  engaging  in  agri- 
culture, industry,  or  commerce,  and  were  thus  almost  driven  to  trade 
in  money. 

It  is  scarcely  denied  by  competent  modern  critics  that,  at  some 
period  at  any  rate,  during  the  Middle  Ages  there  was  such  an  absence 
of  opportunities  for  productive  investment  as  relatively  to  justify 
this  strong  prejudice  against  interest;  the  only  difference  of  opinion 
is  as  to  how  late  that  period  reaches.  One  writer  is  of  opinion  that 
even  before  the  twelfth  century  the  economic  condition  of  things  was 
such  that  the  papal  decrees  could  not  possibly  meet  with  obedience: 
he  can  only  regard  the  effort  of  the  Church  as  a  vain  struggle  against 
irresistible  tendencies.  To  another  the  prohibition  seems  justifiable 
far  into  the  fifteenth  century.  On  the  one  hand,  it  is  clear  that  the 
growth  of  commerce  from  the  thirteenth  century  onward  must,  by 
widening  the  field  for  profitable  investment,  have  lessened  the  injus- 
tice of  taking  interest. 

We  must,  however,  notice  the  application  of  the  prohibition  to 
cases  other  than  money  loans.  The  repayment  of  a  loan  together 
with  interest  in  money  had,  of  course,  been  the  first  subject  of  prohi- 
bition, but  even  the  Fathers  of  the  fourth  and  fifth  centuries  had 
rebuked  those  who  pretended  that  usury  consisted  only  in  taking 
money  interest.  If  you  lend  money  to  a  man,  expecting  to  receive 
from  him  more  than  you  have  given,  whether  it  is  in  money  or  in  corn, 
wine,  oil,  or  anything  else,  you  are  a  usurer,  says  S.  Augustine. 

The  transition  was  easy  from  usury,  strictly  so  called,  to  usurious 
practices  in  ordinary  trade.  Thus  all  payment  of  money  in  return 
for  the  giving  of  credit — all  bargains  in  which  goods  were  sold  at  a 
price  higher  than  their  real  value  in  consideration  of  the  seller's  having 
to  wait  some  time  before  he  was  paid — were  deemed  usurious.  For 
it  was  the  same  as  if  the  seller  were  to  charge  interest  for  lending  the 
goods  themselves,  or  the  amount  of  money  which  was  the  just  price 
of  the  goods,  to  the  buyer  for  the  period  during  which  the  seller 
waited  for  payment. 

It  is  easy  to  see  how  the  theory  of  usury,  when  it  had  once  beei 
developed  to  this  point,  would  come  to  be  interwoven  with  the  theory 
of  just  price,  until  the  one  could  in  many  doubtful  cases  be  brought 
to  strengthen  the  other.  It  will  be  worth  while  to  conclude  this  sectioi 
with  two  quotations  which  show  how  the  teaching  was  presented  in  a 
popular  form.  The  following  is  taken  from  the  Ayenbite  of  Inwyt,  a 
sort  of  manual  for  confessors,  of  wide  use  in  the  later  Middle  Ages, 


MEDIAEVAL  INDUSTRIAL  SOCIETY  131 

itself  a  translation  made  in  1340  by  a  certain  Dan  Michel,  a  monk 
of  Kent,  from  a  French  treatise  written  in  the  previous  century: 
"The  eighth  bough  of  Avarice  is  chaffering,  wherein  men  sin  in  many 
ways,  for  worldly  gain,  and  especially  in  seven  ways.  The  first  is  to 
sell  things  as  dear  as  one  can,  and  buy  things  as  cheap  as  one  can. 
The  next  is  lying,  swearing,  and  foreswearing,  the  higher  to  sell  their 
wares.  The  third  is  by  weights  and  measures,  and  that  may  be  in 
three  ways:  the  first  when  a  man  has  divers  weights  or  divers  meas- 
ures, and  buys  by  the  greater  weights  or  measures  and  sells  by  the 
lesser;  the  second  when  a  man  has  right  weights  and  measures  but 
makes  an  untrue  use  of  them,  as  when  taverners  fill  a  measure  with 
scum;  the  third  when  in  weighing  a  thing  it  is  made  to  appear  heavier 
than  it  is.  The  fourth  manner  of  sin  in  chaffering  is  to  sell  to  time 
[referring  doubtless  to  such  sales  on  credit  as  have  just  been  explained]. 
The  fifth  manner  is  to  sell  otherwise  than  one  hath  showed  before,  as 
the  scriveners  do  who  begin  with  words  fairly  written.  The  sixth 
is  to  hide  the  truth  about  the  thing  one  sells,  as  to  horsedealers.  And 
the  seventh  is  to  contrive  that  the  thing  sold  should  appear  better 
than  it  is;  as  when  cloth-dealers  sell  their  cloth  in  a  dim  light." 
Usury  is  also  divided  into  seven  kinds.  "The  first  when  a  loan  is 
made  in  money,  and  the  lender  receives  profits  in  money,  or  in  horses, 
or  corn,  or  wine,  or  fruits  of  the  land  which  he  takes  in  pledge,  over  and 
above  the  capital  sum,  and  without  reckoning  them  as  part  payment. 
What  is  worse,  a  creditor  will  sometimes  demand  payment  several 
times  in  a  year,  to  raise  the  rate  of  usury,  even  when  at  each  term  he 
receives  a  gift;  and  he  will  often  turn  the  interest  into  the  principal 
debt.    These  are  usuries  evil  and  foul.    The  courteous  lender  is  he 

that  lendeth  without  making  bargains  for  profit The  next 

manner  of  usury  is  that  of  those  who  do  not  lend  themselves,  but 
retain  what  their  fathers,  or  those  whose  wealth  they  have  inherited, 
have  received  through  usury.  The  third  way  is  that  of  those  who  are 
ashamed  to  lend  with  their  own  hand,  but  lend  through  their  servants 
or  somebody  else.  They  are  thus  master  money-lenders;  and  of  such 
sin  those  great  ones  are  not  free  who  support  Jews  and  other  usurers, 
that  destroy  the  country,  receiving  from  them  the  ransom  money  of  the 
goods  of  the  poor.  The  next  way  is  that  of  those  who  borrow  at  a  low 
rate  of  interest  themselves  and  lend  at  a  greater — the  little  usurers. 
The  fifth  manner  is  when  a  man  sells  a  thing  for  more  than  it  is  worth 
at  the  time;  or,  what  is  worse,  when  he  sells  at  a  time  when  his  wares 
are  greatly  needed  for  twice  or  thrice  as  much  as  they  are  worth. 


132  INDUSTRIAL  SOCIETY 

Such  trade  is  ruinous  to  the  knights  who  follow  tournaments;   they 
get  from  them  their  estates  in  pledge  and  never  release  them.     Others 
buy  articles,  such  as  corn  or  wine,  for  half  as  much  as  they  are  worth, 
and  sell  them  for  more  than  twice  as  much  as  they  are  worth;   or 
buy  them  in  harvest  time,  or  when  they  are  especially  cheap,  with 
intent  to  sell  them  again  when  they  are  dear,  wishing  for  a  time  of 
scarcity;  while  others,  again,  buy  corn  in  the  blade,  and  vines  in  the 
flower.    The  sixth  manner  of  usury  is  to  lend  money  to  merchants 
on  condition  that  they  shall  share  in  gains  but  not  in  losses.  ..... 

And  finally  the  seventh  manner  is  that  of  those  who  lend  a  little  to 
their  poor  neighbours  when  they  are  in  need,  on  condition  that  they 
shall  work  for  them,  and  get  out  of  them  three  pennyworth  of  work 
for  every  penny  they  have  lent." 

59.    FAIR  DEALING  AND  FAIR  PRICE1 

So  far  as  the  affairs  of  individual  workers  or  dealers  came  before 
the  courts  they,  of  course,  tried  to  do  what  was  fair  between  man  and 
man;  and  in  their  customs  we  find  the  record  of  their  practical  wisdom 
and  experience.  They  had  not  necessarily  a  very  high  ideal  of  Chris- 
tian duty,  and  their  gild  merchants  do  not  appear  to  have  had  the 
religious  side  of  life  very  markedly  developed;  but  they  felt  that 
"honourable  thing  was  convenable"  for  the  men  of  the  town,  and 
they  tried  to  enforce  what  was  fair  as  to  a  day's  work  and  a  day's 
pay  and  to  secure  that  transactions  should  be  conducted  on  reasonable 
terms — that  the  buyer  should  pay  a  reasonable  sum  for  an  article 
on  which  the  seller  made  a  reasonable  profit.  But  we  must  again  re- 
member that,  though  the  courts  and  their  customs  embodied  this  view, 
it  was  not  necessarily  the  line  taken  by  each  individual  tradesman. 
The  mediaeval  craftsman  would  scamp  his  work,  and  the  mediaeval 
merchant  try  to  pass  off  inferior  articles  at  high  prices,  but  we  only 
hear  of  him  when  he  was  found  out.  The  ordinances  of  gilds  and 
regulations  of  towns  set  a  standard  to  which  the  honest  citizen  would 
wish  to  conform,  so  that  he  might  hold  an  honourable  place  in  the 
town;  the  rules  would  thus  affect  personal  morality  favourably. 
But  if  all  men  had  lived  up  to  a  high  ideal  and  done  their  work  in  the 
best  way  from  mere  love  of  it,  there  would  have  been  no  need  of  either 
craft  gilds  or  ordinances  to  keep  them  up  to  the  mark. 

1  Adapted  by  permission  from  W.  Cunningham,  The  Growth  of  English  In- 
dustry and  Commerce:  Early  and  Middle  Ages,  pp.  228-35.  (The  Cambridge  Uni- 
versity Press,  1890.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  133 

In  the  attempt  to  do  the  fair  thing  between  man  and  man  many 
regulations  were  framed  on  matters  which  we  now  allow  to  take  their 
own  course.  At  the  same  time  there  is  an  obvious  advantage  in 
thinking  out  the  fair  price  and  settling  it  where  this  can  be  done. 
There  is  a  distinct  advantage  in  having  an  authoritative  tariff  as 
to  the  reasonable  cab  fare,  and  the  maintenance  of  regulations  in 
regard  to  those  vehicles  does  not,  in  all  probability,  interfere  with  the 
prosperity  of  the  trade;  so  long  as  the  regulations  are  wise,  they 
subserve  the  comfort  of  the  public  and  the  good  of  the  trade.  In  the 
circumstances  of  mediaeval  commerce,  when  there  were  comparatively 
slight  fluctuations  in  the  conditions  for  the  supply  of  manufactured 
goods,  and  labour  was  such  a  very  important  element  in  the  cost  of 
production,  it  was  almost  as  easy  to  frame  similar  regulations  for 
reasonable  transaction  in  trades  of  all  sorts  as  it  is  to  fix  rates  for 
cab  hire  in  the  present  day. 

There  were  of  course  varieties  of  season,  and  the  food  supply  was 
necessarily  drawn  from  a  comparatively  limited  area,  so  that  a  local 
scarcity  would  affect  prices  more  than  it  does  in  the  present  day. 
The  price  of  corn  was  necessarily  left  to  be  settled  by  competition, 
and  all  that  could  be  done  was  to  try  and  ensure  that  this  competition 
should  be  public,  and  that  there  should  be  no  attempts  to  make  a 
profit  by  speculative  transactions  or  by  creating  an  artificial  scarcity; 
prohibitions  of  engrossing  and  retailing  had  this  object  in  view. 
Common  folk  had  a  strong  suspicion  that  the  man  who  was  able  to 
secure  a  monopoly  by  engrossing  or  by  buying  up  the  available  supply 
of  any  article  would  retail  on  terms  that  were  to  his  own  profit,  but 
not  to  the  advantage  of  the  community.  But  when  the  price  of  corn 
had  adjusted  itself  by  "the  higgling  of  the  market,"  a  sliding  scale 
could  be  used  to  adjust  the  price  of  bread,  so  that  the  baker  might 
recoup  his  expenses  and  get  a  fair  profit,  while  the  public  would  be 
supplied  at  rates  which  were  not  excessive.  This  sliding  scale  was 
known  as  the  Assize  of  Bread;  it  was  certainly  framed  in  the  time 
of  Henry  II,  but  this  need  not  have  been  the  first  attempt  at  formu- 

Lting  it. 

When  the  price  of  food  was  thus  known  it  was  possible  and 

reasonable"  to  assign  rates  of  wages;  in  the  time  of  Henry  II  wages 

rere  apparently  intended  to  vary  along  with  the  price  of  bread,  and 
and  after  the  time  of  Elizabeth  this  scheme  was  carried  out  with 

lore  or  less  success  by  the  justices  of  the  peace;  at  other  times  the 
mthorities  were  content  with  fixing  a  maximum  rate. 


134  INDUSTRIAL  SOCIETY 

Some  attempt  was  also  made  at  enforcing  a  standard  of  quality 
in  the  goods  exposed  for  sale;  we  read  of  an  assize  of  cloth  in  the  time 
of  Richard  I.  This  might  have  been  devised  with  a  view  to  the  pro- 
tection of  the  purchasers  of  imported  cloth,  but  it  would  also  serve 
as  a  standard  for  the  weavers,  as  the  manufacture  was  gradually 
developed  in  England  and  Wales. 

The  municipal  courts  enforced  what  was  fair  as  a  matter  of  policy, 
but  there  was  another  authority  which  dealt  with  what  was  right  and 
wrong  as  a  matter  of  Christian  duty.  The  discipline  of  penance,  and 
the  canons  which  were  enforced  in  the  ecclesiastical  courts  were 
framed,  not  with  reference  to  burghal  prosperity,  but  in  the  hope  of 
detecting  and  suppressing  the  greed  of  gain.  In  earlier  times  there 
had  been  very  sweeping  condemnations  which  would  have  included 
almost  every  kind  of  trading,  but  it  was  obviously  impossible  to 
enforce  such  prohibitions.  Even  though  it  might  be  admitted  that 
the  merchant's  life  was  one  of  many  temptations,  since  there  were  so 
many  opportunities  of  fraud,  it  by  no  means  followed  that  he  always 
yielded  to  them.  The  difficulty  became  more  pressing  in  the  twelfth 
and  thirteenth  centuries  when  trade  was  generally  extending;  and  if 
the  evils  were  really  to  be  met,  it  could  only  be  done  by  rinding  the 
inner  grounds  of  the  prohibition  and  applying  it  equitably  according 
to  the  different  circumstances  of  different  cases. 

Modern  theory  assumes  that  in  buying  and  selling  each  man  will 
do  what  is  most  to  his  own  private  advantage,  and  thus  explains  how 
the  prices  of  different  classes  of  goods  tend  to  be  determined  on  this 
assumption:  it  merely  attempts  to  give  an  explanation  of  actual 
practice.  But  the  mediaeval  doctrine  of  price  was  not  a  theory 
intended  to  explain  the  phenomena  of  society,  but  it  was  laid  down 
as  the  basis  of  rules  which  should  control  the  conduct  of  society  and 
of  individuals.  At  the  same  time  current  opinion  seems  to  have  been 
so  fully  formed  in  accordance  with  it  that  a  brief  examination  of  the 
doctrine  of  a  just  price  will  serve  to  set  the  practice  of  the  day  in 
clearer  light. 

In  regard  to  other  matters  it  is  difficult  to  determine  how  far 
public  opinion  was  swayed  by  practical  experience  and  how  far  it  was 
really  moulded  by  Christian  teaching.  This  is  the  case  in  regard  to 
usury.  But  there  can  be  little  doubt  about  the  doctrine  of  price; 
the  whole  conception  of  a  just  price  appears  to  be  purely  Christian; 
it  is  unknown  to  the  Civil  Law  and  had  as  little  place  in  Jewish  habits 
as  it  has  in  modern  society;   but  it  really  underlies  a  great  deal  of 


MEDIAEVAL  INDUSTRIAL  SOCIETY  135 

commercial  and  gild  regulation  and  it  is  constantly  implied  in  early 
legislation  on  mercantile  affairs. 

S.  Thomas  Aquinas,  whose  treatment  of  the  subject  is  classical, 
assumed  that  everything  has  a  just  price,  that  there  is  some  amount 
of  money  for  which  it  is  right  that  the  owner  of  the  ware  should 
exchange  it.  He  does  not  discuss  the  conditions  on  which  this 
depends,  as  it  is  of  more  practical  importance  that  we  should  under- 
stand how  the  just  price  of  anything  is  to  be  known.  The  just  price 
is  not  an  arbitrary  demand,  as  an  extortionate  dealer  may  obtain  an 
absurd  price  when  he  sees  that  he  can  drive  a  hard  bargain,  or  a  man 
in  need  may  be  willing  to  part  with  some  heirloom  for  a  mere  trifle, 
for  in  the  one  case  there  is  unfair  gain,  in  the  other  a  real  sacrifice. 
The  just  price  is  known  by  the  common  estimation  of  what  the  thing 
is  worth ;  it  is  known  by  public  opinion  as  to  what  is  right  to  give  for 
that  article  under  ordinary  circumstances. 

So  far  we  have  a  parallel  with  modern  doctrine;  the  mediaeval 
"just  price"  was  an  abstract  conception  of  what  is  right  under  ordi- 
nary circumstances;  it  was  admittedly  vague,  but  it  was  interpreted 
by  common  estimation.  Modern  doctrine  starts  with  a  "normal" 
value  which  is  "natural"  in  a  regime  of  free  competition;  this  too 
is  a  purely  abstract  conception,  and  in  order  to  apply  it  we  must  look 
at  common  estimation  as  it  is  shown  in  the  prices  actually  paid  over  a 
period  when  there  was  no  disturbing  cause. 

Common  estimation  is  thus  the  exponent  of  the  natural  or  normal 
or  just  price,  according  to  either  the  mediaeval  or  the  modern  view; 
but  whereas  we  rely  on  the  "higgling  of  the  market"  as  the  means  of 
bringing  out  what  is  the  common  estimate  of  any  object,  mediaeval 
economists  believed  that  it  was  possible  to  bring  common  estimation 
into  operation  beforehand,  and  by  the  consultation  of  experts  to 
calculate  out  what  was  the  right  price.  If  "common  estimation" 
was  thus  organised,  either  by  the  town  authorities  or  gilds  or  parlia- 
ment, it  was  possible  to  determine  beforehand  what  the  price  should 
be  and  to  lay  down  a  rule  to  this  effect;  in  modern  times  we  can  only 
look  back  on  the  competitive  prices  and  say  by  reflection  what  the 
common  estimation  had  been. 

It  was  of  course  felt  that  this  mode  of  detecting  the  just  price  was 
not  very  precise,  and,  indeed,  that  it  was  not  possible  to  determine 
the  just  price  of  any  article  absolutely.  The  obvious  fact  that  the 
seasons  varied  made  it  clear  that  the  price  of  food  could  not  be  fixed 
nee  for  all.    They  did  think  it  was  desirable,  then,  to  settle  them  as 


130  INDUSTRIAL  SOCIETY 

much  as  possible,  so  as  to  leave  less  room  for  arbitrary  demands  and 
unreasonable  rates. 

Prices  assigned  by  common  estimation  would  sometimes  be  high 
and  sometimes  low,  according  as  an  article  was  plentiful  or  not;  the 
just  price  varied  from  time  to  time  for  such  commodities.  Nor  was 
it  unjust  for  a  man  to  sell  an  article  for  more  than  he  had  paid  for  it 
as  its  just  price,  if  there  had  been  a  change  of  circumstances — such 
a  Change  of  time  or  place  that  he  deserved  remuneration  for  some 
trouble  in  connexion  with  transport  or  for  other  service  rendered. 
But  it  was  unjust  to  try  to  get  an  arbitrary  price,  that  is,  to  try  to 
form  a  ring,  or  to  speculate  on  the  possibilities  of  the  future  in  such 
a  way  as  to  be  able  to  demand  an  extortionate  price.  If  we  allowed 
ourselves  to  be  guilty  of  the  anachronism  of  trying  to  summarise 
mediaeval  doctrine  in  modern  terms,  we  should  say  that  they  thought 
it  unjust  to  sell  without  conscious  reference  to  what  is  now  called  the 
cost  of  production.  It  was  impossible  for  them  to  give  a  positive 
justification  for  the  profit  of  the  man  who  bought  to  sell  again;  all 
that  moralists  could  say  was  that  under  certain  circumstances  it  was 
not  wrong  to  do  so,  and  practical  men  kept  a  suspicious  eye  on  the 
dealings  of  middlemen. 

See  also  348.     Competition  and  Fair  Price. 

60.    CONTROL  BY  PUBLIC  AUTHORITIES 


The  public  authorities  were  not  content  with  having  provided 
society  with  the  mere  instruments  of  exchange;  with  the  growing 
trade  of  the  thirteenth  century  they  felt  themselves  bound  to  regulate 
every  sort  of  economic  transaction  in  which  individual  self-interest 
seemed  to  lead  to  injustice.  This  regulation  was  guided  by  the  gener 
principle  that  just  or  reasonable  price  only  should  be  paid,  and  onl 
such  articles  sold  as  were  of  good  quality  and  correct  measure.  Mos 
of  the  enactments  and  rules  were  aimed  at  preventing  some  particular 
form  of  fraud,  usually  in  some  particular  article;  and  no  hard  and  fast 
line  can  be  drawn  between  the  action  of  the  central  authority  and  tha 
of  local  authorities  of  town  or  gild.     Still,  some  of  the  regulations  wer 

1  Adapted  by  permission  from  W.  J.  Ashley,  An  Introduction  to  Englis, 
Economic  History  and  Theory:  The  Middle  Ages,  pp.  181-204.  (Longmans, 
Green,  &  Co.,  1892.) 


st 
al 


MEDIAEVAL  INDUSTRIAL  SOCIETY  137 

of  the  nature  of  general  rules  of  trade,  and  some  commodities  were 
felt  to  be  of  such  general  importance  as  to  make  it  necessary  for  the 
Government  to  give  special  attention  to  them.  It  will  be  convenient 
to  follow  this  division  in  describing  the  measures  in  question. 

The  rules  of  most  far-reaching  consequence  were  those  prohibiting 
the  allied  practices  of  forestalling,  engrossing,  and  regrating — terms 
which  came  later  to  have  a  separate  meaning,  but  in  the  thirteenth  and 
fourteenth  centuries  seem  to  have  been  used  as  synonymous  for  any 
action  which  prevented  goods  from  being  brought  by  the  producer 
or  bona  fide  merchant  to  open  marked — the  forestaller  or  engrosser 
buying  them  wholesale,  either  outside  the  town  or  in  the  market 
-itself,  and  then  securing  by  means  of  monopoly  a  higher  price  than 
would  otherwise  have  been  paid. 

Among  other  methods  of  forestalling,  ordinances  of  the  same 
period  especially  mention  those  who  buy  wares  in  a  town  before  the 
hour  fixed  for  the  opening  of  the  market,  and  those  in  ports  who  go 
out  to  ships  laden  with  merchandise  as  they  enter  and  "do  buy  the 
merchandise  in  gross  and  then  do  sell  them  at  greater  and  dearer  prices 
than  the  first  merchants  would  do,  to  the  grievance  of  the  common 
people."  In  the  later  years  of  Edward  III  the  prohibition  of  fore- 
stalling was  again  and  again  renewed  by  statute. 

The  prohibition,  it  is  clear  from  the  wording  of  the  statutes,  had 
primary  reference  to  those  who  endeavoured  to  secure  local  and 
temporary  monopolies  of  the  supply  of  food,  especially  of  corn, 
though  it  was  wide  enough  to  cover  all  similar  attempts  with  other 
wares.  We  do  not  interfere  with  such  speculation  now,  not  from  any 
belief  in  the  usefulness  of  such  speculation,  but  only  because  we  do 
not  believe  it  can,  to  any  large  extent,  succeed.  But  the  very  attempt 
is  still  regarded  with  general  disapprobation,  and  there  are  signs  that 
"corners"  would  not  be  uninterfered  with  by  the  State  if  they  were 
successful  with  any  commodity  of  great  social  importance.  During 
the  Middle  Ages  it  may  be  said  that  economic  conditions  were  such 
that  individuals  could,  if  unrestrained,  control  or  get  into  their  power 
the  supply  of  commodities.  It  must  be  remembered  that  the  supply, 
in  the  case  of  corn  and  other  food  stuffs,  was  necessarily  a  local  one. 
Then  came  centuries  during  which  supply  was  furnished  from  so 
many  directions  that  individuals  could  not  control  it.  At  the  present 
time,  with  the  increasing  centralization  of  business  and  facility  of 
communication,  it  seems  to  be  again  becoming  possible  for  indi- 
viduals to  control  the  supply,  not,  as  in  the  fourteenth  century,  of  a 


138  INDUSTRIAL  SOCIETY 

town  only,  but  of  the  civilized  world.  And  if  such  attempts  succeed, 
we  may  come  to  look  upon  mediaeval  legislation  with  somewhat  more 
sympathy. 

Of  all  articles  bread  is  that  in  the  price  of  which  the  community 
is  most  interested.  Hence,  it  was  the  very  first  to  be  directly  dealt 
with  by  the  Government.  It  did  not  seem  possible  to  fix  an  unalter- 
able price  for  corn.  The  men  of  the  time  might  perhaps  have  argued 
that  if  the  agriculturist  gave  each  year  the  same  amount  of  labour 
to  his  land  he  ought  to  receive  much  the  same  reward,  and  this  could 
not  be  unless  he  got  a  higher  price  when  the  harvest  was  deficient. 
All  that  the  legislation  we  have  just  noticed  attempted  to  do  was  to 
prevent  any  speculation  in  corn  and  any  unnecessary  interference  of 
middlemen. 

And  accordingly,  in  limiting  the  price  of  bread,  it  was  not  at- 
tempted to  establish  an  invariable  standard,  but  only  a  sliding  scale, 
according  to  which  the  weight  of  the  farthing  loaf  should  vary  with 
the  price  of  the  quarter  of  wheat.  Such  an  Assize  of  Bread  was  first 
proclaimed  in  1202,  coming  in  natural  sequence  after  Henry  II's 
reformation  of  the  coinage  and  Richard  I's  assize  of  measures. 

From  bread  the  legislator  naturally  turned  his  attention  to  the 
other  necessary  of  mediaeval  life,  ale. 

In  curious  contrast  with  its  anxiety  about  the  price  of  bread  the 
central  Government  left  the  regulation  of  the  price  of  meat  entirely 
to  the  local  authorities,  contenting  itself  with  the  enactment  that 
butchers  selling  unwholesome  meat  should  be  severely  punished. 
In  London  the  butchers  were  under  the  supervision  of  wardens,  whose 
duty  it  was  to  bring  unwholesome  meat  before  the  mayor  and  alder- 
men. The  accused  had  the  right  of  demanding  "inquisition"  by  a 
jury  into  the  character  of  the  meat;  and  if  it  was  condemned,  he  was 
punished  by  being  put  into  the  pillory  and  having  the  meat  burnt 
before  his  face.  The  municipal  authorities  also,  at  least  as  early  as 
the  later  years  of  Edward  I,  fixed  maximum  prices  for  the  carcasses  of 
oxen,  cows,  sheep,  and  pigs. 

The  town  magistrates,  indeed,  were  not  less  anxious  than  were 
Parliament  and  the  ministers  to  keep  the  trade  in  articles  of  food  under 
due  control.  Besides  carrying  out  the  assizes  of  bread,  ale,  and  wine, 
they  issued  ordinances  regulating  the  prices  of  poultry  and  fish, 
appointing  the  markets  at  which  each  sort  of  food  was  to  be  sold,  and 
providing  for  their  supervision.  Accounts  of  punishments  inflicted 
on  persons  selling  unwholesome  food  form  a  very  considerable  part 
of  the  town  records. 


MEDIAEVAL  INDUSTRIAL  SOCIETY  139 

Among  craftsmen,  some  were  more  than  others  subject  to  regula- 
tion by  the  town  magistrates.  They  were  such  as  had  no  fixed  shops, 
but  moved  about  from  place  to  place  to  perform  particular  pieces  of 
work,  "carpenters,  masons,  plasterers,  daubers,  tilers,  and  the 
servants  of  such." 

There  were,  however,  but  few  other  cases  in  which  the  municipal 
authorities  attempted  to  regulate  wages  or  prices  before  the  middle 
of  the  fourteenth  century.  It  will  be  well,  for  the  present,  to  confine 
ourselves  to  the  period  preceding  the  Black  Death  and  to  leave  the 
question  as  to  what  effect  that  calamity  had  upon  industrial  policy 
to  a  later  section.  No  doubt  the  town  magistrates  claimed  the  right 
to  regulate  wages  when  they  thought  proper,  and  this  right  they 
occasionally  exercised,  e.g.,  in  London,  to  regulate  blacksmiths' 
charges  for  shoeing  horses.  This  was  a  matter  in  which  a  traveller 
in  a  hurry  might  be  at  the  mercy  of  a  blacksmith.  So  also  the  charges 
to  be  made  by  curriers  and  leather-dressers  were  limited.  But,  as  a 
rule,  the  price  of  manufactured  goods  seems  to  have  been  left  to  be 
determined  by  the  rules  of  the  gilds;  the  limitation  in  London  of  the 
price  of  spurs  by  civic  ordinance  is  an  almost  solitary  example  to  the 
contrary.  Unfortunately,  we  have  too  little  evidence  to  be  able  to 
speak  with  confidence  as  to  how  the  gilds  regulated  prices.  In  many 
crafts  the  artisan  did  not  purchase  the  material  himself,  but  received 
it  from  a  customer  to  be  made  up,  and  received  a  payment  for  his 
service :  these  payments  in  each  craft  were  doubtless  fixed  by  custom 
and  common  consent,  and  overcharges  seem  to  have  been  punished. 
The  amount  of  remuneration  when  the  artisan  only  did  the  work  and 
did  not  provide  the  material  would  doubtless  help  to  determine  the 
price  to  be  paid  for  an  article  when  it  was  bought  ready  made.  The 
weak  point  in  the  system  was  that  when  once  the  gilds  became  firmly 
established  they  tended  to  limit  their  numbers  and  to  raise  prices. 

The  direct  action  of  the  Government  influenced  the  economic 
life  of  society  in  many  other  respects,  both  in  the  way  of  facilitating 
trade,  and  also  by  limiting  it  in  certain  directions.  Of  these  limita- 
tions the  most  important  was  the  prohibition  of  usury. 

Lastly,  mention  must  be  made  of  the  great  service  which  the 
Government  rendered  to  commerce  and  trade  by  the  establishment 
of  a  simple  procedure  to  enforce  the  payment  of  ordinary  mercantile 
debts.  This  was  by  the  Statute  of  Merchants  or  of  Acton  Burnell 
in  1283. 


140  INDUSTRIAL  SOCIETY 

B1 

The  first  strictly  economic  duty  undertaken  by  the  Central 
Government  was  the  provision  of  currency  and  regulation  of  weights 
and  measures.  At  the  time  of  the  Conquest  and  from  that  date  until 
the  thirteenth  century  the  only  coins  struck  were  silver  pence.  Early 
in  the  thirteenth  century  round  halfpence  and  farthings  were  issued, 
divisionary  currency  having  previously  been  made  by  the  people 
for  themselves  by  halving  and  quartering  round  pence.  The  issue 
of  gold  coins  by  Henry  III  was  premature.  Their  value  was  too  great 
for  them  to  be  convenient.  It  was  not  until  the  reign  of  Edward  III 
that  the  currency  problem  was  complicated  by  the  double  standard. 

Four  conditions  need  to  be  fulfilled  if  a  country  is  to  secure  a 
satisfactory  current  coin,  where  the  problem  is  complicated  by  inter- 
national trade.  First,  the  right  of  coinage  must  be  monopolised  by 
some  central  authority;  second,  that  authority  must  abstain  from 
falsifying  the  currency;  third,  the  technique  of  coining  must  be  ade- 
quate to  prevent  either  the  circulation  of  false  money  or  the  deliberate 
debasing  of  true  money;  fourth,  machinery  must  be  provided  for 
withdrawing  automatically  from  circulation  those  coins  which  are 
lightened  by  wear.  In  the  period  under  consideration  the  two  first 
of  these  conditions  were  fulfilled,  the  two  last  were  not. 

Next  in  importance  to  the  issue  of  a  national  currency  comes 
regulation  of  weights  and  measures.  As  early  as  the  reign  of  Edgar 
we  find  it  enacted  that  weights  and  measures  should  everywhere  be 
the  same  as  at  London  and  Winchester;  but  little  was  done,  appar- 
ently, to  enforce  uniformity  before  the  reign  of  Richard  I. 

No  less  important  was  the  part  played  by  the  Crown  in  providing 
the  necessary  legal  status  for  domestic  and  foreign  trade.  Apart 
from  the  enforcing  of  law  and  order  two  points  require  consideration: 
first,  the  part  played  by  the  Crown  in  the  maintenance  of  trade  routes; 
second,  in  the  growth  of  interlocal  exchange. 

i.  During  these  centuries  the  most  important  trade  routes  were 
old  Roman  and  pre-Roman  roads  and  navigable  rivers.  Coasting 
trade  generally,  and  in  particular  the  carriage  of  coal  from  Newcastle 
to  London  and  to  the  ports  on  the  South  coast,  was  only  slightly 
developed  at  the  beginning  of  the  reign  of  Edward  I.  For  the  main- 
tenance of  roads  little  was  done  at  this  or  any  other  time  before  the 
eighteenth  century. 

1  Adapted  by  permission  from  H.  O.  Meredith,  Outlines  of  the  Economic 
History  of  England,  pp.  62-68.     (Sir  Isaac  Pitman  &  Sons,  Ltd.,  1908.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  141 

2  As  a  mediator  between  divergent  interests  the  Crown  claimed 
the  right  to  prevent  exploitation  in  all  its  forms.  One  of  the  difficulties 
of  development  by  privilege  was  the  treatment  of  outsiders  by  a 
privileged  body.  Thus  the  traders  of  one  town  might  exact  exor- 
bitant tolls  from  merchants  who  visited  them.  It  is  true  that  the 
interest  of  the  municipality  in  attracting  merchants  limited  this 
tendency  to  exploit  the  foreigner.  But  it  is  evident  that  the  ports 
and  the  towns  astride  of  great  trade  routes  were  in  a  position,  if  left 
to  their  own  devices,  to  injure  considerably  places  less  fortunately 
situated.  Here  privilege,  whether  springing  from  immemorial 
custom  or  royal  charter,  opposed  privilege. 

If  the  Crown  had  important  functions  as  mediator  between  Eng- 
lish interests,  its  share  in  determining  the  relations  between  English 
and  foreign  traders  was  still  greater.  In  foreign,  as  in  domestic,  trade 
the  political  rights,  which  are  a  necessary  basis  of  exchange,  were 
secured  to  the  individual  merchant  as  a  member  of  a  municipality, 
and  not  as  belonging  to  a  certain  nationality.  The  merchant  of  a 
foreign  town  who  landed  in  England  was  dependent  on  the  terms  which 
that  town  had  obtained  and  could  seldom  fall  back  on  rights  obtained 
by  treaty  between  a  national  sovereign  and  the  English  King.  But, 
although  on  the  side  of  the  foreigner  the  city  and  not  the  nation  was 
the  negotiating  unit,  England  early  presented  at  least  some  sugges- 
tion of  a  national  front.  For  foreign  trade  interested  both  king  and 
aristocracy;  it  was  a  valuable  source  of  taxation;  it  brought  desirable 
luxuries.  Hence,  a  constant  sale  of  privileges  to  the  merchants  of 
foreign  towns,  which  limited  more  or  less  the  action  of  English  muni- 
cipalities. 

See  also  30.  Ordinances  of  the  Gild  Merchant  of  Southampton. 

34.  Ordinances  of  the  White  Tawyers  of  London. 

35.  Gild  Merchant  Regulations  vs.  Craft  Gild  Regula- 
tions. 

37.  Merits  and  Defects  of  the  Craft  Gild. 
54.  The  Law  Merchant. 


142  INDUSTRIAL  SOCIETY 

61.    ASSIZE  OF  MEASURES,  11971 

It  is  established  that  all  measures  of  the  whole  of  England  be  of 
the  same  amount,  as  well  of  corn  as  of  vegetables  and  of  like  things, 
to  wit,  one  good  horse  load;  and  that  this  measure  be  level  as  well  in 
cities  and  in  boroughs  as  without.  Also  the  measure  of  wine  and  ale 
and  of  all  liquids  shall  be  of  the  same  amount,  according  to  the  diversity 
of  liquids.  Weights  and  measures  also,  great  and  small,  shall  be  of 
the  same  amount  in  the  whole  realm,  according  to  the  diversity  of 
wares.  Measures  also  of  corn  and  liquids,  wine  and  ale,  shall  have 
marks  put  thereon,  lest  by  guile  they  can  be  falsified. 

It  is  established  that  woollen  cloths,  wherever  they  be  made,  be 
made  of  the  same  width,  to  wit,  of  two  ells  within  the  lists  and  of  the 
same  good  quality  in  the  middle  and  at  the  sides.  Also  the  ell  shall 
be  the  same  in  the  whole  realm  and  of  the  same  length,  and  the  ell 
shall  be  of  iron. 

It  is  forbidden  to  all  merchants  throughout  the  whole  of  the  realm 
that  any  merchant  set  in  front  of  his  shop  red  or  black  cloths  or  shields 
or  any  other  thing,  whereby  the  buyers'  eyes  are  often  deceived  in 
the  choice  of  good  cloth. 

It  is  also  forbidden  that  any  dye  for  sale,  save  black  only,  be  made 
anywhere  in  the  realm,  except  in  cities  or  chief  boroughs. 

It  is  also  established  that  in  every  city  or  borough  four  or  six 
lawful  men  of  the  same  town,  according  to  the  size  of  the  town, 
together  with  the  sheriff,  or  with  the  reeves  of  the  city  or  borough, 
if  the  same  be  not  in  the  hand  of  the  sheriff,  be  assigned  to  keep  the 
assize  in  this  form. 

62.    INDIVIDUAL  ENTERPRISE  UNDER  FEUDALISM2 

We  may  fully  believe  that  feudalism  was  the  best  social  system 
possible  in  England  in  the  eleventh  century,  but  the  very  fact  that 
it  was  so  marks  the  extraordinary  difference  between  that  age  and 
this.  Nowadays  the  free  play  of  individual  self-interest  is  assumed  in 
commercial  arrangements,  and  this  force  has  given  the  greatesl 
possible  incentive  to  the  development  of  industry  by  inventions  anc 

1  Adapted  by  permission  from  A.  E.  Bland,  P.  A.  Brown,  and  R.  H.  Tawney, 
English  Economic  History:  Select  Documents,  pp.  154-55.  (G.  Bell  &  Sons,  Ltd., 
1914.) 

2  Taken  by  permission  from  W.  Cunningham,  The  Growth  of  English  Industry 
and  Commerce:  Early  and  Middle  Ages,  p.  132.  (The  Cambridge  University  Press, 
1890.) 


MEDIAEVAL  INDUSTRIAL  SOCIETY  143 

of  commerce  by  enterprise;  the  main  principle  of  much  commercial 
legislation  in  this  country  has  been  that  of  giving  free  scope  to  this 
individual,  self-interested  activity.  But  for  this  the  social  system 
during  the  Norman  reigns  gave  no  scope  whatever;  there  could  be 
but  little  desire  of  accumulation  when  the  ever-recurring  tallages,  aids, 
and  fines  were  sure  to  empty  the  hoards  that  had  been  filled  during 
several  preceding  years.  There  could  be  no  enterprise  in  seeking 
out  a  new  line  of  life,  for  each  villain  was  bound  to  the  land,  and  no 
lord  would  willingly  part  with  his  services;  there  could  be  no  high 
farming  while  the  custom  of  the  manor  and  the  collective  ownership 
of  the  teams  forced  all  to  adopt  the  same  system.  Even  in  trade  there 
was  little  opportunity  of  raising  oneself,  for  the  prices  of  articles  of 
native  production  for  which  there  would  be  much  competition  were 
regulated  by  authority;  and  merchants  too  were  subject  to  special 
risks  or  to  special  fines  for  protection,  as  well  as  to  heavy  trading 
dues.  If  the  royal  authority  was  a  keystone  for  the  whole  social 
fabric,  it  is  not  less  true  that  the  condition  of  industry  and  commerce 
was  directly  affected  by  the  royal  decisions;  the  initiative  in  progress, 
where  progress  was  made,  lay  far  less  with  individual  traders  than 
with  the  king  himself. 


CHAPTER  III 

THE  COMING  IN  OF  CAPITALISM 
A.     Problems  at  Issue 

The  story  of  the  transition  from  mediaeval  to  modern  industrial 
society  is  the  story  of  the  coming  in  of  capitalism.  No  complete 
account  of  this  transition  will  be  attempted.  Long  and  laborious 
historical  research  must  be  undertaken  before  the  complete  account 
becomes  available.  Even  if  the  details  of  the  story  were  available, 
telling  them  would  not  serve  our  present  purpose  well.  We  are 
not  primarily  concerned  with  securing  a  scholar's  knowledge  of  how 
capitalism  came  in.  We  wish  to  see  merely  sufficient  elements  of  its 
emergence  to  enable  us  to  realize  how  the  gap  between  mediaeval  and 
modern  industrial  society  must  have  been  bridged.  Modern  indus- 
trial society  constitutes  the  subject-matter  of  our  main  study. 

Mediaeval  society  was,  of  course,  relatively  static.  There  were, 
nevertheless,  many  quiet  forces  steadily  making  for  change — making 
for  the  breakdown  of  custom  and  the  introduction  of  a  competitive, 
capitalistic  regime.  The  events  connected  with  the  opening  of  the 
modern  era  gave  these  forces  great  impetus.  From  the  opening  of 
the  modern  era  to  1750  was  a  period  of  readjustment  and  preparation. 
As  someone  has  said,  it  was  the  period  during  which  the  powder  was 
accumulated  which  was  set  off  by  the  coming  in  of  machine  industry. 
The  resulting  explosion  has  greatly  changed  the  topography  of  our 
society. 

It  is  commonly  said  that  the  Industrial  Revolution  lasted  from 
1750  to  1830,  but  such  a  statement  lacks  historical  perspective.  In  a 
very  real  sense  it  is  true  that  the  revolution  began  in  the  early  Middle 
Ages.  It  is  equally  true  that  it  has  not  yet  completed  its  course. 
It  is  merely  in  its  second  phase.  How  many  more  stages  there  will 
be,  who  can  say  ? 

/  »  The  period  from  1750  to  1880  or  thereabouts  (the  exact  time 
varying  from  industry  to  industry  and  from  nation  to  nation)  is 
that  of  the  first  phase  of  the  revolution.  It  may  be  characterized  as 
the  period  when  market  was  outrunning  production.  Many  factors 
contributed  to  this  situation.     Machine  industry  was,  of  course 


144 


THE  COMING  IN  OF  CAPITALISM  145 

tremendously  productive,  but  machine  industry,  in  the  guise  of  the 
railroad,  the  telegraph,  and  the  telephone,  was  as  steadily  engaged  in 
extending  the  market  as  it  was  in  extending  productive  capacities. 
Furthermore,  although  the  period  of  colonization  had  gone  by,  this 
is  the  time  when  great  reaches  of  the  world,  notably  in  the  Americas, 
Australia,  and  Africa,  were  opened  up  to  a  truly  economic  life.  Then, 
too,  at  this  time  a  more  rapid  increase  of  population  occurred  than  has  /) 

occurred  at  any  other  period  concerning  which  we  have  accurate 
information,  and  the  rapidly  widening  mental  horizon  meant  an  even 
greater  increase  in  wants. 

Certain  very  striking  consequences  ensued  from  the  pressure    J  ■c<-' 
of  the  market  upon  production.    This  is  the  period  of  the  development    ^ 
of  schools  of  technology  as  one  manifestation  of  man's  efforts  to  meet 
the  demands  upon  production.     Again,  it  is  the  period  of  the  develop-     ?  • 
ment  of  the  " orthodox"  system  of  marketing  goods.    The  manu- 
facturer could  safely  turn  his  goods  over  to  the  jobber  with  but  little 
thought  of  the  ultimate  consumer.     If  one  jobber  failed  him,  another 
stood  ready  to  step  into  the  breach,  and  in  any  event  overhead  costs 
had  not  reached  the  stage  of  development  which  made  it  an  exceed- 
ingly serious  matter  for  a  manufacturer  to  shift  from  one  industry 
to  another.     It  is  not  without  interest,  also,  to  note  that  the  increas-     Cf 
ing  scale  of  production  in  this  period  cast  emphasis  upon  matters 
connected  with  the  technique  of  business  administration.    It  became 
profitable  to  start  business  colleges  which  would  care  for  training  in     £ 
the  simpler  elements  of  such  technique.     Finally,  in  this  period, 
governmental  policies  were  shaped  in  the  interests  of  the  producer. 
*\    ,The  second  phase  of  the  revolution  dates  from  1880  and  is  still 
in  progress.     It  is  the  period  when,  except  for  occasional  flurries,    / 
production  is  outrunning  market.    This  has  been  due  to  some  small 
extent  to  a  check  in  the  rate  of  increase  of  population,  but  mainly,  it    ' 
has  been  due  to  the  fact  that  by  1880  the  attention  given  to  pro- 
duction in  the  earlier  period  began  to  bear  tremendous  results  and 
the  markets  of  the  world  had  been  reasonably  well  exploited.    The 
consequences  of  this  situation  were  also  very  striking.    The  pro- 
ducer began  to  seek  customers  in  an  active  way,  and  the  orthodox 
system  of  distribution  has  yielded  to  many  strange  newcomers  such 
as  national  advertising,  direct  selling,  and  the  mail-order  house.    In 
the  educational  world  the  college  of  commerce  has  emerged  with  its 

{tention  given  primarily  to  the  distributing  side  of  business.     So 
— 


■7 


© 


146  INDUSTRIAL  SOCIETY 

markets,  came  our  great  trust  problems  and  that  rivalry  of  nations 
which  culminated  in  the  disaster  of  1914.  On  the  administrative 
side  of  business  attention  is  still  given  to  technique,  but  in  addition 
systems  or  philosophies  of  management  are  coming  to  the  front. 

These  are  some  of  the  matters  connected  with  the  transition 
from  the  mediaeval  period  to  the  present  day — with  the  coming  in  of 
capitalism.  And  what  does  capitalism  mean  ?  Not  the  same  thing 
at  different  times;  with  different  nations;  or  under  different  cir- 
cumstances. All  civilized  societies  of  the  nineteenth  and  twentieth 
centuries  might  be  called  "  capitalistic,"  but  clearly  the  term  would 
not  have  precisely  the  same  content  as  applied  to  all  these  countries. 
Capitalism  is,  then,  an  ever-changing  concept.  Whatever  capitalism 
means,  when  did  it  come  into  being  ?  No  one  can  say.  Some  of  its 
elements  emerged  very  early  and  existed  in  germ  even  earlier.  Some 
came  on  the  stage  much  later.  Very  likely  new  ones  will  be  added  in 
the  future.  While  we  shall  gain  nothing  by  trying  to  define  capitalism 
in  a  precise  way  or  in  trying  to  determine  the  exact  date  of  its  emer- 
gence, we  shall  gain  by  attempting  to  enumerate  some  of  the  out- 
standing features  of  present-day  capitalism.  How  inadequate  such 
enumeration  must  be  at  this  time  may  be  realized  when  we  remind 
ourselves  that  the  rest  of  this  book  deals  with  only  some  of  the  phases 
of  the  subject. 

1.  Modern  capitalism  is  organized  on  the  basis  of  the  money 
economy.  A  barter  regime  could  not  have  produced  capitalism  of  the 
kind  we  know. 

2.  It  is  organized  primarily  on  an  individualistic  basis,  and  its 
outstanding  motivating  force  is  the  gain  spirit.  That  is  to  say,  pro- 
duction for  profit-making  rather  than  for  the  direct  subsistence  of 
the  producer  is  an  outstanding  feature.  This  does  not  deny,  of  course, 
that  in  earlier  forms  of  society  men  were  greedy  to  accumulate  money. 
It  merely  calls  attention  to  a  certain  method  of  accumulation. 

3.  Production  for  gain  means  production  for  a  market.  -  Capital- 
ism could  not,  accordingly,  come  into  its  own  until  large  accessible 
markets  were  available.  Markets  may  be  made  up  of  space  areas  or 
of  time  areas  or  of  both.  Good  transportation  and  communication 
enlarge  the  space  areas;  storage  facilities  and  financial  devices,  such 
as  credit,  which  reach  out  into  the  future,  enlarge  the  time  area. 

4.  The  word  itself,  "capitalistic,"  is  significant.  Obviously, 
capitalistic  production  is  so  called  on  account  of  the  important  part 
played  in  it  by  capital.    This  involves: 


THE  COMING  IN  OF  CAPITALISM  147 

a)  "A  production  of  wealth  not  required  to  satisfy  the  current 
wants  of  its  owners,  and  therefore  saved,"  or  turned  back  into 
profit-making  production.  Capital  is  created  through  saving, 
and  the  saving  process  is  dependent  upon,  and  greatly  facilitated 
by,  the  money  economy  and  the  financial  structure  of  society. 

b)  Progress  in  technology— including  the  invention  of  machines. 
It  is  by  the  use  of  surplus  wealth  in  the  production  of  "  capital 
goods,"  such  as  tools  and  machinery,  that  this  surplus  "turned 
back  into  profit-making  production"  achieves  its  significance. 

c)  Control  of  these  goods  through  private  property  rights,  by 
" capitalists."  A  full  discussion  of  this  point  involves  the 
discussion  of  private  property  as  a  basic  assumption  of  the 
present  order. 

5.  Capitalism  of  today  means  certain  things  with  respect  to  the 
worker: 

a)  The  worker  secures  his  livelihood  under  a  wage  system.  That 
is,  he  sells  his  services  to  another,  who  converts  these  services 
into,  say,  a  commodity,  and  this  commodity  belongs  to  the 
person  who  has  hired  the  laborer.  In  other  words,  the  worker 
has  been  "divorced  from  the  product." 

b)  The  worker  has  also  been  "divorced  from  his  tools."  The 
tools — capital  goods — belong  to  another,  to  his  employer. 
Closely  connected  with  this  is  the  further  fact  that — 

c)  The  worker  has  been  "divorced  from  control  of  the  conditions 
of  work."  "Conditions"  is  here  a  broad  term,  including 
methods  of  processing,  supervision  of  technique,  hours,  sani- 
tary conditions,  etc.  To  be  sure,  the  worker  has  something 
to  say  concerning  certain  phases  of  the  conditions  of  work, 
but  the  initiative  manifestly  rests  with  his  employer. 

d)  Typically,  labor  today  is  group  labor.  It  is  performed  under 
the  conditions  of  the  factory  system.  This  is  dependent  upon 
the  progress  in  technology  already  mentioned.  It  presupposes 
"such  a  development  of  the  industrial  arts  (including  organi- 
zation and  management)  as  enables  indirect  methods  of  pro- 
duction to  afford  profitable  employment  to  group  labor  using 
tools  or  machinery."  Clearly,  also,  it  is  dependent  upon  the 
development  of  large  markets. 

The  material  presented  in  this  chapter  is  the  result  of  a  more 
or  less   arbitrary  selection.     Many   topics   would   have  served   as 


148  INDUSTRIAL  SOCIETY 

illustrations  of  the  coming  in  of  capitalism  and  only  a  few  have  been 
utilized.  Notable  omissions  are  such  matters  as  the  history  of  com- 
merce, the  relation  of  the  state  to  industry,  governmental  finance, 
changes  in  philosophical  outlook,  and  the  relation  of  capitalism  to 
agriculture.    The  inclusions  speak  for  themselves. 

QUESTIONS 

1.  "There  were  forces  undermining  the  manorial  system  as  early  as  the 
thirteenth  century.  In  particular  there  were  (1)  the  substitution  of 
money  for  produce  and  labor  rents,  (2)  the  leasing  of  the  manor  by  the 
bailiff,  the  tenants,  or  others,  (3)  exchange  betweeen  manor  and  town, 
and  (4)  external  relations  (notably  the  Crusades)."  Precisely  how 
could  each  of  these  factors  undermine  the  manorial  system  ? 

2.  Make  a  list  of  the  events  usually  described  as  those  ushering  in  the 
modern  era.    How  did  each  of  these  affect  the  coming  in  of  capitalism  ? 

3.  It  is  generally  said  that  capitalism  came  in,  not  as  a  steady  movement, 
but  in  a  succession  of  waves.  What  are  the  chief  periods  in  the  coming 
in  of  capitalism  ? 

4.  "  Capitalism  arose  out  of  commerce  and  moved  over  the  surface  of  the 
earth  in  the  channels  of  commerce."  Support  both  parts  of  this  quo- 
tation with  details. 

5.  Just  why  was  it  necessary  to  develop  instruments  and  methods  of  cal- 
culation before  capitalism  could  come  into  its  own  ?  Have  these  instru- 
ments and  methods  been  fully  developed  or  is  the  development  still 
going  on  ?     Can  you  give  instances  of  present-day  developments  ? 

6.  How  do  you  account  for  the  fact  that  Italy  was  the  "cradle  of  com- 
mercial arithmetic"  ? 

7.  What  has  been  the  relation  of  the  state  to  the  coming  in  of  capitalism  ? 
Is  capitalism  related  in  any  way  to  governmental  functions  today  ? 

8.  What  is  meant  by  the  capitalistic  spirit  ? 

9.  "It  is  difficult  to  realize  how  modern  is  the  capitalistic  spirit,  the  dis- 
position to  employ  accumulated  wealth  in  furthering  production  for 
the  sake  of  profit."  How  modern  is  this  spirit  ?  What  factors  delayed 
its  development  ?    What  factors  finally  caused  it  to  emerge  ? 

10.  "A  spirit  of  reckless  adventure  and  one  of  careful  and  laborious  calcula- 
tion are  the  parents  of  modern  capitalism."  Can  you  clear  up  this 
paradox  ? 

11.  "The  inherent  tendency  of  the  use  of  currency  is  to  weaken  custom. 
It  suggests  rational  valuation  in  a  way  not  suggested  by  the  customary 
vending  of  commodities  or  labor."     Explain. 

12.  "As  compared  with  the  Middle  Ages,  the  modern  period  saw  the 
development  of  improved  facilities  for  investing  money  in  business." 
Make  a  list  of  these  improved  facilities. 


THE  COMING  IN  OF  CAPITALISM  149 

13.  How  did  the  charging  of  interest  come  to  be  considered  a  moral  pro- 
cedure? What  would  happen  in  industry  today  if  no  such  thing  as 
interest  were  possible  ? 

14.  What  is  meant  by  "the  middle-class  virtues"  ?  What  is  their  relation- 
ship to  capitalism  ? 

15.  What  is  meant  by  technology  ?  What  is  its  relation  to  the  development 
of  capitalism  ? 

16.  Tabulate  (1)  the  hindrances  found  in  mediaeval  society  to  the  develop- 
ment of  capitalism;  (2)  the  forces  or  factors  which  overcame  these 
hindrances. 

17.  "An  outstanding  fact  in  the  development  of  capitalism  is  this:  The 
captains  of  industry  of  one  economic  period  are  newcomers.  They 
are  not  the  descendants  of  the  captains  of  the  preceding  period.  These 
descendants  have  become  conservatives."  Why  should  you  expect 
this  to  be  true? 

18.  It  is  generally  believed  that  we  are  now  in  the  midst  of  a  great  transi- 
tion in  economic  life.  Does  this  mean  opportunities  for  new  captains 
of  industry?  If  so,  can  these  new  captains  of  industry  adopt  the 
policies  and  practices  of  their  predecessors  ? 

19.  "In  the  history  of  the  rise  of  capitalism,  there  is  a  truly  surprising 
regularity  with  which  the  phases  of  economic  freedom  and  economic 
regulation  have  succeeded  each  other."  What  does  this  mean  ?  From 
this  point  of  view,  into  what  periods  does  the  coming  in  of  capitalism 
divide  itself? 

20.  "Capital  means  tools,  machines,  durable  goods  which  man  uses  in  his 
struggle  with  nature.  Capitalism,  therefore,  means  simply  the  tool  or 
machine  period  of  man's  struggle  with  nature."  Does  this  seem  to  you 
an  adequate  definition  of  capitalism? 

21.  "The  intervention  of  capital  eventually  brought  about  an  entire  recon- 
struction of  the  social  system  of  Western  Europe."     Fill  in  the  details. 

22.  "As  the  woolen  industry  was  the  first,  on  any  considerable  scale,  to  take 
the  gild  form,  it  was  the  first  to  break  away  from  it;  and  this  for  the 
same  reason — the  extent  of  the  demand."  Explain.  In  what  periods 
did  the  two  events  occur? 

23.  "In  the  fifteenth  century,  four  vital  changes  take  place  in  industrial 
organization:  (1)  the  weaving  and  allied  branches  of  the  manufacture 
are  establishing  themselves  in  villages  and  hamlets  and  isolated  cottages 
over  the  countryside;  (2)  the  gild  association  drops  asunder  in  the 
woolen  industry;  (3)  the  industry  concentrates  in  certain  particular 
districts;  (4)  a  new  class  of  entrepreneurs  appears — the  clothiers — who 
now  control  the  whole  process  of  production."  Omitting  No.  3, 
explain  the  why  of  each  of  these  changes.     Where  did  the  capital  come 


150  INDUSTRIAL  SOCIETY 

24.  The  first  inclosure  movement  meant,  in  large  part,  the  removal  of 
population  from  the  vills.  These  people  would  not  be  welcomed  by 
the  gilds  at  this  time.  What  became  of  them?  Can  you  see  any 
connection  between  this  problem  and  the  decay  of  the  gilds  ?  between 
this  problem  and  the  development  of  the  laissez-faire  attitude  toward 
manufactures  in  England?  between  this  problem  and  the  rise  of  the 
clothiers  ? 

25.  "Enclosures  contributed  greatly  to  self-reliant  individualism."     How? 

26.  Where  did  the  capital  and  enterprise  which  are  indicated  by  the  advent 
of  the  clothier  come  from  ? 

27.  What,  with  respect  to  the  coming  of  capitalism,  does  the  draper  mean  ? 
What  does  the  clothier  mean  ?  In  each  case  precisely  what  conditions 
called  this  personage  into  being  ? 

28.  Take  the  list  of  the  essential  elements  of  modern  capitalism  and  trace 
the  intervention  of  each  in  the  woolen  industry,  with  respect  to  time 
of  entry  and  to  causes  of  entry. 

29.  "The  commercial  organization  of  the  woolen  industry  assumed  the 
shape  of  capitalistic  industry  even  earlier  than  did  the  manufacturing 
phase  of  that  industry."     Furnish  proof  of  this  position. 

30.  To  what  extent  had  the  domestic  system  permeated  eighteenth-century 
industry  in  England?     Give  the  proofs  of  your  position. 

31.  What  elements  of  modern  capitalism  came  in  with  the  domestic  system  ? 
Make  a  list  of  the  factors  which  caused  the  emergence  of  the  domestic 

.  system. 

32.  It  has  been  said  that  English  industry  had  become  dependent  upon 
capitalistic  enterprise  in  certain  respects  long  before  the  Industrial 
Revolution.  In  what  respects?  What  new  respects  were  added  by 
the  revolution  ? 

33.  Why  was  there  relatively  little  large-scale  production  in  England  prior 
to  1750  ?  Where  large-scale  production  did  exist,  what  factors  brought 
it  into  being  ? 

34.  To  what  extent  had  capitalists  brought  considerable  bodies  of  working- 
men  together  under  one  roof  prior  to  the  outbreak  of  the  Industrial 
Revolution  ?  Make  a  list  of  the  pecuniary  advantages  and  disadvan- 
tages of  such  a  procedure. 

35.  "The  fluctuation  of  employment  was  likely  to  be  even  greater  under 
the  domestic  system  than  under  the  factory  system."  Why  or  why  not? 
What  has  overhead  cost  to  do  with  the  matter  ?  speculative  industry  ? 
wider  markets  ? 

36.  "As  compared  with  mediaeval  times  the  modern  laborer  has  lost 
stability  of  position."     Why  or  why  not  ? 

37.  "The  revolutionary  element  of  the  Middle  Ages  was  the  merchant. 
Explain  what  this  means. 


THE  COMING  IN  OF  CAPITALISM  151 

38.  What  events,  usually  connected  in  our  minds  with  the  opening  of  the 
modern  era,  greatly  stimulated  the  development  of  trade  and  com- 
merce? Should  you  say  that  commerce  would  not  have  expanded 
appreciably  if  the  spectacular  historical  accidents  connected  with  the 
opening  of  the  modern  era  had  not  occurred  ? 

39.  "From  time  immemorial  foreign  trade  had  been  capitalistic  in  char- 
acter, but  the  circumstances  of  the  sixteenth  and  seventeenth  centuries 
gave  great  opportunities  for  opening  up  new  markets,  and  for  enlarged 
transactions  in  some  of  the  old  lines  of  commerce."  •  Fill  in  all  the 
details  you  can. 

40.  "The  first  essentials  of  commerce  are  personal  freedom  and  the  security 
of  property."  Does  this  seem  to  you  a  sound  position  ?  Were  these 
elements  present  in  England  in  1300?  in  1700? 

41.  What  relationship,  if  any,  exists  between  the  development  of  trade  and 
commerce  and  each  of  the  following:  specialization,  interdependence, 
speculative  industry,  impersonal  relations,  development  of  individual- 
ism, mobility,  development  of  classes,  competitive  industry,  appeal 
to  gain  as  a  motive  to  activity  ? 

42.  What  is  meant  by  referring  to  banking,  insurance,  and  transporta- 
tion as  functions  of  specialized  middlemen  ?  Is  the  operator  on 
an  organized  exchange  a  middleman?  By  what  time  had  banking, 
insurance,  the  organized  exchange,  and  special  carriers  emerged  in 
England  ? 

43.  If  you  were  asked  to  name  a  year  or  a  period  by  which  time  one  could 
confidently  assert  that  speculative  industry  had  arrived,  what  would 
be  your  answer  ? 

44.  Precisely  what  would  improved  means  of  communication  and  trans- 
portation mean  to  the  coming  in  of  capitalism?  At  what  time  did 
significant  improvements  occur  ? 

45.  It  is  generally  said  that  machine  industry,  involving  as  it  does  large 
expenditures  for  plant,  could  not  come  in  until  financial  institutions 
had  paved  the  way.  Assume  this  statement  to  be  true.  Was  England 
ready  for  machine  industry  by  1700? 

46.  Assume  it  to  be  true  that  machine  industry  could  not  come  in  until 
wide  markets  had  guaranteed  the  carrying  off  of  the  product.  Was 
England  ready  for  machine  industry  by  1 700  ? 

47.  Assume  it  to  be  true  that  machine  industry  could  not  come  in  until  a 
mobile  laboring  class  was  available.  Was  England  ready  for  machine 
industry  in  1700? 

48.  What  is  meant  by  saying  that  the  Industrial  Revolution  began  in  the 
thirteenth  and  fourteenth  centuries  ? 

49.  "The  age  of  geographical  discovery  had  paved  the  way  for  the  age  of 
invention."    How  and  why? 


152  INDUSTRIAL  SOCIETY 

50.  "The  Industrial  Revolution  was  the  work  of  a  mere  handful  of  men." 
"Had  Watt  and  Arkwright  lived  under  the  conditions  which  were  in 
vogue  in  preceding  centuries,  they  would  have  secured  little  distinction.'' 
With  which  of  these  quotations  do  you  agree  ? 

51.  "The  capitalist  in  the  strict  economic  sense  was  no  new  apparition. 
Nor  was  industry  working  on  a  capitalistic  basis  new.  What  is  new  is, 
first,  the  capitalistic  entrepreneur,  primarily  a  manufacturer,  not  a 
moneyed  man,  engaged  in  commerce;  secondly,  the  growth  of  a  class  of 
capitalist  entrepreneurs;  thirdly,  the  gradual  domination  of  industry 
by  that  class;  and  fourthly,  the  type  of  industrial  organization  that  he 
creates  and  the  scale  on  which  he  applies  it."  Does  this  seem  to  you  to 
be  a  correct  generalization  ? 

52.  Explain  why  the  domestic  manufacturers  could  not  meet  the  competi- 
tion of  the  factory  system.  What  became  of  them?  Did  they  go 
into  agriculture  ? 

53.  The  period  which  is  generally  called  the  period  of  Industrial  Revolution 
marks  also  the  second  inclosure  movement.  The  first  inclosure  move- 
ment meant  emphasis  on  grazing.  The  second  inclosure  movement 
meant  emphasis  upon  tillage.     Why  this  difference? 

54.  The  second  inclosure  movement  meant  the  removal  of  many  rural 
workers  from  the  vills.  Where  could  they  go?  Could  they  become 
craftsmen  ? 

55.  "The  second  enclosure  movement  was  a  consequence  of  the  increase 
of  scientific  or  at  least  quasi-scientific  knowledge  in  the  agricultural 
realm.  It  marks  the  coming  in  of  capitalistic  agriculture  in  terms  of 
both  equipment  and  spirit,  whereas  the  earlier  enclosure  movement 
marked  merely  the  intervention  of  the  capitalistic  spirit."  Does  this 
seem  to  you  a  correct  statement  ? 

56.  "The  commercialization  of  English  land  facilitated  the  coming  in  of  the 
factory  system."     Just  how  ? 

57.  It  is  generally  said  that  the  Industrial  Revolution  put  in  motion  forces 
which  upon  the  one  hand  made  possible  and  upon  the  other  hand  made 
economically  wise  the  development  of  large  cities.  Can  you  give 
evidence  in  support  of  these  statements  ? 

58.  Why  were  the  influences  of  the  Industrial  Revolution  felt  more  quickly 
in  the  cotton  than  in  the  woolen  industry  ? 

59.  "The  Industrial  Revolution  is  an  unfortunate  name.  The  events  of 
the  period  and  the  consequences  of  these  events  were  much  more 
than  industrial,  and  the  term  revolution  serves  to  distract  attention 
from  the  evolutionary  aspects  of  the  problem."     Do  you  agree  ? 

60.  "The  essence  of  the  Industrial  Revolution  is  the  substitution  of 
competition  for  the  mediaeval  regulations  which  had  previously  con- 
trolled the  production  and  distribution  of  wealth."  What  does  this 
mean? 


THE  COMING  IN  OF  CAPITALISM  153 

61.  "The  true  character  of  the  Industrial  Revolution  may  be  seen  in  the 
loss  of  industrial  stability  which  occurred."     What  does  this  mean  ? 

62.  What  should  you  list  as  the  causes  of  the  Industrial  Revolution  ?  What 
should  you  list  as  its  achievements  ? 

6$.  Draw  up  a  list  of  the  changes  brought  about  by  the  Industrial  Revolu- 
tion. Go  through  this  list,  indicating  what  ones,  if  any,  of  the  changes 
were  mere  accelerations  of  existing  forces  and  what  ones,  if  any,  may 
properly  be  considered  new. 

64.  "The  revolution  may  be  explained  in  terms  of  three  essential  changes: 
The  productive  process  has  been  lengthened,  the  market  has  been 
enlarged  and  industrial  relations  have  become  pecuniary,  instead  of 
personal."  Is  this  description  adequate  ?  What  problems  are  associ- 
ated with  each  of  these  changes? 

65.  "The  Industrial  Revolution  has  affected  our  whole  world  of  thought,  of 
action,  and  of  institutions;  it  has  modified  our  economics,  our  politics, 
our  ethics,  and  even  our  religion;  it  has  changed  in  nature,  number,  and 
form  our  baffling  problems;  it  has  written  itself  large  in  our  culture." 
Support  these  general  statements  with  details  as  far  as  you  can. 

66.  "The  Industrial  Revolution  has  been  the  means  of  converting  individual 
production  into  social  production."    What  does  this  mean  ? 

67.  "The  mechanical  inventions  were  not  the  cause  of  the  Industrial  Revo- 
lution; they  were  only  an  incident."  Does  this  seem  to  you  a  correct 
analysis. 

68.  "The  unit  of  commercial  life  was  the  town,  not  the  nation."  When,  if 
ever,  was  this  statement  true  ?  Make  a  list  of  the  implications  of  this 
statement. 

69.  "The  significant  phase  of  the  Industrial  Revolution  has  been  the  taking 
from  the  home  to  the  factory  many  things  formerly  produced  in  the 
home."     What  has  this  meant  for  woman  ? 

70.  Without  attempting  to  work  out  many  details,  state  what  is  meant  by 
"mercantilism";  by  laissez-faire.  State  the  periods  at  which  each  of 
these  was  at  its  height  in  England. 

71.  In  terms  of  the  extent  to  which  they  contained  the  essential  elements  of 
capitalism,  draw  up  in  parallel  columns  a  comparison  of  (a)  the  handi- 
craft system,  (b)  the  domestic  system,  (c)  the  factory  system. 

72.  "The  object  of  modern  industrial  activity  is  profits."  What  restric- 
tions are  imposed  upon  capitalist,  laborer,  and  manager  by  this 
fact? 

73.  How  has  the  machine  extended  the  market  ?    What  is  its  significance  ? 

74.  "We  are  now  in  the  later  phases  of  the  revolution.  Upon  the  one  hand 
has  come  a  commercial  revolution,  upon  the  other  hand  has  come  the 

I     introduction   of   science   into   factory   processes."    What   does   this 
mean? 
5.  What  modern  problems  can  you  trace  back  to  the  Industrial  Revolution  ? 


154  INDUSTRIAL  SOCIETY 

B.     General  Survey 
63.    THE  SOCIAL  HISTORY  OF  CAPITALISM1 

The  early  centuries  of  the  Middle  Ages  seem  to  have  been  com- 
pletely ignorant  of  the  power  of  capital.  They  abound  in  wealthy 
landed  proprietors,  in  rich  monasteries,  and  we  come  upon  hundreds 
of  sanctuaries  the  treasure  of  which,  supplied  by  the  generosity  of  the 
nobles  or  the  offerings  of  the  faithful,  crowds  the  altar  with  ornaments 
of  gold  or  of  solid  silver.  A  considerable  fortune  is  accumulated  in 
the  Church,  but  it  is  an  idle  fortune.  The  revenues  which  the  land- 
owners collect  from  their  serfs  or  from  their  tenants  are  directed 
toward  no  economic  purpose. 

Landed  property,  indeed,  did  not  contribute  at  all  to  that  awaken- 
ing of  commercial  activity  which,  after  the  disasters  of  the  Norman 
invasion  in  the  North  and  the  Saracen  raids  on  the  shores  of  the 
Mediterranean,  began  to  manifest  itself  toward  the  end  of  the  tenth 
century  and  the  beginning  of  the  eleventh.  Its  preliminary  mani- 
festations are  found  at  the  two  extremities  of  the  Continent,  Italy 
and  the  Low  Countries.  The  interior  seas,  between  which  Europe 
was  restricted  in  her  advance  toward  the  Atlantic,  were  its  first 
centres  of  activity.  Venice,  then  Genoa  and  Pisa,  venture  on  the 
coasting  trade  along  their  shores,  and  then  maintain,  with  their  rich 
neighbors  of  Byzantium  or  of  the  Mohammedan  countries,  a  traffic 
which  henceforward  constantly  increases.  Meanwhile  Bruges,  at 
the  head  of  the  estuary  of  the  Zwyn,  becomes  the  centre  of  a  navigation 
radiating  toward  England,  the  shores  of  North  Germany,  and  the 
Scandinavian  regions.  Thus,  economic  life,  as  in  the  beginning  of 
Hellenic  times,  first  becomes  active  along  the  coasts.  But  soon  it 
penetrates  into  the  interior  of  the  country.  Step  by  step  it  wins  its 
way  along  the  rivers  and  the  natural  routes.  On  this  side  and  on 
that,  it  arouses  the  hinterland  into  which  the  harbors  cut  their 
indentations.  In  this  process  of  growth  the  two  movements  finally 
meet,  and  bring  into  communication  the  people  of  the  North  and 
the  people  of  the  South.  By  the  beginning  of  the  twelfth  century 
it  is  an  accomplished  fact.  In  11 27  Lombard  merchants,  journeying 
by  the  long  route  which  descends  from  the  passes  of  the  Alps 
toward  Champagne  and  the  Low  Countries,  reach  the  fairs  of 
Flanders. 

1  Adapted  by  permission  from  Henri  Pirenne,  "The  Stages  in  the  Social 
History  of  Capitalism,"  American  Historical  Review,  XIX  (1913-14),  500-515. 


THE  COMING  IN  OF  CAPITALISM  155 

When  the  increasing  intensity  of  commerce  begins  to  furnish  men 
with  new  means  of  existence,  immediately  one  discovers  an  uninter- 
rupted movement  of  migration  of  peasants  from  the  country  towards 
the  places  in  which  the  handling  of  merchandise,  the  towing  of  boats, 
the  service  of  merchants  furnish  regular  occupations  and  arouse  the 
hope  of  gain. 

Whence  came  these  pioneers  of  commerce,  these  immigrants 
seeking  means  of  subsistence,  and  what  resources  did  they  bring  with 
them  into  the  rising  towns?  Doubtless  only  the  strength  of  their 
arms,  the  force  of  their  wills,  the  clearness  of  their  intelligence. 
Agricultural  life  continued  to  be  the  normal  life  and  none  of  those 
who  remained  upon  the  soil  could  entertain  the  idea  of  abandoning  his 
holding  to  go  to  the  town  and  take  his  chances  in  a  new  existence. 
As  for  selling  the  holding  to  get  ready  money,  like  the  men  of  a  modern 
rural  population,  no  one  at  that  time  could  have  imagined  such  a 
transaction.  The  ancestors  of  the  bourgeoisie  must  then  be  sought, 
specifically,  in  the  mass  of  those  wandering  beings  who,  having  no 
land  to  cultivate,  floated  across  the  surface  of  society,  living  from 
day  to  day  upon  the  alms  of  the  monasteries,  hiring  themselves  to 
the  cultivators  of  the  soil  in  harvest  time,  enlisting  in  the  armies  in 
time  of  war,  and  shrinking  from  neither  pillage  nor  rapine  if  the 
occasion  presented  itself.  It  may  without  difficulty  be  admitted 
that  there  may  have  been  among  them  some  rural  artisans  or  some 
professional  peddlers.  But  it  is  beyond  question  that  with  very  few 
exceptions  it  was  poor  men  who  floated  to  the  towns  and  there  built 
up  the  first  fortunes  in  movable  property  that  the  Middle  Ages  knew. 

How  can  we  see,  in  any  of  those  who  led  this  sort  of  life,  anything 
else  but  capitalists?  It  is  impossible  to  maintain  that  these  men 
conducted  business  only  to  supply  their  daily  wants,  impossible  not 
to  see  that  their  purpose  is  the  constant  accumulation  of  goods, 
impossible  to  deny  that,  barbarous  as  we  may  suppose  them,  they 
none  the  less  possessed  the  comprehension,  or  if  one  prefers,  had  the 
instinct  for  commerce  on  the  large  scale.  Of  the  organization  of 
this  commerce  the  life  of  St.  Godric  of  Finchale  shows  us  already  the 
principal  features,  and  the  description  which  it  gives  us  of  them  is 
the  more  deserving  of  confidence  because  it  is  corroborated  in  the 
most  convincing  fashion  by  many  documents.  It  shows  us,  first  of 
all,  the  merchant  coming  from  the  country  to  establish  himself  in 
the  town.  But  the  town  is  to  him,  so  to  speak,  merely  a  basis  of 
operations.    He  lives  there  but  little,  save  in  the  winter.    As  soon 


156  INDUSTRIAL  SOCIETY 

as  the  roads  are  practicable  and  the  sea  open  to  navigation,  he  sets 
out.  His  commerce  is  essentially  a  wandering  commerce,  and  at  the 
same  time  a  collective  one,  for  the  insecurity  of  the  roads  and  the 
powerlessness  of  the  solitary  individual  compel  him  to  have  recourse 
to  association.  Grouped  in  gilds,  in  hanses,  in  caritates,  the  associates 
take  their  merchandise  in  convoy  from  town  to  town,  presenting  a 
spectacle  entirely  like  that  which  the  caravans  of  the  East  still 
furnish  in  our  day.  They  buy  and  sell  in  common,  dividing  the  profits 
in  the  ratio  of  their  respective  investments  in  the  expedition,  and  the 
trade  they  carry  on  in  the  foreign  markets  is  wholesale  trade,  and  can 
only  be  that,  for  retail  trade,  as  the  life  of  Godric  shows  it,  is  left  to 
the  rural  peddlers.  It  is  in  gross  that  they  export  and  import  wine, 
grain,  wool,  or  cloth. 

The  fortunes  acquired  in  the  wandering  commerce  by  the  parvenus 
of  the  eleventh  and  twelfth  centuries  soon  transformed  them  into 
landed  proprietors  of  the  town  in  which  they  reside.  The  contin- 
uous increase  of  the  burghal  population  enriches  them  more  and 
more,  for  as  new  inhabitants  establish  themselves  in  the  towns, 
and  as  the  number  of  the  houses  increases,  the  rent  of  the  ground 
increases  in  proportion.  So,  from  the  commencement  of  the  thir- 
teenth century,  the  grandsons  of  the  primitive  merchants  abandon 
commerce  and  content  themselves  with  living  comfortably  upon 
the  revenue  of  their  lands.  They  bid  farewell  to  the  agitations 
and  the  chances  of  the  wandering  life.  They  live  henceforward 
in  their  stone  houses,  whose  battlements  and  towers  rise  above 
the  thatched  roofs  of  the  wooden  houses  of  their  tenants.  They 
assume  control  of  the  municipal  administration;  they  and  their 
families  monopolize  the  seats  in  the  echevinage  or  the  town  council. 
Some  even,  by  fortunate  marriages,  ally  themselves  with  the  lesser 
nobility  and  begin  to  model  their  manner  of  living  upon  that  of  the 
knights. 

But  while  these  first  generations  of  capitalists  are  retiring  from 
commerce  and  rooting  themselves  in  the  soil,  important  changes  arc 
going  on  in  the  economic  organization.  In  the  first  place,  in  propor- 
tion as  the  wealth  of  the  towns  increases,  and  with  it  their  attractive 
power,  they  take  on  more  and  more  an  industrial  character,  the  rural 
artisans  flocking  into  them  en  masse  and  deserting  the  country.  At 
the  same  time  many  of  them,  favored  by  the  abundance  of  ra> 
material  furnished  by  the  surrounding  region,  begin  to  devote  them- 
selves to  certain  specialties  of  manufacture-^cloth-making  or  metal- 


THE  COMING  IN  OF  CAPITALISM  157 

lurgy.  Finally,  around  the  principal  aggregations  many  secondary 
localities  develop,  so  that  all  Western  Europe,  in  the  course  of  the 
thirteenth  century,  blossoms  forth  in  an  abundance  of  large  and  small 
towns.  Some,  and  much  the  greater  number  of  them,  content  them- 
selves with  local  commerce.  Their  production  is  determined  by  the 
needs  of  their  population  and  that  of  the  environs  which  extend  two 
or  three  leagues  around  their  walls,  and,  in  exchange  for  the  manu- 
factured articles  which  the  city  furnishes  to  them,  attend  to  the  food 
supply  of  the  urban  inhabitants.  Other  towns,  on  the  contrary,  less 
closely  set  together  but  also  more  powerful,  develop  chiefly  by  means 
of  an  export  industry,  producing,  as  did  the  cloth  industry  of  great 
Flemish  or  Italian  cities,  not  for  their  local  market,  but  for  the 
European  market,  constantly  extensible.  Others  still,  profiting  by 
the  advantages  of  nearness  to  the  sea,  give  themselves  up  to  navigation 
and  to  transportation,  as  did  so  many  ports  of  Italy,  of  France,  of 
England,  and  especially  of  North  Germany. 

In  the  towns  of  the  second  category  capitalism  not  only  exists  but 
develops  toward  perfection.  Instruments  of  credit,  such  as  the 
lettre  de  foire,  make  their  appearance;  a  traffic  in  money  takes  its 
place  alongside  the  traffic  in  merchandise  and,  despite  the  prohibition 
of  loans  at  interest,  makes  constantly  more  rapid  progress.  The 
coutumes  of  the  fairs,  especially  those  of  the  fairs  of  Champagne,  in 
which  the  merchants  of  the  regions  most  advanced  in  an  economic 
sense,  Italy  and  the  Low  Countries,  meet  each  other,  give  rise  to  a 
veritable  commercial  law.  The  circulation  of  money  expands  and 
becomes  regulated;  the  coinage  of  gold,  abandoned  since  the  Mero- 
vingian period,  is  resumed  in  the  middle  of  the  thirteenth  century. 
The  security  of  travellers  increases  on  the  great  highways.  The  old 
Roman  bridges  are  rebuilt  and  here  and  there  canals  are  built  and 
dykes  constructed.  Finally,  in  the  towns,  the  commercial  buildings 
of  the  previous  period,  outgrown,  are  replaced  by  structures  more  vast 
and  more  luxurious,  of  which  the  halles  of  Ypres,  with  their  facade  one 
hundred  and  thirty-three  metres  long,  is  doubtless  the  most  imposing 
specimen. 

Extensive,  however,  as  capitalistic  commerce  has  been  since  the 
first  half  of  the  thirteenth  century,  it  no  longer  enjoys  the  freedom  of 
development  which  it  had  before.  As  we  advance  toward  the  end 
of  the  Middle  Ages,  indeed,  we  see  it  subjected  to  limitations  con- 
stantly more  numerous  and  more  confining.  Henceforth,  in  fact,  it 
Is  to  reckon  with  municipal  legislation.     Every  town  now  shelters 


158  INDUSTRIAL  SOCIETY 

itself  behind  the  ramparts  of  protectionism.  If  the  most  powerful 
cities  can  no  longer  exclude  the  stranger,  upon  whom  they  live,  they 
impose  upon  him  a  minute  regulation,  the  purpose  of  which  is  to 
defend  against  him  the  position  of  their  own  citizens.  They  force  him 
to  have  recourse  in  his  purchases  to  the  mediation  of  his  "hosts"  and 
his  "courtiers";  they  forbid  him  to  bring  in  manufactured  articles 
which  may  compete  with  those  which  the  city  produces;  they  exploit 
him  by  levying  taxes  of  all  sorts :  duties  upon  weighing,  upon  egress,  etc. 

In  those  cities  especially  in  which  has  occurred  the  popular 
revolution  transferring  power  from  the  hands  of  the  patriciate  into 
those  of  the  craft-gilds,  distrust  of  capital  is  carried  as  far  as  it  can  go 
without  entirely  destroying  urban  industry. 

But  it  is  not  solely  the  municipal  authority  which  attacks  the 
speculations  born  of  the  capitalistic  spirit.  The  church  steps  forward, 
and  under  the  name  of  usury  forbids  indiscriminately  the  lending  of 
money  at  interest,  sales  on  credit,  monopolies,  and  in  general  all 
profits  exceeding  the  justum  pretium.  The  pursuit  of  business  on  a 
large  scale  found  itself  much  embarrassed. 

These  limitations  resting  upon  commerce  have  resulted  in  turning 
away  from  it  the  patricians,  who  moreover  have  become,  as  has  been 
said  above,  a  class  of  landed  proprietors.  The  place  which  they  left 
vacant  is  filled  by  new  men,  among  whom,  as  among  their  predecessors, 
intelligence  is  the  essential  instrument  of  fortune.  The  intellectual 
faculties  which  they  first  developed  in  wandering  commerce  are  used 
by  these  later  men  to  overcome  the  obstacles  raised  in  their  pathway 
by  municipal  regulations  of  commerce  and  ecclesiastical  regulations 
in  respect  to  money  affairs.  Many  of  them  find  a  rich  source  of 
profit  by  devoting  themselves  to  brokerage.  Others  in  the  industrial 
cities  exploit  shamelessly  and  in  defiance  of  the  statutes  the  artisans 
whom  they  employ.  The  richest  or  the  boldest  profit  by  the  con- 
stantly increasing  need  of  money,  on  the  part  of  territorial  princes  anc 
kings,  to  become  their  bankers. 

In  the  course  of  the  fifteenth  century,  this  second  class  of  capital- 
ists, courtiers,  merchants,  and  financiers,  successors  to  the  capitalists 
of  the  hanses  and  the  gilds,  is  in  its  turn  drawn /along  toward  the 
downward  grade.  The  progress  of  navigation,  the  discoveries  mad< 
by  the  Portuguese,  then  by  the  Spaniards,  the  formation  of  great 
monarchical  states  struggling  for  supremacy,  begin  to  destroy  the 
economic  situation  in  the  midst  of  which  that  class  had  grown  tc 
greatness,  and  to  which  it  had  adapted  itself.     The  direction  of  th< 


THE  COMING  IN  OF  CAPITALISM  159 

currents  of  commerce  is  altered.  In  the  north,  the  English  and  Dutch 
marine  gradually  take  the  place  of  the  hanses.  In  the  Mediterranean, 
commerce  centres  itself  at  Venice  and  at  Genoa.  On  the  shores  of 
the  Atlantic,  Lisbon  becomes  the  great  market  for  spices,  and  Antwerp, 
supplanting  Bruges,  becomes  the  rendezvous  of  European  commerce. 
The  sixteenth  century  sees  this  movement  grow  more  rapid.  It  is 
favored  at  once  by  moral,  political,  and  economic  causes;  the  intel- 
lectual progress  of  the  Renaissance,  the  expansion  of  individualism, 
great  wars  exciting  speculation,  the  disturbance  of  monetary  circula- 
tion caused  by  the  influx  of  precious  metals  from  the  New  World. 
As  the  science  of  the  Middle  Ages  disappears  and  the  humanist  takes 
the  place  of  the  scholastic,  so  a  new  economy  rises  in  the  place  of  the 
old  urban  economy.  The  state  subjects  the  towns  to  its  superior 
power.  It  restrains  their  political  autonomy  at  the  same  time  that 
it  sets  commerce  and  industry  free  from  the  guardianship  which  the 
towns  have  hitherto  imposed  upon  them.  The  protectionism  and  the 
exclusiveness  of  the  bourgeoisies  are  brought  to  an  end.  If  the  craft- 
gilds  continue  to  exist,  yet  they  no  longer  control  the  organization  of 
labor.  New  industries  appear,  which,  to  escape  the  meddling 
surveillance  of  the  municipal  authorities,  establish  themselves  in  the 
country.  Side  by  side  with  the  old  privileged  towns,  which  merely 
vegetate,  younger  manufacturing  centres,  full  of  strength  and  exu- 
berance, arise;  in  England,  Sheffield  and  Birmingham,  in  Flanders, 
Hondschoote  and  Armentieres. 

The  spirit  which  is  now  manifested  in  the  world  of  business  is 
that  same  spirit  of  freedom  which  animates  the  intellectual  world. 
In  a  society  in  process  of  formation,  the  individual,  enfranchised, 
gives  the  rein  to  his  boldness.  He  despises  tradition,  giyes  himself  up 
with  unrestrained  delight  to  his  virtuosity.  There  are  to  be  no  more 
limits  on  speculation,  no  more  fetters  on  commerce,  no  more  meddling 
of  authority  in  relations  between  employers  and  employed.  The 
most  skilful  wins.  Competition,  up  to  this  time  held  in  check,  runs 
riot.  In  a  few  years  enormous  fortunes  are  built  up,  others  are 
swallowed  up  in  resounding  bankruptcies.  The  Antwerp  exchange 
is  a  pandemonium  where  bankers,  deep-sea  sailors,  stock-jobbers, 
dealers  in  futures,  millionaire  merchants,  jostle  each  other — and 
sharpers  and  adventurers,  to  whom  all  means  of  money-getting,  even 
assassination,  are  acceptable. 

This  confused  recasting  of  the  economic  world  transfers  the  role 
layed  by  the  capitalists  of  the  late  Middle  Ages  to  a  class  of  new  men. 


160  INDUSTRIAL  SOCIETY 

Few  are  the  descendants  of  the  business  men  of  the  fourteenth  century 
among  those  of  the  fifteenth  and  sixteenth.  Thrown  out  of  their 
course  by  the  current  of  events,  they  have  not  been  willing  to  risk 
fortunes  already  acquired.  Most  of  them  are  seen  turning  toward 
administrative  careers,  entering  the  service  of  the  state  as  members 
of  the  councils  of  justice  or  finance  and  aspiring  to  the  noblesse  de 
robe,  which,  with  the  aid  of  fortunate  marriages,  will  land  their  sons 
in  the  circle  of  the  true  nobility.  As  for  the  new  rich  of  the  period, 
they  almost  all  appear  to  us  like  parvenus. 

The  exuberance  of  capitalism  which  reached  its  height  in  the 
second  half  of  the  sixteenth  century  was  not  maintained.  Even  as 
the  regulative  spirit  characteristic  of  the  urban  economy  followed 
upon  the  freedom  of  the  twelfth  century,  so  mercantilism  imposed 
itself  upon  commerce  and  industry  in  the  seventeenth  and  eighteenth 
centuries.  By  protective  duties  and  bounties  on  exportation,  by 
subsidies  of  all  sorts  to  manufactures  and  national  navigation,  by 
the  acquiring  of  transmarine  colonies,  by  the  creation  of  privileged 
commercial  companies,  by  the  inspection  of  manufacturing  processes, 
by  the  perfecting  of  means  of  transportation  and  the  suppression  of 
interior  custom-houses,  every  state  strives  to  increase  its  means  of 
production,  to  close  its  market  to  its  competitors,  and  to  make  the 
balance  of  trade  incline  in  its  favor.  Doubtless  the  idea  that  "  liberty 
is  the  soul  of  commerce"  does  not  wholly  disappear,  but  the  endeavor 
is  to  regulate  that  liberty  henceforward  in  conformity  to  the  interest 
of  the  public  weal.  It  is  put  under  the  control  of  intendants,  of 
consuls,  of  chambers  of  commerce.  We  are  entering  into  the  period 
of  national  economy. 

This  was  destined  to  last,  as  is  familiar,  until  the  moment  when, 
in  England  at  the  end  of  the  eighteenth  century,  on  the  Continent  in 
the  first  years  of  the  nineteenth,  the  invention  of  machinery  and  the 
application  of  steam  to  manufacturing  completely  disorganized  the 
conditions  of  economic  activity.  The  phenomena  of  the  sixteenth 
century  are  reproduced,  but  with  tenfold  intensity.  Merchants 
accustomed  to  the  routine  of  mercantilism  and  to  state  protection  are 
pushed  aside.  We  do  not  see  them  pushing  forward  into  the  career 
which  opens  itself  before  them,  unless  as  lenders  of  money.  In  their 
turn,  and  as  we  have  seen  it  at  each  great  crisis  of  economic  history, 
they  retire  from  business  and  transform  themselves  into  an  aristocracy. 
Of  the  powerful  houses  which  are  established  on  all  hands  and  which 
give  the  impetus  to  the  modern  industries  of  metallurgy,  of  the 


THE  COMING  IN  OF  CAPITALISM  161 

spinning  and  weaving  of  wool,  linen,  and  cotton,  hardly  one  is  con- 
nected with  the  establishments  existing  before  the  end  of  the  eight- 
eenth century.  Once  again,  it  is  new  men,  enterprising  spirits,  and 
sturdy  characters  which  profit  by  the  circumstances.  At  most,  the 
old  capitalists,  transformed  into  landed  proprietors,  play  still  an 
active  role  in  the  exploitation  of  the  mines,  because  of  the  necessary 
dependence  of  that  industry  upon  the  possessors  of  the  soil,  but  it 
can  be  safely  affirmed  that  those  who  have  presided  over  the  gigantic 
progress  of  international  economy,  of  the  exuberant  activity  which 
now  affects  the  whole  world,  were,  as  at  the  time  of  the  Renaissance, 
parvenus,  self-made  men.  As  at  the  time  of  the  Renaissance,  again, 
their  belief  is  in  individualism  and  liberalism  alone.  Breaking  with 
the  traditions  of  the  old  regime,  they  take  for  their  motto,  "laissez 
faire,  laissez  passer."  They  carry  the  consequences  of  the  principle 
to  an  extreme.  Unrestrained  competition  sets  them  to  struggling 
with  each  other  and  soon  arouses  resistance  in  the  form  of  socialism, 
among  the  proletariat  which  they  are  exploiting.  And  at  the  same 
time  that  that  resistance  arises  to  confront  capital,  the  latter,  itself 
suffering  from  the  abuses  of  that  freedom  which  had  enabled  it  to 
.rise,  compels  itself  to  discipline  its  affairs.  Cartels,  trusts,  syndicates 
of  producers,  are  organized,  while  states,  perceiving  that  it  is  impos- 
sible to  leave  employers  and  employees  longer  to  contend  in  anarchy, 
elaborate  a  social  legislation;  and  international  regulations,  transcend- 
ing the  frontiers  of  the  various  countries,  begin  to  be  applied  to 
working  men.  ,  ■•         . 

I  am  aware  how  incomplete  is  this  rapid  sketch  of  the  evolution 
of  capitalism  through  a  thousand  years  of  history.  I  present  it 
merely  as  an  hypothesis  resting  on  the  very  imperfect  knowledge 
which  we  yet  possess  of  the  different  movements  of  economic 
development. 

Note. — Mr.  Hobson  in  his  Evolution  of  Modem  Capitalism 
presents  the  evolution  of  capitalism  in  somewhat  different  terms  but 
to  much  the  same  general  purpose.  As  Hobson  sees  the  matter  the 
conditions  of  the  intervention  of  capitalism  may  be  summed  up  thus: 

Ii.  The  existence  of  considerable  masses  of  accumulated  wealth. — 
There  was  little  opportunity  in  the  Middle  Ages  for  the  craftsman  to 
make  more  than  a  living  out  of  his  work.    The  early  accumulations  of 
lth  must,  therefore,  have  come  from  land  rents  or  from  treasure 
ve  acquired  through  pillage  or  the  discovery  of  mines.    This  was 


162  INDUSTRIAL  SOCIETY 

a  necessary  forerunner  even  of  the  colonial  trade,  which  later  became 
one  of  the  most  fertile  sources  of  profit. 

2.  The  transfer  of  control  of  this  wealth  into  the  hands  of  a  class  of 
"business  men." — Originally  surplus  funds  from  whatever  sources 
went  to  the  church,  the  knightly  orders,  the  nobles  or  to  city  funds. 
With  the  growth  of  the  towns  many  of  the  nobles  went  there  to  live, 
bought  city  land,  and  often  took  up  city  occupations.  To  a  greater 
extent  the  change  came  through  the  gradual  transfer  of  control  of 
both  public,  church  and  private  property  to  the  hired  managers  of 
various  ranks  such  as  rent-collectors  and  stewards,  or  to  the  public 
officials  who  were  the  agents  of  the  city  funds  and  estates.  Another 
frequent  source  of  change  of  control  and  even  of  ownership  was  the 
prosperous  business  of  money-lending  of  the  time. 

3.  The  use  of  the  accumulated  wealth  to  exploit  a  large,  non- 
landowning  labor  class. — This  possibility  was  found  first  in  the  colo- 
nial trade  where  the  native  labor  on  the  natural  resources  was  found 
to  be  an  even  greater  source  of  profit  than  the  discovery  of  the 
precious  metals.  Later  the  growth  of  population  and  the  change  of 
conditions  of  agriculture  in  Europe  produced  such  a  labor  class  there 
also. 

4.  The  development  of  the  industrial  arts. — The  conservatism  of 
vested  interests  in  the  gild  organizations  of  the  mediaeval  city  did 
not  conduce  to  any  changes  in  industrial  methods.  Moreover,  there 
was  so  small  a  market  for  any  goods  that  labor-saving  devices  could 
not  have  seemed  necessary.  This  may  partly  have  accounted  for  the 
concentration  of  attention  by  the  "science"  of  the  time  upon  such 
problems  as  alchemy.  At  any  rate  there  was  no  scientific  foundation 
for  the  growth  then  of  a  technology  such  as  developed  later. 

5.  The  growth  of  the  capitalistic  spirit. — Potential  entrepreneurs 
of  early  days  had  little  chance  to  develop  their  abilities  or  even  to 
discover  them.  The  class  which  could  afford  an  education  and  could 
command  capital,  regarded  all  industrial  occupations  as  degrading. 
The  growth  of  a  class  of  business  men,  mainly  from  the  lower  orders, 
the  discovery  and  use  of  account-keeping,  land  surveying,  and  th( 
adoption  of  modern  forms  of  contract  and  use  of  weights  and  measures, 
brought  about  that  change  of  spirit  from  interest  in  treasure  hunting 
to  interest  in  profit  making  which  Sombart  calls  a  change  to  "  economic 
rationalism." 


THE  COMING  IN  OF  CAPITALISM  163 

64.    HINDRANCES  TO  THE  DEVELOPMENT  OF  CAPITALISM1 

So  far  as  town  life  is  concerned,  we  cannot  go  back  to  any  period 
when  money  economy  was  not  dominant,  and  we  find  signs  of  capital- 
ism and  its  influence  in  the  cities  from  very  early  times.  Merchants 
who  carried  on  active  trade  appear  to  have  been  provided  with  ready 
money  for  their  transactions.  Though  a  great  part  of  the  industrial 
population  consisted  of  independent  workmen  organised  in  craft 
gilds,  the  principal  companies  of  many  towns  in  the  fourteenth 
century  were  composed  of  capitalists;  both  in  Strassburg  and  in 
Florence  the  manufacture  of  cloth  was  organised  on  capitalist  lines 
by  great  captains  of  industry  in  the  fourteenth  century.  Even  in 
the  most  advanced  towns,  however,  there  were  considerable  hin- 
drances which  interfered  with  the  free  play  of  capitalist  enterprise; 
each  merchant  was  restricted  to  one  special  trade,  and  was  prevented 
from  encroaching  on  the  callings  of  his  fellow- townsmen ;  there  was 
little  opportunity  for  the  transference  of  capital  from  one  employ- 
ment to  another.  Most  of  the  industrial  arts,  too,  were  organised 
with  regard  to  the  requirements  of  the  city  market  by  small  inde- 
pendent masters,  who  each  hoped  to  get  a  fair  share  of  existing  trade 
rather  than  to  extend  it;  the  regulations  of  their  craft  gilds  were  not 
favourable  to  the  formation  or  application  of  capital.  Similar 
obstacles  existed  in  the  rural  districts,  though  they  were  gradually 
breaking  down  on  all  sides,  so  that  there  were  steadily  increasing 
opportunities  for  the  investment  of  capital  during  the  fourteenth 
and  fifteenth  centuries. 

Powerful  as  capital  is,  and  great  as  are  the  advantages  which  it 
has  to  offer,  the  conditions  of  life  in  the  fourteenth  and  fifteenth 
centuries  were  so  unfavourable  to  it  as  to  delay  its  introduction  and 
to  check  its  operations.  The  whole  social  system  stood  in  its  way; 
for  the  organisation  of  much  of  the  labour  of  the  towns  was  so 
rigid  as  to  admit  of  little  modification,  while  in  the  rural  districts 
the  survival  of  villenage  presented  still  greater  obstacles  to  the 
enterprise  of  moneyed  men.  Astriction  to  one  place  is  perfectly 
congruent  with  natural  economy;  the  mediaeval  landowner  was 
satisfied  to  employ,  as  best  he  could,  the  labour  which  he  found  avail- 
able, and  was  able  to  retain  it  under  his  control.  With  the  capitalist 
the  case  is  different;  he  possesses  wealth  which  he  can  direct  to  any 
profitable  undertaking  that  opens  up,  and  he  has  the  means  of 

1  Adapted  by  permission  from  W.  Cunningham,  Western  Civilization,  II, 
164-66.     (The  Cambridge  University  Press,  1913.) 


164  INDUSTRIAL  SOCIETY 

compelling  or  attracting  labour  to  follow  in  the  direction  where  his 
enterprise  sees  the  probability  of  reward.  So  long  as  slavery  was  in 
vogue,  the  transference  of  labour  could  be  effected  in  the  most  ruthless 
fashion  by  the  purchase  and  export  of  slaves;  but  this  was  no  longer 
possible  at  the  epoch  when  capital  began  to  take  part  in  the  industrial 
development  of  mediaeval  Europe;  slavery  had  ceased  to  exist; 
labour  tended  to  follow  capital  because  it  was  attracted,  not  because 
it  was  forced. 

65.    THE  CAPITALISTIC  SPIRIT1 

It  would  be  childish  to  imagine  that  the  greed  of  gold  and  the  love 
of  money  had  so  direct  and  immediate  an  influence  on  economic  life 
that  the  capitalist  spirit  and  capitalist  enterprise  came  into  being 
almost  at  once.  The  genesis  of  modern  capitalism  cannot  be  traced, 
so  speedily.     It  took  time. 

In  certain  methods  of  acquiring  riches  we  shall  find  the  seeds  of 
capitalist  enterprise.  For  the  sake  of  clearness  we  shall  arrange 
them-  under  four  heads,  according  as  (1)  force  was  the  dominant 
factor  in  them,  or  (2)  magic,  or  (3)  scheming  and  invention,  or 
(4)  money. 

1.  Acquisition  by  force. — I  am  not  here  thinking  of  all  manner  of 
unlawful  pressure  exercised  by  the  authorities  for  the  purpose  of 
obtaining  taxes  and  dues,  but  rather  of  highway  robbery,  a  form 
of  economic  activity  much  beloved  and  practiced  for  centuries  by 
knights  and  barons  everywhere.  This  was  no  mere  occasional  adven- 
ture on  the  part  of  the  gentry  in  the  Middle  Ages  and  beyond,  but  a 
social  institution. 

2.  Acquisition  by  magic. — Very  different  was  the  utilization  of 
magic  for  the  attainment  of  riches.  Belief  in  spirits  and  demons 
was  necessary,  and  faith  in  the  possibility  of  getting  into  touch  with 
them,  of  making  them  subservient  to  the  desires  of  man.  A  vivid 
imagination,  which  but  too  often  was  the  child  of  a  mind  diseased, 
soon  discovered  propitious  times  and  places,  for  this  superhuman 
intercourse.  Men  wanted  gold,  and  two  ways  were  possible  for  its 
attainment:  they  had  either  to  find  it  or  to  make  it.  So  we  must 
deal  in  turn  with  searches  for  treasure-trove  and  with  alchemy. 

Gold-digging  may  be  good,  but  gold-making  is  surely  better. 
To  this  end  men  gave  themselves  up  to  the  magic  arts  and  practiced 

1  Adapted  by  permission  from  Werner  Sombart,  The  Quintessence  0]  Capitalism, 
pp.  34-66.     (E.  P.  Dutton  &  Co.,  1915.) 


THE  COMING  IN  OF  CAPITALISM  165 

alchemy,  not  as  a  common  everyday  affair,  but  as  a  species  of  divine 
service,  over  which  hung  a  cloud  of  mystery. 

3.  Acquisition  by  scheming  and  invention. — In  a  study  of  mine  on 
the  part  played  by  technical  knowledge  in  the  early  capitalist  age 
I  showed  how  the  period  of  the  Renaissance  abounded  in  inventive 
geniuses,  how,  in  consequence,  there  was  a  shower  of  technical  inven- 
tions in  those  days,  to  which  all  classes  contributed.  But  the  sphere 
of  technical  science  was  not  the  only  one  affected  by  the  flights  of 
human  imagination;  pretty  well  all  activities  were  influenced,  and 
in  some  cases  reforms  were  suggested,  notably  in  public  finance. 
Here,  however,  these  things  do  not  specially  concern  us.  What  we 
have  to  note  is  the  fact  that,  for  centuries,  there  were  scores  of  people 
whose  calling  it  was  to  live  by  their  wits.  Scheming,  as  we  may  term 
it,  became  a  business;  the  man  with  ideas  was  ready  to  sell  them  to 
whomsoever  chose  to  pay  his  price.  These  professional  gentry  set 
about  winning  the  interest  of  princes  and  nobles  and  the  wealthy 
generally  in  their  schemes  and  projects. 

What  was  the  position  of  these  schemers  and  projectors  in  the 
genesis  of  the  capitalist  spirit  ?  It  is  not  difficult  to  see.  Were  they 
not  the  ancestors  of  men  like  Law,  Pereire,  Lesseps,  Strousberg, 
Saccard,  and  a  host  of  lesser  company-promoters  who  are  so  prominent 
in  these  days  ?  What  the  projectors  lacked  was  a  definite  sphere  of 
activity.  They  were  not  yet  undertakers;  they  stood  without;  they 
were  not  in  business.  But  theirs  were  the  ideas  that  were  to  generate 
capitalism,  a  consummation  which  came  about  so  soon  as  the  ideas 
were  united  with  enterprise. 

4.  Acquisition  by  money. — The  mere  possession  of  money  placed 
its  owner  in  an  advantageous  position.  No  need  of  robbery  for  him, 
nor  yet  recourse  to  magic.  With  the  aid  of  money  he  could  get  more, 
in  various  ways.  If  he  were  of  a  cold,  calculating  nature,  there  was 
money-lending;  and  if  he  were  hot-blooded  and  careless,  there  were 
games  of  chance.  In  any  event,  he  had  no  occasion  to  associate  him- 
self with  others  for  common  action;  he  could  sit  at  home  in  cloistered 
ease,  the  sole  pilot  of  his  fortune. 

The  role  of  money-lending  in  moulding  the  capitalist  spirit 
was  a  double  one.  In  the  first  place,  it  produced  in  the  minds 
of  those  who  engaged  in  it  professionally  certain  special  tend- 
encies of  great  importance  in  the  growth  of  the  capitalist  spirit; 
and,  secondly,  it  was  one  of  the  starting-points  of  capitalist 
terprise. 


1 66  INDUSTRIAL  SOCIETY 

And  how  shall  we  describe  the  spirit  of  enterprise?  It  is  the 
resultant  of  the  combination  of  all  the  qualities  of  the  soul  necessary 
for  the  successful  consummation  of  an  undertaking.  These  qualities 
may  be  divided,  on  the  one  hand,  according  to  the  different  functions 
an  undertaker  has  to  carry  out;  and  on  the  other,  according  to  their 
importance,  which  varies  with  the  varying  work  of  the  undertaker. 
But  in  every  case  the  successful  undertaker  must  be  a  trinity  composed 
of  (i)  conqueror,  (2)  organizer,  and  (3)  trader. 

66.    CALCULATION  AND  CAPITALISM1 

A  great  part  of  capitalist  economy  is  taken  up  with  the  making 
of  contracts  and  agreements  concerning  commodities  and  services 
that  have  a  money  value  (as  the  purchase  of  the  means  of  production, 
the  sale  of  the  finished  products,  the  engaging  of  labor,  and  so  forth). 
Moreover,  the  beginning  and  the  end  of  capitalist  economic  activities 
is  a  sum  of  money.  Consequently,  calculation  forms  an  important 
element  in  the  capitalist  spirit,  and  this  was  recognized  quite  early 
in  the  history  of  capitalism.  By  calculation  I  mean  the  tendency, 
the  habit,  perhaps  more — the  capacity  to  think  of  the  universe  in 
terms  of  figures,  and  to  transform  these  figures  into  a  well-knit  system 
of  income  and  expenditure.  The  figures,  I  need  hardly  add,  always 
express  a  value,  and  the  whole  system  is  intended  to  demonstrate 
whether  a  plus  or  a  minus  is  the  resultant,  thus  showing  whether  the 
undertaking  is  likely  to  bring  profit  or  loss. 

The  mechanism  of  calculation  rests  on  two  branches  of  study, 
commercial  arithmetic  and  bookkeeping. 

The  cradle  of  commercial  arithmetic  was  in  Italy;  or,  to  be  more 
precise,  in  Florence.  The  appearance  of  Leonardo  Pisano's  Liber 
Abbaci,  in  1202,  laid  the  foundations  of  correct  calculation.  But 
the  foundations  only,  for  the  true  art  of  calculating  was  learned  but 
slowly.  It  was  not  until  the  thirteenth  century  that  the  Arabic 
numerals  became  acclimatized  in  Italy,  and  everyone  can  see  how 
without  them  quick  and  exact  calculation  would  be  well-nigh  impos- 
sible. Yet  as  late  as  1299  the  use  of  Arabic  numerals  was  forbidden 
the  brethren  of  the  Calimala  gild.  But  from  the  fourteenth  century 
in  Italy,  and  from  the  fifteenth  and  sixteenth  in  northern  lands,  the 
art  of  reckoning  made  swift  progress.     Calculations  with  figures 

1  Adapted  by  permission  from  Werner  Sombart,  The  Quintessence  of  Capitalism, 
pp.  125-29.     (E.  P.  Dutton  &  Co.,  1915O 


THE  COMING  IN  OF  CAPITALISM  167 

supplanted  the  unwieldy  method  of  calculating  by  tallies.  Long 
before  Tartaglia,  the  mathematical  genius  of  the  sixteenth  century, 
who  perfected  the  art  of  commercial  arithmetic,  a  new  kind  of  "  total" 
calculation  in  respect  of  goods  had  become  popular  among  Italian 
tradesmen.  It  was  spoken  of  as  the  "welsh"  (foreign)  practice,  and, 
indeed,  its  origin  was  in  France  and  Germany,  whence  it  had  been 
brought  to  Italy  at  the  beginning  of  the  sixteenth  century.  Its  first 
German  exponent  was  Heinrich  Grammateus,  who  set  it  forth  in  his 
Arithmetic  (15 18).  In  the  fifteenth  century  the  decimal  fractions 
were  "discovered,"  and  from  1585  they  became  more  and  more  gen- 
erally used  through  the  influence  of  Simon  Stevin.  Furthermore, 
161 5  is  the  birth-year  of  the  reckoning  machine. 

As  books  on  arithmetic  came  to  be  increasingly  printed,  com- 
mercial arithmetic  was  gradually  simplified.  Then  the  arithmetic 
schools,  which  had  been  growing  up  since  the  fourteenth  century, 
more  especially  in  trading  cities,  helped  to  spread  the  knowledge  far 
and  wide.  In  the  fourteenth  century  Florence  (Florence  again!) 
had  six  such  schools,  which,  as  Villani  informs  us,  were  regularly 
attended  by  1,200  boys,  who  were  taught  "the  abacus  and  the 
elements  of  commercial  arithmetic."  Liibeck  was  the  first  town  in 
Germany  to  have  schools  of  this  kind;  in  Hamburg  the  need  for  them 
arose  about  the  year  1400. 

The  beginnings  of  well-ordered  bookkeeping  stretch  back  into 
the  thirteenth  century.  The  accounts  of  Pope  Nicholas  III,  of  the 
year  1279-80,  and  the  expenditure  book  of  the  city  of  Florence,  of  the 
year  1303,  alike  bear  witness  to  the  fact  that  simple  bookkeeping 
was  practically  perfected  at  that  time.  Nor  was  double  entry  of  a 
much  later  date.  It  is  doubtful  whether  it  was  being  applied  in  the 
thirteenth  century,  but  the  researches  of  Cornelio  Desimonis  have 
proved  that,  anyhow  in  the  year  1340,  the  government  of  the  city 
of  Genoa  kept  its  books  on  a  system  of  partita  doppia,  the  perfec- 
tion of  which  was  so  complete  as  to  lead  to  the  conclusion  that  it 
must  have  been  pretty  well  established  for  a  long  time.  Evidence  of 
its  use  in  the  fifteenth  century,  both  for  private  and  public  accounts, 
we  possess  in  plenty.  The  completest  and  most  instructive  instance 
is  the  extant  ledgers  of  Soranzo  Brothers,  of  Venice  (1406).  The 
first  theoretic  treatise  on  double  entry  was  that  of  Fra  Luca  Paciuoli, 
in  the  ninth  section  of  the  first  part  of  his  Summa  arithmetica. 

Italy  was  first  in  the  field  as  the  land  where  commercial  arithmetic 
was  in  vogue.     Its  place  was  taken  by  Holland  in  the  succeeding 


1 68  INDUSTRIAL  SOCIETY 

centuries.  England  caught  up  the  Netherlands  in  so  far  as  this  matter 
was  concerned,  and  at  the  beginning  of  the  nineteenth  century  German 
tradesmen  pointed  to  England  and  Holland  as  the  lands  which  had 
an  advanced  commercial  education.  In  Germany  itself  Hamburg  was 
pre-eminent  in  this  respect. 

67.    THE  STATE  AND  CAPITALISM1 

[Note. — The  author's  statement  of  the  ways  in  which  the  state 
hindered  capitalism  may  be  summarized  as  follows:  (1)  by  taxes  so 
heavy  as  seriously  to  reduce  profits;  (2)  by  mistaken  commercial  and 
industrial  policies;  (3)  by  attracting  to  itself  large  sums  of  capital 
for  use  especially  in  warlike  undertakings.  Money  invested  in 
profitable  public  loans  was  thereby  withdrawn  from  enterprise;  (4) 
by  the  traffic  in  public  offices,  whereby  many  became  rich  without 
need  of  further  exertion;  (5)  by  its  attitude  of  favoritism  toward 
the  nobility,  who  had  no  interest  in  commerce.] 

When  all  is  said,  the  advantages  that  the  capitalist  spirit  enjoyed 
at  the  hands  of  the  state  in  all  manner  of  ways  more  than  compen- 
sated for  these  obstacles. 

In  the  first  place,  the  state  wished  to  help  capitalism  forward, 
and  so  adopted  a  number  of  regulations  in  its  favor.  Indeed,  as  we 
already  know,  the  state  was  itself  one  of  the  earliest  of  capitalist 
undertakers  and  invariably  continued  to  be  one  of  the  largest.  In 
this  way  it  set  an  example  to  private  enterprise;  it  showed  the  way  in 
all  matters  of  capitalist  organization,  and  it  was  educative  in  ques- 
tions of  commercial  morality.  By  itself  engaging  in  business  the 
state  removed  the  prejudice  against  "low  callings"  which  prevailed 
in  the  precapitalist  era ;  it  raised  the  artes  sordidae  to  the  position  of 
being  activities  fit  fpr  gentlemen. 

But  greater  still  was  the  indirect  influence  of  the  state,  chiefly 
because  of  its  particular  economic  policy.  Let  it  not  be  forgotten 
that  capitalist  interests  in  the  era  of  early  capitalism  were  favored 
tremendously  by  the  mercantile  system.  In  accordance  with  the 
doctrines  of  mercantilism  the  state,  as  it  were,  almost  led  the  private 
citizen  by  the  hand  in  order  to  direct  his  activities  into  the  channels 
of  capitalist  undertaking.  It  pushed  him  into  capitalism;  it  heh 
out  good  reasons  for  his  remaining  there. 

1  Adapted  by  permission  from  Werner  Sombart,  The  Quintessence  of  Capitalist 
pp.  278-88.     (E.  P.  Dutton  &  Co.,  1915.) 


THE  COMING  IN  OF  CAPITALISM  169 

As  for  England,  behind  ever  so  many  undertakings  in  the  sixteenth 
and  seventeenth  centuries  we  see  the  monarch  as  the  direct  moving 
force,  for  he  was  financially  interested  in  them.  The  Drakes  and  the 
Raleighs  were  urged,  in  long  interviews,  to  set  out  on  new  expeditions. 
The  idea  that  Raleigh  should  sail  to  Guiana  emanated  from  the 
impecunious  James  I,  and  in  the  reign  of  his  successor  we  find  the 
king's  agents  up  and  down  the  country  making  profitable  contracts 
with  industrial  undertakers. 

Nor  must  we  leave  unmentioned  the  system  of  privileges  by  which 
the  mercantile  state  favored  such  capitalist  interest  as  already  existed, 
nursed  those  that  were  about  to  take  root,  and  planted  new  ones. 
The  real  meaning  of  these  state  privileges  (using  the  word  in  its  widest 
connotation)  is  best  brought  out  in  a  letter  of  Henry  II  of  France, 
dated  June  13,  1558,  in  which  he  expresses  the  hope  that  his  privileges 
and  benevolence  may  act  as  a  spur  to  honest  and  industrious  handi- 
craftsmen to  undertake  profitable  enterprises.  In  every  case  the 
underlying  idea  was  the  same — to  stir  up  the  spirit  of  enterprise  by 
the  inducement  of  material  or  other  advantages.  The  privileges 
took  different  forms.  Sometimes  they  were  monopolies,  negative 
privileges  as  it  were,  in  that  a  monopoly  for  producing  a  particular 
article  was  granted,  or  a  monopoly  of  trade,  or  again  a  monoply  in 
the  means  of  communication.  Sometimes  they  meted  out  special 
commercial  advantages  to  their  holders;  sometimes,  too,  they  were 
direct  bounties. 

Similarly,  by  the  break-up  of  the  mercantile  system  and  the 
introduction  of  economic  liberty  in  the  nineteenth  century,  the  state 
also  cultivated  the  spirit  of  enterprise — to  a  limited  extent,  it  is  true, 
seeing  that  it  already  flourished  at  the  time.  More  effective  in  the 
impetus  it  gave  to  the  capitalist  spirit  was  the  stress  laid  .on  education 
in  all  its  branches.  We  have  already  observed  how  the  establish- 
ment of  educational  institutions  was  to  be  regarded  as  a  sign  that  the 
capitalist  spirit  in  one  form  or  another  was  in  existence;  here  it  is  our 
business  to  lay  stress  on  their  importance  as  a  nursery  of  that  spirit. 

Some  branches  of  state  activity  influenced  the  growth  of  the 
capitalist  spirit  in  a  special  degree.  The  first  and  foremost  of  these 
was  the  army.  What  was  its  significance  ?  Specialization  had  set  in, 
and  the  demand  was  no  longer  for  a  complete  man,  struggling  for  his 
existence,  no  longer  for  a  man  who  possessed  both  military  and  eco- 
nomic capacities,  but  only  for  half  a  man — that  is  to  say,  for  one  who 
voted  himself  to  military  or  to  economic  affairs.    The  result  of 


de^ 


1 70  INDUSTRIAL  SOCIETY 

such  differentiation  was  obvious.  Those  virtues  which  we  have 
termed  "  middle-class  "  had  a  better  chance  of  growth,  and  the  trading 
spirit,  freed  from  an  admixture  of  military  elements,  was  able  to 
develop  apace.  The  growth  of  modern  armies  has  brought  two  forces 
to  the  fore — discipline  on  the  one  hand,  and  organizing  talent  on  the 
other.  The  influence  of  standing  armies  on  the  capitalist  spirit,  so 
far  as  these  two  forces  are  concerned,  is  plain  enough. 

Next  in  importance  to  the  military  factor  we  must  consider  the 
finances  of  the  state  in  their  influence  on  the  growth  of  capitalism. 
Once  more  the  Jews  are  the  pivot.  The  princes  of  modern  times  were 
wise  enough  to  utilize  for  their  needs  the  services  of  Jewish  financiers. 
The  financial  system  of  states  was  not  without  effects  in  other  direc- 
tions too.  In  its  earlier  stages  its  very  forms  contributed  something 
to  the  growth  of  capitalism.  We  have  it  on  record  that  the  financial 
methods  of  the  Italian  republics  are,  in  many  respects,  quite  modern. 
In  short,  public  finance  furnished  the  first  instance  of  "applied  house- 
keeping" on  a  large  scale,  just  as  the  modern  state  was  the  first  great 
"undertaking."  In  both,  therefore,  capitalist  ideas  must  have  found 
a  model. 

As  for  the  public  debts,  we  have  in  them  the  first  instance  of  con- 
tracts on  a  large  scale  which  affected  larger  groups  than  the  clan  or 
the  social  class,  and  which  therefore  looked  to  other  moral  forces  for 
their  recognition  than  were  to  be  found  in  primitive  communities. 
"Social"  sanctions  had  to  be  created;  all  those  forces  on  which 
capitalist  intercourse  rests — commercial  morality,  confidence  and 
credit,  acceptances  in  advance  over  a  long  period  of  time  with  the 
intention  of  honoring  them.  Nowhere  did  these  forces  show  them- 
selves so  early,  nowhere  was  there  as  much  opportunity  for  their 
exercise  as  in  the  arrangements  for  the  public  debts  of  rising  states 
and  cities.  But  the  public  indebtedness  had  other  influences  also  on 
the  capitalist  spirit.  Speculation  was  early  associated  with  it;  we 
need  only  recall  the  South  Sea  Bubble  in  England  or  the  John  Law 
fiasco  in  France.  These  may  have  been  swindles;  nevertheless  they 
were  not  without  lessons  for  joint-stock  enterprise  in  later  times;  and 
both  would  have  been  inconceivable  without  the  peculiar  and  exten- 
sive growth  of  national  debts. 

Side  by  side  with  the  army  and  the  finances  of  the  state  we  must 
place  as  the  third  great  factor  the  state's  ecclesiastical  policy.  I  refer 
to  the  creation  by  the  state,  chiefly  through  the  institution  of  a 
national  church,  of  the  conception  of  the  heretic  or  non-conformi 


THE  COMING  IN  OF  CAPITALISM  171 

as  a  social  or  political  category.  This  sort  of  heresy,  quite  apart  from 
its  particular  tenets,  must  be  looked  upon  as  an  abundant  wellspring 
of  capitalism.  The  reason  is  clear:  it  brought  economic  interests  to 
the  fore  and  gave  commercial  ability  a  special  chance.  Is  it  not 
obvious  that  the  dissenters,  excluded  as  they  were  from  public  life, 
could  not  but  throw  all  their  energies  into  economic  activities  ?  Only 
from  this  source  could  they  hope  to  derive  the  means  for  winning  for 
themselves  respected  positions  in  the  body  politic.  On  the  other 
hand,  it  followed  from  their  peculiar  position  as  dissenters  that  their 
economic  activities  were  hampered  by  all  manner  of  difficulties. 
Hence  there  was  a  tendency  for  their  economic  capacities  to  be  highly 
developed.  For  they  could  hope  for  commercial  success  only  from 
the  most  scrupulous  conscientiousness,  the  most  careful  calculations, 
and  the  utmost  endeavors  to  meet  the  needs  of  their  customers. 


68.     CONSEQUENCES   OF  THE   INTERVENTION  OF   CAPITAL1 

It  would  be  hopeless  to  try  to  treat  the  intervention  of  capital  as 
an  event  which  happened  at  a  particular  epoch,  or  a  stride  which  was 
taken  within  a  given  period.  It  is  a  tendency  which  has  been  spread- 
ing with  more  or  less  rapidity  for  centuries,  first  in  one  trade  and  then 
in  another,  in  progressive  countries.  We  cannot  date  such  a  trans- 
formation even  in  one  land;  for  though  we  find  traces  of  capitalism  so 
soon  as  natural  economy  was  ceasing  to  be  dominant  in  any  depart- 
ment of  English  life,  its  influence  in  reorganising  the  staple  industry 
of  this  country  was  still  being  strenuously  opposed  at  the  beginning 
of  the  present  century.  The  revolution — for  this  has  been  a  real 
revolution — which  came  about  so  gradually  in  our  own  island  has 
run  a  different  course  in  other  lands;  there  has  been  no  regular  series 
of  steps  in  the  march  of  capitalistic  progress.  The  intervention  of 
capital  eventually  brought  about  an  entire  reconstruction  of  the  social 
system  of  Western  Europe. 

The  military  system  in  the  early  Middle  Ages  was  organised  on 
feudal  lines.  Each  political  magnate  maintained  his  own  troops  and 
was  responsible  for  bringing  them  into  the  field  properly  equipped 
and  provisioned.  The  commissariat  was  irregular  or  non-existent, 
and  it  might  be  hardly  possible  to  retain  an  army  in  the  field,  or  to 
continue  siege  operations  at  the  critical  moment  in  a  campaign. 

t1  Adapted  by  permission   from  W.   Cunningham,   Western  Civilization,  II, 
2-82.     (The  Cambridge  University  Press,  1913.) 
■ 


172  INDUSTRIAL  SOCIETY 

The  slightness  of  the  political  ties  between  the  feudatories  and  the 
Crown  rendered  it  difficult  to  get  soldiers  together,  and  they  were 
likely  to  disband  so  soon  as  the  specified  time  for  which  they  were 
bound  to  serve  had  elapsed.  Military  operations  carried  on  under 
such  conditions  were  not  only  very  ineffective  but  also  extraordi- 
narily expensive.  The  withdrawal  of  the  industrial  population  and  the 
yeomen  from  their  work  must  have  been  a  serious  interruption  to  the 
ordinary  processes  of  production,  while  the  undisciplined  hosts  were 
only  too  likely  to  provide  for  their  necessities  by  plundering  the 
country  in  which  they  were  quartered  or  through  which  they  passed. 
The  intervention  of  capitalists,  who  provided  the  means  of  hiring 
mercenary  troops,  and  later  of  forming  disciplined  armies,  rendered 
a  better  military  organisation  possible  and  reduced  the  indirect  evils 
caused  by  war  so  as  to  make  it  far  less  costly.  In  so  far  as  any  king 
became  possessed  of  money,  so  that  he  could  hire  mercenary  troops, 
he  had  a  more  efficient  fighting  instrument  at  command,  and  one  on 
which  he  could  rely  so  long  as  his  money  lasted.  The  Flemish,  and 
later  the  Swiss  mercenaries,  were  finer  troops  than  the  feudal  levies, 
for  they  were  habituated  to  constant  fighting;  not  only  were  they 
better  soldiers,  but  they  were  also  more  completely  under  control,  so 
that  the  strategy  of  a  campaign  had  a  greater  chance  of  being  carried 
out  as  planned.  These  were  military  advantages,  and  the  economi 
benefits  to  a  country  were  quite  as  great;  the  mercenaries  could  b 
paid  in  money  at  a  definite  and  known  date;  the  raising  of  a  feuda 
army  had  involved  the  disorganisation  of  ordinary  industrial  life  an 
an  indefinite  charge  on  the  resources  of  the  realm. 

The  benefits  which  accrued  from  the  intervention  of  capital  wer 
apparent,  not  only  during  the  conduct  of  a  campaign,  but  in  all  th 
preparations  that  might  be  necessary  for  a  war;  capitalists  rendere 
the  collection  of  revenue,  in  so  far  as  it  was  taken  in  money,  more 
" convenient "  and  less  "  expensive."    The  sale  of  offices,  ecclesiastica 
and  civil,  is  a  cumbrous  mode  of  obtaining  supplies;  the  payment  of  the 
large  sums  which  were  occasionally  demanded  as  feudal  aids  must  have 
been  oppressive.    The  voting  of  parliamentary  supplies  introducec 
comparative  "certainty"  into  the  system  of  taxation,  as  it  enable 
the  landowners  and  merchants  to  know  beforehand  what  they  woulc 
have  to  pay.    The  action  of  the  great  bankers  rendered  this  practice 
convenient,  not  only  to  the  taxpayers,  but  to  the  Crown.     Financiers 
were  ready  to  advance  money  on  the  security  of  supplies  that  were 
actually  voted,  and  thus  to  provide  the  Crown  with  the  use  of  large 


THE  COMING  IN  OF  CAPITALISM  173 

sums  at  short  notice,  and  long  before  it  would  have  been  possible  to 
collect  the  money. 

When  the  advantages  of  the  new  method  of  military  adminis- 
tration were  once  understood,  no  prince  could  afford  to  disregard 
them;  all  monarchs  were  compelled  to  rely  on  money  as  the  sinews  of 
war,  and  had  frequent  occasion  to  borrow  in  order  to  meet  the  exi- 
gencies of  a  campaign. 

As  the  rulers  of  Europe  ceased  to  be  primarily  dependent  on 
landed  estates  for  their  revenue,  some  interesting  constitutional 
changes  followed.  As  the  income  of  the  Crown  was  derived  from  the 
taxation  of  the  agricultural  and  industrial  classes,  it  was  essential 
that  the  people  as  well  as  the  prince  should  be  prosperous;  hence  the 
tendency  of  the  French  monarchy  to  the  paternal  regulation  of  indus- 
try with  the  view  of  rendering  the  country  rich.  In  England  the 
Crown's  necessities  continued  to  be  the  people's  opportunities,  and 
all  attempts  to  exercise  rule  in  disregard  of  the  popular  will  were 
destined  to  failure.  Not  merely  did  the  people  as  taxpayers  succeed 
in  enforcing  their  demands,  but  there  is  reason  to  believe  that  the 
intermediaries  who  negotiated  loans  were  also  able  to  exercise  con- 
siderable influence  from  time  to  time.  The  great  London  financiers 
and  other  royal  creditors  appear  to  have  aimed  at  directing  the  eco- 
nomic policy  of  the  realm  and  to  have  been  fairly  successful  in  forcing 
their  views  upon  the  Crown. 

The  financial  magnates  of  the  fifteenth  and  sixteenth  centuries 
carried  on  business  in  a  double  capacity,  as  they  not  only  engaged  in 
lending  money  to  the  Crown,  but  were  merchants  as  well.  Their 
practice  in  this  respect  was  of  great  importance,  for  it  rendered  their 
money-lending  legitimate  from  the  standpoint  of  the  canonists.  Men 
like  Jacques  Coeur  or  William  Canynges  or  the  Fuggers  and  Welsers 
would  not  let  their  money  lie  idle;  and  it  was  perfectly  true  that  in 
lending  it  to  the  king  they  were  depriving  themselves  of  the  oppor- 
tunity of  making  commercial  gain.  It  therefore  came  to  be  recog- 
nised that  a  lender  might  legitimately  charge  for  lucrum  cessans  or 
damnum  emergens;  and  no  serious  effort  could  be  made  to  prevent 
such  capitalists  from  entering  on  transactions  which  were  practically 
advancing  money  on  interest.  When  it  came  to  be  generally  assumed 
that  a  man  would  usually  get  some  gain  by  investing  his  money,  and 
was  therefore  entitled  to  be  compensated  for  merely  refraining  from 
using  it  himself,  the  old  prohibitions  ceased  to  apply  and  the  negotia- 
tion of  loans  came  to  be  an  everyday  feature  of  commercial  life.    As 


174  INDUSTRIAL  SOCIETY 

a  result  of  these  changes  in  opinion,  the  most  powerful  restrictions 
which  had  checked  the  fluidity  of  capital  were  broken  down;  in  the 
fifteenth  century  it  tad  become  possible  to  obtain  the  means  of 
developing  any  promising  undertaking. 

During  the  latter  part  of  the  fifteenth  century  many  favourable 
openings  at  home  and  abroad  were  beginning  to  offer  themselves  to 
enterprising  men;  the  exclusive  privileges  of  aliens  had  been  curtailed, 
and  the  active  trade  of  France  and  of  Holland,  of  Scandinavia  and 
England,  was  attracting  native  energy.  The  profits  on  successful 
ventures  were  large,  and  every  new  prospect  of  profit  constituted 
a  demand  for  capital.  And  the  supply  was  forthcoming;  hitherto 
prudent  persons  had  been  content  to  hoard  their  wealth;  so  soon  as 
they  were  persuaded  to  invest  it  in  economical  undertakings  for  the 
sake  of  gain  they  were  treating  it  as  capital.  The  best  opportunities, 
of  course,  lay  with  those  who  had  the  good  fortune  to  live  on  any  of 
the  lines  of  the  world's  trade. 

As  commercial  intercourse  revived  and  increased  during  the 
fourteenth  and  fifteenth  centuries,  it  tended  more  and  more  to  bring 
about  a  revolution  in  industrial  life.  Groups  of  small  masters,  each 
of  whom  was  working  on  his  own  account,  though  they  were  asso- 
ciated together  for  mutual  supervision,  were  neither  able  nor  willing 
to  adapt  themselves  to  new  conditions;  and  they  were  gradually 
superseded  in  the  more  important  callings  by  capitalists  who  employed 
large  numbers  of  journeymen.  One  craft  after  another  was  affected  by 
the  opportunities  which  the  expansion  of  trade  afforded,  and  artisans 
began,  under  the  direction  of  merchants,  to  manufacture,  not  merely 
with  reference  to  the  requirements  of  their  neighbours  and  the  demand 
in  the  city  market,  but  with  a  view  to  the  possibilities  of  sale  in  distant 
places.  Capitalist  merchants  were  required  as  intermediaries  to 
purchase  materials  or  to  sell  goods,  and  they  easily  slipped  into  the 
position  of  capitalist  employers  who  directed  their  workmen  and 
controlled  the  conditions  and  terms  of  labour. 


C.     Capitalism  and  the  Woolen  Industry 

[Note. — These  selections  on  some  aspects  of  the  coming  in  of 
capitalism  in  the  woolen  industry  should  be  read  with  the  purpose  of 
watching  the  emergence  of  such  "  capitalistic "  phenomena  as  (a) 
transfer  away  from  the  worker  of  control  of  his  conditions  of  work, 
such  as  hours  and  place;    (b)  shift  of  ownership  of  tools  from  worker 


i 


THE  COMING  IN  OF  CAPITALISM 


175 


to  employer;  (c)  shift  of  ownership  of  raw  material;  (d)  group  labor 
taking  the  place  of  work  performed  by  one  or  a  few  individuals; 
(e)  transfer  of  ownership  of  product  to  capitalist  and  consequent  loss 
of  control  by  worker  over  marketing  functions;  (/)  the  assumption 
by  the  entrepreneur  of  the  financial  risks  of  production;  (g)  the 
gradual  development  of  a  wage  system  and  a  laboring  class. 

69.    A  DIAGRAM  OF  STAGES  OF  DEVELOPMENT 

A  diagrammatic  presentation  of  stages  of  development  is  certain 
to  be  misleading  unless  much  caution  is  exercised  in  using  it.  In 
studying  the  following  diagram  the  student  should  keep  in  mind : 

1.  No  accurate  dates  can  be  assigned  for  the  emerging  of  any 
given  "stage."  This  "time  of  emergence"  varied  from  country  to 
country,  from  district  to  district,  and  from  industry  to  industry. 
Furthermore,  a  given  stage  does  not  suddenly  spring  into  being.  It 
has  been  preceded  by  a  long  period  of  preparation.  Who  can  say 
precisely  when  the  period  of  preparation  is  over  ? 

2.  It  is  seldom  true  that  one  stage  is  completely  supplanted  by 
another.  The  earlier  stage  tends  to  persist,  in  certain  localities  or 
industries,  through  all  the  later  stages.  For  example,  we  have  today 
survivals  of  household  economy  and  of  the  handicraft  regime. 


Point  of  View 
Taken 


System  of  pro- 
duction   


The  Stages  of  Development 


Household 
economy 


Handicraft 
economy 


Domestic 
system 


Factory 
system 


Extent    of 
market . . 


Little  or  none  Local 


Wide 


Very  wide 


Method  of  ex- 
change 


Barter  Money 


Credit 


Relation  of 
central  gov- 
ernment to 
industry. . . 


Little 


Mercantilism     Laissez-faire    Regulation 


Organization 
in  the  wool 
en  industry 


Household 


Gild      Draper      Clothier 


Factory 


See  also  n.     Four  Stages  in  the  History  of  Industry. 


176  INDUSTRIAL  SOCIETY 

70.    A  SKETCH  OF  THE  WOOLEN  INDUSTRY1 

We  have  already  seen  the  fundamental  importance  of  the  woollen 
industry  for  English  economic  development.  It  furnishes  the  explana- 
tion of  the  far-reaching  agricultural  changes  of  the  fifteenth  and  six- 
teenth centuries:  it  provided  the  commodity  with  which  England 
first  entered  actively  into  the  world's  commerce.  Its  significance 
can  hardly  be  overestimated.  It  was  the  first  of  the  great  manu- 
factures of  England;  it  created  a  basis  for  English  activity  and 
wealth  before  iron  and  cotton;  and  in  the  seventeenth  and  early 
eighteenth  centuries  it  accounted  for  more  than  two-thirds  of  our 
exports. 

1.  The  establishment  of  the  gild  system. — We  are  unable  to  trace 
the  existence  in  England  of  a  separate  craft  of  weavers  farther  back 
than  the  early  part  of  the  twelfth  century. 

In  London  at  this  date — and  the  same  was  probably  true  in  other 
large  towns — the  woollen  industry  was  divided  into  four  or  five 
branches,  the  weavers  and  burellers,  each  organized  in  a  gild,  the 
dyers  and  fullers  united  in  the  same  gild,  and  the  tailors  or  cis sores. 
But  they  were  very  conscious  that  they  had  interests  in  common, 
and  they  were  accustomed  to  act  together  in  matters  affecting  the 
whole  industry. 

During  the  twelfth  and  thirteenth  centuries  there  must  have  been 
a  very  rapid  increase  in  the  amount  of  cloth  manufactured  in  England. 
This  is  shown  among  the  evidence  by  the  increased  importation  of 
woad,  which  was  necessary  for  the  purpose  of  dyeing  blue  or  blue-black. 

[Note. — Details  concerning  the  gild  stage  of  development  are 
omitted.  The  student  should  recall  the  characteristics  of  the  gild 
economy  in  general  and  should  regard  those  characteristics  as  appli- 
cable to  the  woolen  industry. — Ed.] 

2.  The  first  immigration. — With  Edward  III  (1322-77)  begins 
the  policy  of  encouraging  the  settlement  within  the  kingdom  of 
foreign  clothmakers,  from  whom  English  weavers  and  dyers  could 
learn  the  arts  in  which  they  had  previously  been  wanting. 

The  increase  of  the  cloth  manufacture  in  England  had  two  great 
results:  (1)  an  increasing  differentiation  among  those  engaged  in  the 
industry,  a  splitting  up  into  separate  crafts,  sanctioned  and  main- 

1  Adapted  by  permission  from  W.  J.  Ashley,  The  Economic  Organization  of 
England,  p.  88  (Longmans,  Green,  &  Co.,  1914);  and  from  W.  J.  Ashley,  "The 
Early  History  of  the  English  Woollen  Industry,"  in  Publications  of  the  American 
Economic  Association,  Third  Series,  JI  (1887),  308-80, 


THE  COMING  IN  OF  CAPITALISM  177 

tained  by  the  public  authorities;  and  (2)  the  creation  of  a  class  of 
merchants  and  dealers  in  the  finished  article. 

3.  The  rise  of  a  trading  class. — Any  citizen  could  now  trade  in 
cloth  if  he  wished.  Still  it  was  not  until  the  second  half  of  the  four- 
teenth century  that  a  special  class  of  cloth  dealers  or  drapers  made 
its  appearance.  There  had  been  so  little  manufacture  for  any  save 
the  immediate  market — the  wants  of  the  town  and  neighborhood — 
that  if  men  dealt  in  cloth  at  all,  they  dealt  in  it  together  with  half  a 
dozen  other  commodities;  they  were  merchants,  and  not  dealers  in 
one  particular  article. 

We  are  so  accustomed  nowadays  to  the  appearance  of  a  new  branch 
of  commerce,  entered  upon  by  men  with  the  command  of  capital, 
which  they  are  ready  to  make  use  of  in  any  profitable  way  that  pre- 
sents itself,  that  the  rise  of  the  cloth  trade  may  not  seem  to  need 
explanation.  But  in  the  fourteenth  century  there  was  but  little  of 
what  may  be  termed  free  and  disengaged  capital,  ready  to  be  turned 
in  any  profitable  direction.  Hence  the  question'  arises,  in  what  way 
precisely  did  this  new  division  of  occupations  arise  ?  It  is  antecedently 
probable  that  trade  in  cloth  would  be  engaged  in  chiefly  by  men  who 
were  already  in  some  way  connected  with  the  industry,  and  of  these, 
there  were  two  groups  from  either  of  which  the  new  body  might  con- 
ceivably have  arisen — the  wool  dealers  and  the  cloth  finishers.  It 
does  not  appear  that  before  this  time  there  was  any  very  uniform 
system  of  relations  among  the  various  branches  of  the  cloth  industry. 
I  suppose  that  the  weaver  had  usually  been  the  most  independent; 
that  he  had  very  generally  bought  the  yarn  himself,  and  then,  after 
weaving  the  cloth,  had  paid  the  fuller  to  full  and  the  dyer  to  dye  it, 
and  had  sold  the  cloth  himself  to  the  person  who  intended  to  use  it. 
The  user  might  employ  it  in  its  rough  state,  or,  as  was  often  the  case, 
would  take  it  to  the  cloth  finisher,  the  pareur,  or,  as  he  is  called  later, 
the  tons  or  or  shearer,  who  sheared  off  the  nap  at  so  much  the  piece. 
But  the  weaver  did  not  always  occupy  this  economically  superior 
position;  sometimes  he  received  yarn  from  a  customer  or  employer, 
and  gave  back  cloth,  receiving  so  much  per  piece  as  remuneration; 
sometimes  again  the  fuller  bought  the  cloth  from  the  weaver,  or  paid 
the  weaver  for  working  up  yarn  into  cloth,  and  himself  sold  it  to  the 
public.  Any  of  these  branches,  therefore,  might  have  become  the 
dominant  one.  But  the  two  mentioned,  the  wool  dealers  and  cloth 
finishers,  had  obvious  advantages.  On  the  one  hand,  the  wool 
dealer,  whether  he  merely  bought  the  raw  wool  and  sold  it  to  those 


178  INDUSTRIAL  SOCIETY 

who  would  make  it  into  yarn,  or  whether  he  himself  paid  for  it  being 
beaten  and  spun,  and  then  sold  it  to  the  weaver,  was  already  a  mer- 
chant with  some  command  of  capital,  and  accustomed  to  commercial 
dealings.  English  dealers  in  wool  and  other  staple  commodities 
were  at  this  time  becoming  an  important  and  influential  body,  and 
were  beginning  to  contest  with  the  Teutonic  Hanse  its  monopoly  of 
export  from  England. 

The  other  theory,  that  it  was  the  cloth  finishers  who  first  ventured 
upon  trade,  has  also  antecedent  probability  in  its  favor.  For  it  was 
through  their  hands  that  the  cloth  last  passed;  instead  of  waiting  for  a 
customer  to  bring  a  piece  of  cloth  to  be  shorn  or  finished,  they  might 
see  the  advantages  to  be  got  by  buying  the  cloth  from  the  weaver 
and  finishing  it  ready  for  the  customer.  As  the  demand  increased, 
they  would  need  larger  stocks,  and  some  of  them  would  probably  soon 
give  themselves  up  entirely  to  the  trade. 

Isolated  "drapers"  appear  in  the  thirteenth  century;  but  there 
is  no  certain  evidence  of  a  body  of  dealers  in  cloth,  even  in  London, 
before  1364,  the  date  of  the  first  charter  granted  to  the  Drapers' 
Company.  The  same  charter  furnishes  evidence  that  the  drapers  were 
still  makers  of  cloth,  i.e.,  completed  the  final  processes,  including 
shearing. 

However  we  may  explain  their  origin,  the  drapers  certainly  formed 
powerful  companies  in  London  and  other  great  towns  towards  the 
end  of  the  reign  of  Edward  III  [1327-77]  and  in  that  of  Richard  II 
[1377-99].  The  London  company  of  drapers  were  not  long  in  obtain- 
ing important  rights  of  supervision  over  the  industry  of  the  capital 
and  indeed  of  the  whole  country.  Their  earliest  charter  had  given 
them  a  monopoly  of  the  retail  sale  of  cloth  in  London  and  its  suburbs. 
Anyone  not  belonging  to  the  mystery  who  had  cloth  to  sell  could 
indeed  sell  it  in  gross  to  lords  and  commoners  who  wanted  it  for 
their  own  use,  but  they  might  never  sell  it  retail,  or  even  in  gross  to 
merchants  not  belonging  to  the  Drapers'  Company.  By  the  purchase 
of  a  hall  in  1384,  the  company  obtained  an  administrative  centre; 
the  fact  that  this  hall  was  in  St.  Swithin's  Lane  shows  how  close  their 
connection  still  was  with  the  weavers  of  Cannon  Street. 

The  earliest  accounts  in  the  possession  of  the  company,  those  of 
141 5,  show  that  it  was  already  a  powerful  body,  numbering  as  it  did 
more  than  100  members — by  which  must  be  understood  master 
drapers  only,  and  not  journeymen  or  apprentices.  By  this  time, 
however,  a  considerable  number  of  drapers  had  arisen  in  other  towns; 


THE  COMING  IN  OF  CAPITALISM  179 

and,  both  for  the  sale  of  their  cloth  to  the  people  of  London,  as  well  as 
for  its  easier  export  to  foreign  countries,  these  began  to  resort  to  the 
capital.  They  could  not  fail  to  come  into  collision  with  the  monopoly 
of  the  London  drapers,  and  it  was  necessary  for  the  government  and 
the  municipal  authorities  to  devise  some  way  out  of  the  difficulty. 
The  plan  they  hit  upon  was  the  establishment  of  Blackwell,  or,  as  it 
was  originally  called,  Bakewell  Hall,  which  was  destined  to  be  of  the 
utmost  importance  to  the  English  woollen  industry  for  four  centuries. 
This  was  an  old  hall  with  a  considerable  piece  of  ground  around  it,  in 
Basinghall  Street;  it  had  originally  belonged  to  the  Basings,  had  been 
occupied  by  a  certain  Thomas  Bakewell  in  the  reign  of  Edward  III, 
and  was  now,  in  1397,  purchased  by  the  mayor  and  commonalty  of 
London  and  turned  into  a  market  for  country  drapers. 

4.  The  growth  of  the  domestic  system. — For  the  history  of  industry 
during  the  first  sixty  or  seventy  years  of  the  fifteenth  century,  we  have 
singularly  little  evidence.  Yet  during  that  period  a  complete  change 
was  taking  place  in  the  whole  character  and  conditions  of  manufacture. 
The  gild  system  was  dying,  and  the  domestic  system  was  taking  its 
place;  a  change  which  can  only  be  compared  in  its  far-reaching  con- 
sequences to  the  overthrow,  during  the  present  century,  of  the 
domestic  system  itself  by  the  strength  of  machinery  and  great 
capital. 

We  may  conjecture  that  a  twofold  process  went  on  in  the  fifteenth 
century:  (1)  that  in  the  towns,  the  gilds  or  companies  became  small, 
close  corporations  and  lost  control  over  the  industry;  (2)  that  the 
industry  spread  from  the  towns  into  the  country,  and  that  there  a 
new  class  of  men  called  clothiers  or  clothmakers,  arose,  commanding 
an  amount  of  capital  great  relatively  to  previous  conditions,  and  bring- 
ing into  dependence  upon  themselves  comparatively  large  numbers 
of  workpeople. 

Of  the  early  history  of  the  domestic  industry  we  have  no  informa- 
tion; when  it  is  first  noticed  in  public  documents,  it  seems  to  be 
already  widely  spread  over  the  country.  The  central  figure  to  be 
studied  in  the  new  organization  of  labor  is  the  clothier.  He  buys  the 
wool,  causes  it  to  be  spun,  woven,  fulled,  and  dyed,  pays  the  artisans 
for  each  stage  in  the  manufacture,  and  sells  the  finished  commodity  to 
the  drapers. 

Now  there  can  be  little  doubt  that  the  impulse  towards  this 
extension  of  a  freer  industry  into  the  country  was  given  primarily  by 
the  new  mercantile  capital  which  successful  trade  had  created.     But 


I 


180  INDUSTRIAL  SOCIETY 

when  once  the  movement  had  begun  it  would  be  followed  by  all  who 
saw  their  opportunity,  by  wool  staplers,  by  drapers,  by  landed  pro- 
prietors, by  energetic  artisans  from  the  towns.  The  requisite  labor 
would  readily  be  found  in  the  unemployed  of  the  agricultural  districts, 
and  the  necessary  technical  skill  could  be  acquired  from  the  journey- 
men whom  the  jealous  restriction  of  gild  privileges  by  the  master 
artisans  had  driven  from  the  towns. 

Limitations  of  space  prevent  the  present  sketch  of  the  history  of 
the  woollen  industry  from  being  carried  farther.  Otherwise  it  would 
have'  been  interesting  to  trace  the  regulations  of  the  Tudors  as  to  the 
quality  of  cloth  and  as  to  apprenticeship,  and  to  consider  how  far 
these  were  dictated  by  the  jealous  endeavors  of  the  town  craftsmen  to 
hinder  the  growth  of  the  industry  in  the  country,  and  how  far  they 
were  guided  by  a  wise  policy  on  the  part  of  the  government  which 
aimed  at  maintaining  a  certain  standard  of  work.  The  appearance 
towards  the  end  of  the  seventeenth  century  of  a  new  class  of  factors 
and  great  merchants;  the  abandonment  under  mercantile  pressure 
of  the  policy  of  preserving  the  quality  of  cloth;  the  growth  of  credit; 
the  struggle  between  the  woollen  and  cotton  interests — all  these 
preparing  the  way  for  the  actual  factory  and  machine  industry  of 
today — are  of  the  most  vital  importance  for  the  social  history  of 
England.  But  for  the  present  we  must.be  content  with  having  traced 
the  earlier  stages  of  the  long  evolution. 

71.    COMMERCIAL  ORGANIZATION  IN  THE  WOOLEN 
INDUSTRY1 


The  operations  of  the  various  wool-buyers  were  so  little  differ 
entiated,  each  one  performing  at  different  times  the  same  business 
as  the  others,  that  a  rigid  classification  is  quite  impossible.     And  it  is 
to  be  understood  in  the  following  treatment  that  clear-cut  distinctions 
did  not  exist  among  the  various  buyers  of  wool. 

Broggers. — The  buyer  who  was  most  specialized  was  the  brogger. 
The  brogger  was  an  agent  or  broker  of  a  manufacturer  or  exporter 
or  big  wool-merchant  or  jobber.  He  made  a  farm-to-farm  canvas, 
established  regular  customers  from  whom  he  bought  from  year  to 
year,  and  picked  up  what  wool  he  could  outside  this  regular  custom. 
He  either  packed  it  up  himself  or  employed  a  specialized  class  of 

1  Adapted  by  permission  from  R.  B.  Western  eld,  "Middlemen  in  English 
Business,"  Transactions  of  the  Connecticut  Academy  of  Arts  and  Sciences,  XIX, 
265-79,  296-317.     (Yale  University  Press,  1915.) 


\ 


THE  COMING  IN  OF  CAPITALISM  181 

wool-winders  or  wool-packers,  which  arose  in  the  wool-producing 
sections  or  the  markets,  as,  for  example,  in  London,  where  the  wool- 
staplers,  packers,  winders  and  combers  together  made  up  the  wool- 
men's  livery  company.  After  it  was  wound  and  packed  the  brogger 
arranged  to  have  it  fetched  away. 

Jobber  and  merchant. — The  wool-jobber  and  merchant  was  closely 
allied  with  the  wool-brogger  on  the  one  hand  and  the  wool-stapler 
on  the  other.  All  were  buyers  of  wool,  either  direct  from  the  wool- 
grower  or  from  the  first  buyer. 

Two  facts  gave  occasion  to  this  occupation.  In  the  first  place,  the 
wool  harvest  was  quickly  made:  in  less  than  a  month  the  whole 
year's  clip  was  ready  for  sale.  It  at  once  became  dead  capital  in  the 
grower's  hands,  and  to  carry  the  stock  was  an  economic  loss,  due  to 
the  interest  charge  against  it.  But,  on  the  contrary,  the  needs  of  the 
manufacturers  were  nearly  constant  throughout  the  year ;  and  it  was 
an  economic  loss  to  them  to  buy  up  in  advsttice  large  provisions  for 
their  consumption  during  the  year.  They  sought  a  seller  who  would 
sell  them  small  lots  as  they  needed  them;  whereas  the  wool-growers 
sought  a  buyer  who  would  take  at  once  their  whole  clip.  These  two 
functions  were  combined  in  the  wool-jobber. 

He  was  a  capitalist.  He  bought  for  cash  large  volumes  of  wool 
seasonally;  he  owned  warehouses  for  the  storage  of  his  purchases; 
he  sold  to  clothiers  and  manufacturers  on  credit  and  in  such  parcels 
as  they  needed.  In  performing  these  capitalistic  acts  he  incidentally 
did  others  that  promoted  the  wool  trade.  He  acted  as  collector  and 
forwarder  of  the  wool  from  the  grower  to  the  manufacturer.  As  a 
buyer  of  wool  and  a  seller  of  wool  he  developed  a  clientele  of  buyers 
and  sellers,  both  of  whom  he  cared  to  preserve  by  fair  and  honest 
dealings;  and  consequently  reduced  the  frauds  of  the  false  winding 
graziers,  so  much  complained  of  where  manufacturers  bought  directly 
from  the  grazier.  He  conducted  a  wider  correspondence  and  effected 
broader  connections  than  would  be  possible  or  profitable  to  a  grazier 
and  in  this  way  broadened  the  market  of  wool,  more  equally 
distributed  it  according  to  needs,  and  at  a  steadier  price.  By  these 
labors,  the  manufacturer  was  enabled  to  specialize  in  making  cloth 
and  free  himself  from  the  tasks  of  buying  wool  from  the  scattered 
farms. 

Wool-stapler. — Staple,  in  connection  with  the  textile  materials, 
means  the  fiber  of  any  material  used  for  spinning  and  is  expressive 
of  the  character  of  the  material.    A  stapler  was  one  who  was  employed 


I 


t&2  INDUSTRIAL  SOCIETY 

in  assorting  wool  according  to  its  staple.  In  connection  with  this 
assorting,  the  stapler  performed  all  the  functions  attaching  to  the 
jobber  and  merchant.  He  had  large  warehouses  and  required  a 
great  capital.  But  his  special  and  distinctive  function  consisted  in 
breaking  and  assorting  wool,  making  it  up  into  sortments  fit  for  the 
manufacturer.  Without  the  stapler  the  clothier  was  under  the 
necessity  of  buying  his  wool  in  the  fleece,  and  unless  he  could  work  up 
all  sorts  of  wool,  a  thing  no  clothier  could  do  to  any  advantage,  he 
suffered  a  loss  of  those  parts  not  used. 

Yarn  merchant. — The  yarn  merchants  were  a  class  of  merchants 
who  owed  their  existence  to  the  localization  of  spinning  and  weaving. 
This  localization  increased  the  interdependence  of  the  different  parts 
of  the  kingdom.  The  clothmaking  districts  were  forced  for  want  of 
spinners  to  draw  part  of  their  yarn  from  quarters  near  and  remote. 
The  operations  of  getting  the  wool  from  the  wool-buyers,  and  into 
the  hands  of  the  spinnft  in  their  localized  districts,  and  of  collecting 
again  and  selling  the  yarn  to  the  clothiers  were  performed  by  this 
specialized  class.  Sometimes  they  simply  bought  up  the  surplus  yarn 
spun  by  the  country  spinners  and  carried  it  and  distributed  it  among 
the  clothiers.  They  commonly  combined  the  functions  of  the  wool- 
stapler  (viz.,  assorter,  kember,  washer,  scourer,  and  trimmer)  with 
that  of  the  yarn  merchant  proper. 

Clothier. — The  clothier  was  the  central  figure  in  the  domestic 
system  of  manufacture  which  characterized  increasingly  the  pro- 
ductions of  cloth  from  the  middle  of  the  fifteenth  century  till  the 
Industrial  Revolution.  His  business  was  a  composite  of  the  middle- 
man's business  and  the  manufacturer's  business,  but  must  be  regarded 
in  larger  measure  that  of  middlemen.  In  a  restricted  sense,  he  was 
not  a  manufacturer  since  he  had  ceased  to  exercise  the  craft  of  cloth- 
worker;  nor  was  he  a  pure  middleman,  for  all  the  wares  he  handled 
underwent  transformation  while  under  his  control  and  assumed  a 
very  different  aspect  from  the  time  he  purchased  the  raw  wool  till 
he  sold  the  finished  product.  He  was  an  organizer  of  the  manufacture, 
of  the  labor  and  of  the  distribution  of  the  materials.  His  shop  was 
a  neighborhood,  a  village  and  its  environs.  Not  until  the  closing 
decades  of  the  period  covered  by  this  study  did  he  assume  the  owner- 
ship of  the  tools  of  manufacture,  and  even  then  they  were  leased  out 
to  the  artisans  under  his  employ.  Nevertheless,  since  he  did  not 
directly  manufacture  the  materials  which  he  bought  and  engaged 
himself  exclusively  (a)  in  the  buying  of  materials  and  of  labor  used 


THE  COMING  IN  OF  CAPITALISM  183 

upon  them  and  outside  his  supervision  and  (b)  in  the  selling  of  the 
cloth,  his  middlemen  characteristics  are  very  obvious. 

Having  raised  his  wool,  or  bought  it  at  the  Cirencester  or  London 
or  other  markets,  or  having  dispatched  broggers  into  the  country  to 
buy,  the  clothier  delivered  it  out  weekly  among  the  spinners  who 
lived  in  the  vicinity  of  these  clothing  towns,  in  the  country  and  the 
hamlets.  The  spinners  were  paid  for  their  work  and  the  yarn  was 
then  carried  to  a  weaver,  who  was  likewise  paid  by  the  clothier.  The 
yarn  dealer  sometimes  intervened  and  relieved  the  clothier  of  these 
earlier  parts  of  the  business.  And  so  successively  through  the 
remaining  processes  of  the  manufacture — milling,  dyeing,  shearing, 
dressing,  etc. — the  clothier  carried  his  ware  and  paid  the  artisans. 
He  thus  employed  many  distinct  classes  of  artisans  and  each  performed 
only  one  operation  upon  the  wool  or  cloth.  The  excellence  of  this 
system  consisted  in  the  concentrated  direction  of  all  the  process  by  the 
clothier  under  a  well-defined  division  of  labor.  Its  greatest  defect 
was  the  wastes  caused  by  repeated  carriage  over  considerable  dis- 
tances between  successive  artisans,  and  the  cause  of  this  decentraliza- 
tion was  fundamentally  the  fact  that  power  machinery  needful  to 
concentrated  factory  production  had  not  yet  been  invented.  But  the 
clothier's  business  at  this  early  time  required  considerable  capitalists 
and  men  of  broad  correspondence  who  could  undertake  the  risks 
involved.  « 

The  clothier  occupied  a  very  responsible  and  prominent  place  in 
the  local  community.  He  was  the  moneyed  man,  the  paymaster 
and  the  employer  of  the  whole  vicinity.  The  neighborhood's  activity 
and  prosperity  rested  in  his  hands. 

Those  clothiers  who  stand  out  with  the  greatest  halo  of  tradition 
tried  the  concentration  of  these  employments  in  large  halls.  Deloney 
in  1632  in  his  Introduction  to  Thomas  of  Reading  said  in  retrospect 
that  "Every  one  of  these  (nine  clothiers  of  the  West)  kept  a  great 
Number  of  Servants  at  Worke,  Spinners,  Carders,  Weavers,  Fullers, 
Dyers,  Sheeremen,  and  Rowers,  to  the  great  Admiration  of  all  those 
that  came  into  their  Houses  to  behold  them."  The  same  author  in 
a  poetical  dissertation  on  John  Winchcombe,  the  celebrated  "Jack 
of  Newbery,"  gave  the  following  statistics  of  his  employees:  at  200 

I  looms,  200  men  and  200  boys,  100  women  carding,  200  "maydens" 
spinning,  150  children  picking  wool,  50  "shearemen,"  80  rowers, 
40  men  in  the  dyehouse,  20  men  in  the  fulling  mill,  a  butcher,  brewer, 
baker,  5  cooks,  6  scullions,  and  children  "to  turne  the  broaches 


1 84  INDUSTRIAL  SOCIETY 

every  day."  This  traditional  clothier  lived  about  1500.  Fuller 
says  "he  was  the  most  considerable  clothier,  without  fancy  or  fiction, 
England  ever  beheld."  Thomas  Dolman  succeeded  Winchcombe  as 
the  leading  clothier  of  Newbery. 

Lest  there  be  undue  emphasis  given  in  the  foregoing  description  to 
the  capitalistic  nature  of  the  clothing  business,  it  must  be  remembered 
that  there  existed  alongside  these  capitalistic  clothiers  others  of  less 
means.  In  every  region  the  small  master  seems  to  have  continued 
despite  the  tendency  to  large  scale  production.  In  161 5  one  class  of 
clothier  was  described  as  "one  that  seldome  or  never  travells  into 
the  woolle  country  to  buy  his  woolle,  but  borrowes  the  most  part  of  it 
att  the  markett,  and  setts  many  poore  on  worke,  clothes  it  presently, 
and  sells  his  cloath  in  some  countries  upon  the  bare  thred — and  then 
comes  to  the  woolle  markett  and  payes  th'  old  debte  and  borrowes 
more."  Another  class  was  described  as  too  poor  to  buy  up  stocks  of 
wool  but  able  to  buy  parcels  of  yarn  which  they  wove  into  unfinished 
cloth  and  sold  weekly  at  the  market.  The  poverty  and  limited  scale 
of  business  done  by  these  classes  of  clothiers  favored  the  business  of 
cloth  merchant  on  the  one  hand  and  wool-staplers  on  the  other. 
Since  the  poor  clothier  sold  the  cloth  in  an  unfinished  state  and  others 
completed  the  processes  of  manufacture  and  distribution  his  control 
over  the  industry  was  very  limited  and  he  was  the  first  to  suffer  in 
periods  of  dearth  or  of  dull  business. 

The  clothiers  of  all  England  sold  mostly  through  London.  The 
great  London  market  for  cloth  had  been  for  many  centuries  at  Black- 
well  Hall.  The  non-resident  clothiers  were  constrained  to  bring  their 
woollens  for  display  and  sale  to  this  market,  and  an  elaborate  set  of 
rules  were  adhered  to  in  the  business  transacted. 

Factors  at  Blackwell  Hall. — A  specialized  class  established  them- 
selves in  the  business  of  Black  well  Hall  about  1660.  They  were 
known  as  the  factors  and  received  public  recognition  in  the  regulations 
of  the  Hall  laid  by  the  Act  of  Common  Council  of  1678. 

The  first  factors  were  likely  some  clothiers  or  clothworkers  with 
whom  other  clothiers  had  left  their  residue  of  cloths  from  one  market 
till  a  later  market.  As  stated  above,  the  clothier  sometimes  author- 
ized the  keeper  to  sell  the  cloths  in  the  interim,  specifying  a  certain 
price  at  which  he  might  sell.  This  authorization  was  the  wedge  by 
which  the  factor  entered  the  trade  and  seized  upon  his  limited  func- 
tion. In  order  to  make  sales  the  keeper  would  abate  the  price  a  few 
pence  per  yard  below  the  price  specified  by  the  clothier.    This 


THE  COMING  IN  OF  CAPITALISM  185 

difference  in  price  was  sufficient  motive  for  the  preference  which  the 
buyer  thereafter  showed  for  buying  them  from  the  keeper.  To  secure 
sales  the  clothier  was  then  forced  to  sell  through  the  keepers,  who  set 
up  as  regular  factors  and  thus  "usurped  the  sole  power  of  selling  the 
clothier's  cloth,  both  for  what  price,  and  for  what  time,  and  to  whom 
they  pleased." 

Several  circumstances  at  once  operated  to  strengthen  and  estab- 
lish the  factor  in  this  his  so-called  usurped  place.  The  convenience 
realized  by  both  clothier  as  seller  and  by  merchant  or  draper  as  buyer, 
through  the  instrumentality  of  this  factor  made  them  prone  to  a 
passive  compliance,  for  they  could  then  devote  themselves  to  their 
more  proper  employments.  But  this  separation  of  clothier  and 
merchant  lessened  the  merchant's  judgment  of  cloth,  a  judgment 
which  his  daily  practice  of  examining  cloth  in  the  Hall  had  heretofore 
trained  and  maintained,  and  consequently  the  merchant  became 
dependent  upon  the  factor  as  a  specialist  in  judging  the  qualities  of 
cloth.  The  factor  used  his  profits  sometimes  to  buy  materials  and 
employ  woolworkers  and  became  in  part  a  clothier;  this  gave  him  an 
economic  advantage  by  which  he  could  undersell  any  clothier  who 
persisted  in  selling  his  cloth  himself  and  could  force  himself  into  the 
clothier's  employ.  And  further,  the  factor  could  make  or  break  a 
clothier  by  partiality  in  the  time  of  sales  and  in  the  longer  or  shorter 
period  during  which  they  retained  the  proceeds;  naturally  they 
favored  the  richer  and  larger  dealers,  and  the  poorer  became  very 
subservient  to  their  factors. 

The  prime  service  of  a  factor  is  to  facilitate  exchanges;  buyers  and 
sellers  are  brought  together  through  specialized  representatives; 
wide  correspondence  and  connections  swell  the  number  of  buyers  and 
sellers;  there  is  a  broader,  steadier  market;  an  economy  of  time,  cost 
and  effort  at  sale  is  effected;  the  producer,  in  singleness  of  effort,  is 
enabled  to  produce  more  and  better;  'the  agent  becomes  an  intelli- 
gencer to  the  manufacturer;  and  so  forth. 

Draper. — The  woollen  drapers  seem  to  have  differentiated  their 
employment  and  separated  their  function  from  the  general  cloth 

I      manufacture  and  trade  during  the  fourteenth  century. 
It  appears  that  the  drapers  were  occasioned  by  the  migration  of 
industry  from  the  towns  to  the  country  and  the  consequent  establish- 
ment of  the  domestic  system  of  cloth  manufacture  in  the  homes.    The 
(se  of  the  country  clothier  was  primarily  due  to  the  arbitrary  restric- 


1 86  INDUSTRIAL  SOCIETY 

might  have  retailed  his  own  product.  Hereafter,  cloth  that  saw 
produced  in  the  country  was  brought  into  towns  to  be  sold  there  by 
the  drapers.  It  was  found  in  Leeds  that  the  manufacture  was 
suburban  and  the  sale  was  urban;  the  dwindling  of  town  manufactur- 
ing was  compensated  for  by  the  selling  of  cloth  by  the  drapers. 
Middlemen  became  necessary  thereafter  to  judge  and  guarantee  the 
quality  of  cloth  and  to  study  the  market  demand  so  as  to  equalize  the 
quantity  produced  and  consumed. 

The  draper,  as  has  been  shown,  was  in  the  early  centuries  both 
retailer  and  wholesaler  of  woolen  cloth.  The  retail  function  became 
less  and  less  his  and  was  given  over  to  the  mercers.  By  the  middle 
of  the  eighteenth  century  he  was  a  typical  wholesaler.  As  such  he 
had  connections  (a)  with  the  clothiers  or  the  factors,  (b)  with  the 
merchant  importers  and  exporters,  (c)  with  the  provincial  whole- 
salers, and  (d)  with  the  retailers  of  London  and  other  towns  and 
cities. 

Manchester  Men. — One  class  of  buyers  at  the  great  Cloth  Fair  at 
Leeds  was  the  travelling  merchants.  These  were  a  class  peculiar  to 
the  northern  manufacturing  section  and  were  often  called  the  "  Man- 
chester Men."  They  were  wholesale  merchants  (more  properly, 
tradesmen).  There  was  a  demand  all  over  England  for  the  cheaper 
cloths — kerseys,  cottons,  as  well  as  the  other  manufactures,  such  as 
cutlery,  hardware,  clocks,  almanacs,  etc.,  which  were  made  in  the 
north,  and  the  Manchester  Men  acted  as  distributors  to  the  shop- 
keepers of  the  Island.  In  a  pamphlet  dating  from  about  1685  it  was 
spoken  of,  as  a  thing  accustomed,  that  "the  Manchester  Men,  the 
Sheffield  men,  and  many  others  .  .  .  .  do  Travel  from  one  Market- 
Town  to  another;  and  there  at  some  Inn  do  profer  their  Wares  to  sell 
to  the  Shopkeepers  of  the  Place."  They  sold  wholesale  to  shops, 
warehousekeepers,  and  to  country  chapmen  at  this  date. 

Chapmen. — " Chapmen"  (cheap  man)  was  originally  an  inclusive 
name  for  all  dealers;  by  the  sixteenth  century  the  term  had  become 
restricted  to  the  small  pedlar  or  retail  dealer.  The  term  "petty"  was 
often  prefixed.  In  1639  petty  chapmen  were  described  as  those  who 
"buy  up  commodities  of  those  that  sell  by  wholesale  and  sell  them 
off  dearer  by  retaile,  and  parcel  them  out."  Before  the  rise  of  country 
stores  all  retailing  in  the  country  was  done  from  temporary  booths 
at  markets  and  fairs,  or  by  itinerant  dealers.  From  the  latter  fact 
the  term  "chapman"  acquired  the  concept  of  our  modern  pedlar  or 
hawker.     This  meaning  was  in  vogue  in  1745  when  the  chapmen  were 


THE  COMING  IN  OF  CAPITALISM  187 

defined  as  "  Such  as  carry  goods  from  market  to  market,  or  from  house 
to  house,  to  sell."  They  bought  their  goods  from  wholesale  tradesmen 
of  the  cities  or  from  the  Manchester  Men,  and  travelled  on  foot  with 
packs  on  their  shoulders,  or  with  horse  and  panniers,  or  with  horse  and 
cart  or  wagon. 

DIAGRAM  OF  THE  COMMERCIAL  ORGANIZATION  IN 
THE  WOOLEN  INDUSTRY 


WOOL  AND  WOOLEJNS  j 


►ABROAO 

lSUPtRUA&O 
2  FACTOR 


72.    LOSS  OF  CONTROL  BY  THE  GILDS1 

Though  there  is  much  room  for  difference  of  opinion  as  to  the 
origin  of  craft  gilds,  there  is  ample  evidence  as  to  their  character 
and  powers.  In  England  the  craft  gild  appears  to  have  been  an 
institution  which  obtained  powers  from  the  town  to  regulate  a  certain 
industry  for  the  common  good.  On  its  economic  side  it  aimed  at 
supplying  a  known  market,  by  meeting  the  wants  of  the  townsmen 
themselves  and  of  others  who  visited  it  for  the  purpose  of  buying; 
it  strove,  besides,  to  maintain  a  high  quality  of  wares,  the  good 
training  of  the  workmen,  and  favourable  conditions  for  work;  but 
the  whole  institution  was  subordinated  to  the  good  of  the  town,  and 
to  the  steady  growth  of  a  material  prosperity  in  which  all  could 
share. 

The  whole  of  this  system  served  admirably  for  the  regulation  of 
industry  under  suitable  conditions,  but  it  made  no  allowance  for 
growth;  and  in  the  fourteenth  and  fifteenth  centuries  there  appears  to 
have  been  a  rapid  growth,  especially  in  connection  with  the  manu- 
facture of  cloth  for  distant  markets.  Those  who,  as  dealers,  had 
formed  some  capital  and  were  accustomed  to  handle  it,  began  to 
invest  their  capital  in  industry  and  to  compete  with  those  who  were 
craftsmen  by  training.  The  dealers  might  be  dealers  in  raw  material, 
or  dealers  in  the  finished  product;  but  in  either  case  they  did  not 
count  to  make  an  income  by  their  own 'work,  but  by  the  wealth  they 

"Adapted  by  permission  from  W.  Cunningham,  The  Progress  of  Capitalism 
in  England,  pp.  72-78.     (The  Cambridge  University  Press,  1916.) 


188  INDUSTRIAL  SOCIETY 

had  invested  in  buying  materials  and  tools  and  used  for  paying  wages. 
The  capitalist  system  in  the  cloth  trade  appears  to  be  as  old  as  the 
incursion  of  Flemish  weavers  under  Edward  III,  and  it  certainly  had 
reached  a  high  stage  of  development  in  the  sixteenth  century,  when 
men  like  Jack  of  Winchcomb  and  Stump  of  Marlborough  flourished. 
These  men  did  not  manufacture  with  reference  to  a  market  on  the 
spot,  but  with  reference  to  the  requirements  of  a  distant  market, 
sometimes  a  market  in  foreign  countries.  They  had  an  interest  in 
manufacturing  on  as  large  a  scale  as  possible,  and  turning  over  their 
capital  rapidly  so  as  to  enable  them  to  push  their  trade  and  get  the 
command  of  a  larger  market.  It  is  obvious  that  institutions  which 
were  built  up  by  small  craftsmen,  each  with  his  stock  in  trade,  to  meet 
a  known  market  were  unsuited  to  the  industry  as  developed  by  large 
capitalists.  The  regulations,  which  had  been  maintained  in  the  old 
corporate  towns,  were  proving  inconvenient  in  the  fifteenth  century, 
and  industries  migrated  from  the  towns  to  the  rural  districts.  In 
other  cases  the  burden  of  taxation  appears  to  have  been  oppressive 
to  the  old  communities,  while  it  is  likely  enough  that  some  of  them  had 
never  recovered  from  the  ravages  of  the  Black  Death.  At  any  rate 
we  see  that,  in  the  middle  of  the  sixteenth  century,  the  institutions, 
which  had  served  to  regulate  the  industry  of  the  towns  in  the  Middle 
Ages,  were  no  longer  effective  for  their  purpose. 

The  towns  thus  lost  their  importance  as  organised  centres  of 
economic  life  and  they  also  ceased  to  be  regarded  as  important  units 
for  political  purposes.  There  had  been  a  time  when,  the  payments 
that  they  made,  for  the  enjoyment  of  self-government,  and  occasion- 
ally to  meet  special  demands,  were  of  great  importance  to  the  Crown, 
and  the  maintenance  of  the  prosperity  of  each  town  was  a  matter  of 
public  concern;  this  feeling  prevailed  as  late  as  the  time  of  Philip  and 
Mary;  but  it  appears  that  from  that  time  onwards  governmental 
measures  were  rather  directed  to  fostering  the  prosperity  of  the  realm 
as  a  whole  than  to  maintaining  the  economic  activity  of  particular 
towns.  But  during  the  seventeenth  century  old  payments  had,  with 
the  alteration  of  the  value  of  money,  become  almost  nominal  and 
had  often  been  redeemed.  The  town  privileges  of  self-government 
had  ceased  to  give  substantial  advantages;  the  capitalists,  who  had 
settled  in  suburbs  or  in  the  country,  were  developing  a  profitable 
business;  the  joint  stock  companies  gave  increased  opportunity  ii 
the  investment  of  capital  on  lines  which  lay  outside  municipal  author 
ity;  by  1689  the  towns  were  no  longer  seeking  so  much  to  presen 


THE  COSTING  IN  OF  CAPITALISM  189 

an  independent  life  of  their  own,  but  were  more  content  to  have  their 
share  in  the  general  prosperity  of  the  country. 


See  also  37.     Merits  and  Defects  of  the  Craft  Gild. 


73.    SOME  AGRICULTURAL  CHANGES  IN  RELATION 
TO  THE  WOOLEN  INDUSTRY 


With  the  close  of  the  Wars  of  the  Roses  and  the  dawn  of  the 
Tudor  period  an  agricultural  revolution  began,  which  continued  in 
progress  till  the  middle  of  the  reign  of  Elizabeth,  and  after  more  than 
two  centuries  of  quiescence,  recommenced  in  the  eighteenth  century. 
This  revolution  was  part  of  the  general  movement  which  gradually 
transformed  the  country.  It  may  be  described  as  the  introduction 
of  the  commercial  spirit  into  national  life.  In  agriculture  the  com- 
mercial spirit  took  the  direction  of  enclosures — the  break-up,  that  is, 
of  mediaeval  agrarian  partnerships,  the  appropriation  of  commons 
by  individual  owners,  the  substitution  of  individual  enterprise  for  the 
united  venture  of  village  farms.  Both  in  the  sixteenth  and  in  the 
eighteenth  centuries  this  was  the  direction  which  the  revolution 
assumed.  But  in  details  the  earlier  and  later  movements  widely 
differed.  Under  the  Tudors  the  agricultural  revolution  was  accom- 
panied by  the  substitution  of  pasture  for  tillage,  of  sheep  for  corn,  of 
wool  for  beef  and  mutton.  Under  the  Hanoverian  sovereigns  the 
British  farmer  no  longer  took  his  seat  on  the  woolsack,  but  devoted 
himself  instead  to  the  production  of  bread  and  beef  for  the  teeming 
populations  of  manufacturing  cities. 

The  fifteenth-century  agricultural  changes. — The  period  which 
began  with  the  close  of  the  Wars  of  the  Roses  (1485)  and  ended  with 
the  defeat  of  the  Spanish  Armada  (1588)  was  one  of  transition  from 
the  mediaeval  to  the  modern  form  of  landownership.  Feudalism 
was  dead  or  dying,  and  trade  was  usurping  its  throne.  In  the  hands 
of  lords  of  the  manor  the  soil  had  been  required  to  furnish,  not  money, 
but  men-at-arms.  Mediaeval  barons  valued  their  estates  chiefly  for 
the  number  of  retainers  which  they  sent  to  their  banners.  Tudor 
landlords  estimated  their  worth  by  the  amount  of  rent  which  they 
paid  into  their  coffers.     Mediaeval  farmers  extracted  from  the  soil 

1  Adapted  by  permission  from  H.  D.  Traill,  Social  England,  III,  351-57. 
(Cassell  &  Co.,  Ltd.,  1895.) 


I 


190  INDUSTRIAL  SOCIETY 

only  so  much  food  as  they  required  for  the  sustenance  of  themselves 
and  their  families.  Modern  tenants  were  not  satisfied  with  this 
self-sufficing  industry;  they  desired  to  raise  from  the  land,  not  only 
food,  but  profit.  As  trade  increased  and  towns  grew,  and  English 
wool  made  its  way  into  continental  cities,  or  was  woven  into  cloth  by 
English  weavers,  new  markets  were  created  for  agricultural  produce. 
Fresh  incentives  were  supplied  to  individual  enterprise,  and  both 
landlords  and  tenants  learned  to  regard  their  land  from  the  commercial 
point  of  view. 

If  money  was  to  be  made  out  of  land,  it  was  plain  that  only  indi- 
vidual enterprise  could  make  it.  Under  the  old  system  it  was  open 
to  the  idleness  of  one  man  to  cripple  the  energy  of  fifty  others.  To 
exchange,  divide,  enclose,  and  so  consolidate  the  holdings  became 
the  object  of  the  rural  aristocracy.  Sometimes  the  commons  were 
equally  divided;  sometimes  they  enclosed  them  by  force  or  by  con- 
nivance with  the  principal  commoners.  Voluntary  agreements 
between  commoners  and  proprietors  of  land  were  not  infrequent,  and 
bargains  were  often  struck  on  equitable  terms,  based  on  a  valuation 
and  commutation  of  commoners'  rights.  But  it  was  a  rough  age, 
in  which  might  was  right;  and  Sir  Thomas  More  presents  us  with 
another  side  of  the  picture.  He  speaks  of  "husbandmen  thrust 
out  of  their  own,  or  else  by  covin  and  fraud,  or  by  violent  oppression, 
put  beside  it,  or  by  wrongs  and  injuries  so  wearied,  that  they  be 
compelled  to  sell  all."   ■ 

The  first  result  of  the  commercial  spirit  which  was  infused  into 
farming  was  the  increase  of  enclosures,  and  the  consequent  severance, 
whether  directly  or  indirectly,  of  a  considerable  portion  of  the  rural 
population  from  the  soil.  If  this  change  had  been  accompanied  by 
a  large  extension  of  arable  farming,  the  market  for  agricultural  labour 
might  have  been  so  enlarged  as  to  relieve  agrarian  distress.  But  th( 
change  which  took  place  in  farming  served  only  to  increase  the 
scarcity  of  employment.  The  second  result  of  the  commercial  revo- 
lution was  to  substitute  the  shepherd  and  his  dog  for  the  ploughmen 
and  their  teams,  wool  for  corn,  and  pasture  for  tillage,  and  thus  to 
diminish  the  demand  for  labour  at  the  very  moment  when  the  supply 
was  increased.  Woollen  manufactures  grew  so  rapidly  both  at  home 
and  abroad  that  there  was  a  ready  sale  for  English  wool  both  in  Eng- 
land and  on  the  Continent.  The  fineness  of  the  English  fleeces  made 
them  indispensable  to  foreign  weavers;  wool  was  easily  transported, 
without  risk  of  damage,  and  without  liability  to  duty.  The  profits 
of  sheep-farming  was  sure,  and  the  outgoings  in  the  cost  of  labour 


THE  COMING  IN  OF  CAPITALISM  lol 

small.  Arable  farming,  on  the  other  hand,  was  an  uncertain  specu- 
lation, and  the  necessary  outlay  was  large.  No  efforts  were  spared  to 
extend  sheepwalks.  Small  tenants  were  evicted;  labourers'  cottages 
were  pulled  down,  the  lords'  demesnes  turned  into  pastures;  wastes 
and  commons  were  enclosed  for  the  same  purpose.  This  process, 
which  began  at  the  end  of  the  fifteenth  century,  continued  till  the 
middle  of  the  reign  of  Elizabeth. 

The  twofold  effect  of  the  commercial  revolution  told  disastrously 
on  the  condition  of  the  agricultural  labourer.  His  miseries  were 
aggravated  during  the  period  under  review  by  a  rapid  rise  in  the  value 
of  all  agricultural  produce.  Every  owner  of  land  benefited  by  the 
rise,  and  tenant-farmers,  if  they  held  their  tenancies  at  reasonable 
rents,  grew  rich.  But  the  labourer  alone  suffered.  As  a  new  supply 
of  precious  metal  poured  in  from  America,  the  purchasing  power  of 
money  fell.  The  wages  of  labour  were  arbitrarily  fixed  by  statute 
at  the  rates  of  the  previous  century,  though,  relatively  to  the  prices 
of  necessaries,  they  had  dwindled  by  half-  At  the  same  time  the 
dissolution  of  the  monasteries  had  deprived  the  poor  of  charitable 
aid;  and  the  principle  of  their  compulsory  support  was  still  imper- 
fectly understood.  The  labour  market  was  glutted,  and  the  power 
of  the  trade  gilds  excluded  the  peasant  from  employment  in  towns. 
Hundreds  of  poor  Toms  were  whipped  from  "  tything  to  tything,  and 
stock'd,  punished  and  imprisoned." 

From  low  farms, 
Poor  pelting  villages,  sheepcotes,  and  mills, 
Sometime  with  lunatic  bairns,  sometime  with  prayer 
Enforce  their  charity. 

[Note. — Other  selections  hint  something  of  the  significance*  of 
this  situation  with  respect  to  the  drift  to  the  towns,  the  exclusion  of 
these  rural  workers  from  the  gilds  and  the  settlement  of  the  workers 
and  manufacturing  industry  in  suburban  and  rural  sites.] 

B 

By  Conyers  Read 

One  of  the  most  important  contributions  to  the  development  of 
modern  capitalism  in  England  proceeded  from  that  many-sided  change 
in  the  character  of  English  agricultural  life  known  as  the  Enclosure 
Movement.  It  is  a  generally  accepted  fact  that  the  Enclosure  Move- 
ment was  fairly  continuous  in  England  from  the  end  of  the  Middle 
Ages  to  the  middle  of  the  nineteenth  century,  yet  it  can  hardly  be 


192  INDUSTRIAL  SOCIETY 

denied  that  it  progressed  most  rapidly  and  its  effects  were  most  far- 
reaching  in  the  period  which  coincides  in  point  of  time  with  the 
Industrial  Revolution.  It  was  provoked  by  a  natural  desire  on  the 
part  of  landlords  to  increase  the  net  revenues  from  the  land.  In  its 
earlier  manifestations  it  usually  took  the  form  of  the  conversion  of 
arable  into  pasture  land  for  sheep-raising.  In  the  later  seventeenth 
and  eighteenth  and  nineteenth  centuries,  however,  it  was  more 
largely  applied  for  the  purpose  of  improving  methods  of  tillage,  which 
for  a  variety  of  reasons  had  been  very  considerably  retarded  by  the 
earlier  system  of  common  tillage  in  open  fields. 

From  the  point  of  view  of  increased  net  yield  from  the  soil,  the 
Enclosure  Movement  clearly  fulfilled  its  promise.  But  its  effects 
were  disastrous  upon  the  social  and  economic  condition  of  the  English 
peasantry.  At  the  beginning  of  the  eighteenth  century,  in  spite  of 
the  earlier  Enclosure  Movement,  a  large  part  of  rural  England  was 
still  in  the  hands  of  small  yeomen  who  farmed  their  own  land,  of 
cottagers  and  crofters  who  rented  small  holdings  and  enjoyed  common 
rights  of  pasture,  woodland,  and  waste,  and  of  agricultural  laborers 
who  worked  for  hire  and  either  " lived  in"  with  their  employers  or 
else  occupied  a  small  cottage  on  his  farm.  Among  the  cottagers  and 
crofters  a  considerable  number  were  primarily  engaged  in  weaving 
or  some  other  form  of  domestic  industry  and  worked  their  small  bits 
of,  soil  in  their  spare  time. 

The  effect  of  the  Enclosure  Movement  in  the  eighteenth  century 
was  in  a  large  number  of  cases  to  make  the  position  of  the  agricul- 
tural worker  untenable.  Improved  methods  of  tillage,  involving  the 
building  of  fences,  the  digging  of  drains,  the  application  of  manures, 
and  the  use  of  machinery,  were  beyond  his  resources  and  indeed 
beyond  his  intelligence.  His  hope  of  survival  lay  in  the  maintenance 
of  the  old  system;  but  he  lacked  the  organization,  the  enterprise,  anc 
the  capital  to  make  a  successful  fight  for  his  old  common  rights  before 
the  courts.  Enclosure  came  in  spite  of  him  and  brought  with  it 
new  and  expensive  methods  and  new  marketing  conditions  to  whi< 
he  was  not  able  to  adapt  himself.  Inevitably  then  he  was  forced  oul 
of  business  by  his  richer  and  more  progressive  competitor.  Hence 
it  was  that  during  the  eighteenth  century  particularly  a  very  consider- 
able element  of  the  rural  population  of  England  was  divorced  froi 
its  old  occupation  and  its  old  attachment  to  the  soil.  For  the  mos 
part  it  found  its  alternative  to  starvation  in  the  increasing  demands 
of  the  new  industries.  As  the  gates  of  the  farm  swung  to,  the  gates 
of  the  factory  and  the  mine  and  the  shop  swung  open.     From  th( 


THE  COMING  IN  OF  CAPITALISM  193 

deserted  villages  of  rural  feudal  England  came  one  of  the  chief  sources 
of. labor  supply  for  urban  capitalistic  England. 

Meanwhile  in  the  towns  themselves  other  sources  of  labor  supply 
were  forthcoming.  The  exclusive  policy  of  the  craft  gilds  had 
operated  for  centuries  to  prevent  the  progression  of  the  journeymen 
workers  to  the  position  of  masters  of  the  craft  and  to  convert  them 
into  an  industrial  laboring  class.  Capitalistic  forces  among  the  . 
masters  themselves  had  depressed  the  poorer  masters  to  a  common 
level  with  the  journeymen.  In  town  and  country  alike  the  interests 
of  the  richer  classes  had  superseded  the  interests  of  the  rank  and  file. 
A  capitalistic  regime  already  dominated  industrial  organization  both 
rural  and  urban  even  before  the  Industrial  Revolution.  It  had 
already  effectually  destroyed  the  community  ideals  of  the  manor  and 
the  gild.  Out  of  the  flotsam  and  jetsam  of  that  wreckage  it  secured 
the  proletariat  for  the  new  factory  system  which  the  Industrial 
Revolution  brought  in  its  train. 

74.    EARLY  LARGE-SCALE  PRODUCTION1 

The  capitalist  movement,  in  its  first  stages,  was  primarily  financial 
and  commercial.  It  is  comparatively  rare  to  find  production  organ- 
ised on  a  large  scale  on  premises,  or  with  machinery  or  appliances, 
owned  by  the  employer.  Nevertheless,  there  are  sufficient  traces 
of  beginnings  in  this  direction  also  to  make  the  matter  of  some  impor- 
tance— especially  when  account  is  taken  of  the  development  of  this 
form  of  capitalistic  enterprise  since  the  Industrial  Revolution. 
Three  points  call  for  separate  discussion:  (1)  the  occasional  appear- 
ance of  the  larger  unit  of  production  in  industries  which,  however, 
retain  the  domestic  as  their  predominant  type,  (2)  the  increasing  use 
of  capital  in  mining  and  metallurgy  and  in  branches  of  other  industries 
which  require  expensive  plants,  and  (3)  the  investment  of  consider- 
able sums  under  patent  rights  in  the  introduction  of  new  or  foreign 
processes  or  in  the  reorganisation  of  existing  industries  by  control 
of  the  supply  of  the  raw  material. 

1.  Evidence  of  a  tendency  on  the  part  of  individuals  to  increase 
the  scale  of  production  in  the  cloth  industry  goes  back  to  1339,  when 
Thomas  Blanket  and  other  citizens  of  Bristol  were  fined  by  the  civic 
authorities  for  setting  up  looms  and  employing  labour  on  them  in  their 
own  houses.  Incidental  references  to  the  practice  are  found  occa- 
mally  in  the  fifteenth  and  sixteenth  centuries.     More  commonly 

1  Adapted  by  permission  from  H.  O.  Meredith,  Outlines  of  the  Economic  His- 
of  England,  pp.  158-61.     (Sir  Isaac  Pitman  &  Sons,  Ltd.,  1908.) 


194  INDUSTRIAL  SOCIETY 

individual  capitalists  speculated  in  the  tools  or  machinery  of  an 
industry,  renting  them  out  to  the  wage-earners.  This  was  the  usual 
course  of  development  where,  as,  e.g.,  in  the  stocking  industry,  some- 
what complicated  machines  were  introduced.  The  practice  existed, 
however,  in  older  trades,  and  the  "Weavers'  Act"  of  1555  enumerates 
it  among  the  methods  by  which  wealthy  clothiers  were  oppressing  the 
weavers — "some  by  ingrossing  of  Looms  into  their  hands  and  pos- 
session, and  letting  them  out  at  such  unreasonable  rents  as  the  poore 
Artificers  are  not  able  to  maintain  themselves."  Preventive  legis- 
lation, as  has  been  pointed  out  by  Mr.  Unwin,  was  limited  to  clothiers 
dwelling  "outside  a  city  corporate  or  market-town."  The  same 
writer  draws  the  deduction  that  the  Act  was  the  fruit  less  of  sympathy 
with  the  oppressed  weavers  than  of  jealousy  of  town  versus  country 
clothiers.  On  the  other  hand,  the  stronger  tradition  of  the  gild  sys- 
tem would  be  likely  perhaps  to  limit  the  growth  of  the  system  in  the 
towns.  It  is  possible  that  the  town  clothiers,  holding  themselves 
bound  by  these  traditions,  regarded  the  competition  of  large-scale 
businesses  in  the  country  as  unfair. 

It  is  clear  that  a  tendency  towards  an  embryo  factory  system  was 
visible  in  the  .rural  districts  at  this  time,  and  there  is  traditional  evi- 
dence of  the  existence  of  productive  units  which  would  be  classed  as 
factories  today.  A  versified  history  of  John  Winchcombe,  of  New- 
bury, of  which  the  first  edition  was  possibly  printed  as  early  as  1597, 

tells  us  that 

Within  one  roome  being  large  and  long 
There  stood  two  hundred  -Loomes  full  strong. 

Each  weaver  (adult  males  were  employed)  was  attended  by  a  "pretty 
boy."  A  hundred  women  were  carding.  Two  hundred  girls  were 
spinning.  A  hundred  and  fifty  children  were  picking  wool — "the 
children  of  poore  silly  men."  There  were  fifty  shearers,  eighty  rowers, 
forty  dyers,  and  twenty  hands  in  the  fulling  mill.  There  is  possibly 
exaggeration  here.  Winchcombe  died  some  time  after  15 19,  but  his 
son  continued  the  business,  and  Winchcombe's  "kersies"  enjoyed 
European  fame  in  the  middle  of  the  sixteenth  century,  and  the 
importance  of  the  name  does  suggest  some  detailed  organisation  o 
production.  Moreover,  though  factories  which  integrate  a  large 
number  of  processes  are  familiar  to  us  moderns,  it  may  be  doubtec 
whether  tradition  could  create  the  conception  if  none  such  existed 
In  any  case,  large-scale  organisation  did  not  become  characteristic 
of  the  cloth  industry  until  considerably  later. 


THE  COMING  IN  OF  CAPITALISM  195 

2.  In  some  branches  of  industry,  however,  a  plant  was  already 
required  which  could  not  be  provided  for  each  worker  by  himself,  and 
here,  in  the  absence  of  capacity  for  co-operation,  the  capitalist  was  a 
necessity.  The  localisation  of  the  finishing  processes  in  the  cloth 
industry  was  largely  determined  by  the  search  for  water-power  to 
drive  the  machinery  of  the  fulling  mills.  Thus,  whilst  yarn  continues 
to  be  spun  throughout  the  country,  we  shall  rind  weaving  gravitates 
more  and  more  to  the  Southwest  and  Northwest.  We  know  little  of 
the  history  of  the  fulling  mill,  but  we  find  in  the  Weavers'  Act  of  1555 
the  provisions  that  "no  weaver  shall  have  a  tucking-  (i.e.,  fulling-) 
mill,  and  that  no  tucker  shall  have  a  loom  in  his  house  or  possession." 
This  seems  to  show  a  tendency  towards  integration  of  other  processes 
with  the  one  process  requiring  capital  which  was  resisted  in  the  West 
Riding  (though  not  in  other  districts)  until  the  Industrial  Revolution. 
Water-power  was  also  becoming  important  in  the  iron  industry,  where 
it  was  employed  as  early  as  the  sixteenth  century,  to  drive  mechanical 
bellows  and  tilt-hammers.  The  industry  was  to  some  extent  con- 
trolled by  the  aristocratic  owners  of  the  land  where  ore  and  fuel  were 
obtainable  in  proximity.  Both  in  mining  and  in  metallurgy  improved 
processes  were  being  introduced  from  the  Continent — especially 
Germany — by  adventurers  who  could  get  the  necessary  funds. 

3.  The  Elizabethan  patents  were  granted  on  several  different 
grounds.  Leaving  aside  those  in  which  the  principal  object  was  to 
farm  out  an  excise  duty  on  the  industry  in  question,  or  provide  a 
salary  or  pension  for  an  official  or  favourite,  we  may  distinguish  two 
principles:  (a)  reward  of  invention,  (b)  reward  of  importation  of  a 
new  process.  "The  study  of  these  patents  has  brought  into  promi- 
nence the  very  interesting  facts  that  the  planting  of  new  industries 
was  a  capitalist  undertaking,  organised  by  moneyed  men,  who  were 
prepared  to  wait  some  years  for  the  full  return  on  their  outlay." 

75.    THE  DOMESTIC  SYSTEM  A  FORERUNNER  OF 
THE  FACTORY  SYSTEM1 

The  primary  force  that  was  at  work  was  Capital,  and  the  capital- 
istic spirit — the  desire  of  Investment  for  the  sake  of  gain — which  was 
bound  up  with  it.  Long  before  1776  by  far*  the  greater  part  of 
English  industry  had  become  dependent  on  capitalistic  enterprise  in 
the  two  important  respects  that  a  commercial  capitalist  provided  the 
tual  workmen  with  their  materials  and  found  a  market  for  the 


•" 


Adapted  by  permission  from  W.  J.  Ashley,  The  Economic  Organization  of 
England,  pp.  141-54.     (Longmans,  Green,  &  Co.,  1914.) 


I 


196  INDUSTRIAL  SOCIETY 

finished  goods.  The  workmen  continued  to  work  in  their  own  homes 
or  in  sheds  or  outhouses  attached  to  them;  and  for  this  reason  the 
system  may  be  spoken  of  as  domestic  (German:  Hausindustrie).  I 
think  this  is  on  the  whole  the  most  convenient  practice,  and  I  have 
followed  it.  If  we  are  to  invent  a  new  term,  perhaps  factor-system 
might  serve;  although  the  employing  capitalists  in  England  were  only 
in  certain  small  trades  actually  called  " factors."  Commission- 
system,  which  has  been  proposed,  is  obviously  inaccurate,  because  the 
work  was  not  done  on  commission,  either  by  the  employing  capitalist 
or  by  the  cottage  workman. 

The  question  of  classification  and  terminology,  however,  may  be 
passed  over  with  some  equanimity  because  in  the  period  between  the 
gild  and  the  factory  it  was  that  more  completely  capitalized  form 
which  involved  the  provision  of  material  by  the  capitalist  and  the 
payment  by  him  of  wages  which  was  by  far  the  most  widely  prevalent. 
That  this  was  the  case  with  the  clothiers  of  the  south  and  west  of 
England  throughout  the  sixteenth  and  seventeenth  centuries  is  beyond 
all  question.  The  point  I  want  just  now  to  emphasize  is  that  the  plan 
of  giving  out  material  and  paying  wages  was  characteristic  of  every 
other  important  industry  in  the  eighteenth  century.  The  proof  is  to 
be  found  in  the  legislation  against  embezzlement  of  material.  There 
was  first  the  temporary  act  of  1702,  reciting  that  "many  frauds  are 
daily  committed  by  persons  employed  in  the  working-up  of  the  woollen, 
linen,  fustian,  cotton,  and  iron  manufactures,  by  embezzling  and 
purloining  of  the  materials  with  wh^ch  they  are  entrusted,"  and 
providing  certain  penalties.  In  17 10  it  was  made  perpetual.  The 
act  of  1740  extended  its  provisions  to  persons  employed  "in  cutting  or 
manufacturing  gloves,  breeches,  leather,  boots,  shoes,  or  other  goods," 
This  "proving  deficient,"  in  1749  the  workpeople  affected  were  classi- 
fied anew,  as  "  any  person  hired  to  make  any  felt  or  hat,  or  work  up  any 
woollen,  linen,  fustian,  cotton,  iron,  leather,  fur,  hemp,  flax,  mohair,  or 
silk  manufactures."  In  all  these  cases  the  dominance  of  the  capitalist 
middleman  was  due  to  the  fact  that,  as  things  then  were,  he  was 
needed  to  organize  the  manufacture  and  to  assume  the  risk  which 
was  involved  in  advancing  the  necessary  capital,  in  view  of  a  market 
which  was  too  distant  and  uncertain  for  the  individual  artisan  to  cope 
with.  The  craftsman  was  not  yet  necessarily  "divorced  from  the 
instruments  of  production" — to  use  the  phrase  of  certain  modern 
writers;  he  commonly  owned  his  own  loom  in  the  woollen  and  si 
trades,  just  as  many  a  sweated  sempstress  of  our  own  day  owns  he: 


THE  COMING  IN  OF  CAPITALISM  197 

own  sewing-machine.  It  was  not  the  instrument  of  production,  but 
access  to  the  market  that  he  was  cut  off  from  by  circumstances. 
And  the  essential  similarity  between  industrial  conditions  then  and 
under  the  subsequent  factory  system  is  shown  by  the  fact  that  we 
already  come  across  combinations  of  cottage  workpeople  against  their 
merchant  employers  and  movements  for  higher  wages. 

Conditions  approached  more  nearly  to  the  later  factory  system 
when  the  capitalist  " undertaker"  owned  the  necessary  instrument  of 
production  and  let  it  out  to  the  workman — as,  for  instance,  in  the 
hosiery  industry  with  its  knitting-frame. 

An  even  closer  approximation  to  the  factory  of  later  days  would  be 
reached  when  the  capitalist  thought  it  expedient  to  gather  a  body  of 
workpeople  together  in  one  place  and  under  one  roof.  It  is  certain 
that  though  occasional  examples  may  be  found,  as  in  the  pin  manu- 
factory described  by  Adam  Smith,  the  aggregation  of  workpeople 
under  the  control  of  capitalists  was  not  the  "prevalent  characteristic" 
of  the  period. 

Without  special  governmental  favors,  the  advantages  which  the 
collection  of  his  workpeople  in  a  single  building  would  give  an  employer 
were  usually  too  slight  and  too  dubious  to  encourage  any  large  move- 
ment in  this  direction.  Where  the  work  could  be  broken  up  into  a 
number  of  separate  operations,  as  in  the  manufacture  of  pins,  it  would 
doubtless  greatly  facilitate  that  type  of  division  of  labor  to  bring 
together  under  one  roof  a  sufficient  body  of  men  for  each  to  be  assigned 
a  specialized  job.  But  wherevas  in  the  woollen  industry,  division  of 
labor  could  not  go  beyond  the  processes  of  combing,  spinning,  dyeing, 
weaving,  fulling,  etc.,  there  would  be  no  such  gain  in  a  mere  aggrega- 
tion of  workpeople  performing  the  same  operation.  The  only  advan- 
tages that  I  can  discern  would  lie  in  the  better  supervision  of  the 
quality  of  the  work  and  in  the  greater  regularity  of  output.  Against 
these  had  to  be  set  the  cost  of  providing  the  building  as  well  as  of  the 
necessary  supervision.  Accordingly  the  only  successful  introduction 
of  the  textile  factory,  on  a  considerable  scale,  was  in  the  silk-spinning 
industry;  and  here  the  explanation  is  to  be  found  in  the  introduc- 
tion of  machinery  which  required  "power"  (in  this  case  supplied 
by  water)  beyond  that  producible  by  human  muscle.  It  is  only 
because  the  spinning  of  silk  was,  after  all,  a  relatively  small  trade 
that  the  advent  of  the  factory  on  the  Derwent  in  17 18  did 
not  transform  English  industrial  life  as  the  subsequent  cotton 
factories  did. 


I 


198  INDUSTRIAL  SOCIETY 

The  appearance  of  the  factory  is  therefore  the  characteristic 
feature  of  the  industrial  revolution  of  the  later  years  of  the  eighteenth 
century,  even  though  it  had  actually  come  into  existence  sporadically 
half  a  century  earlier.  It  meant  a  new  forward  step  in  the  evolution 
of  capital:  the  assumption,  on  a  large  scale,  by  the  owner  or  controller 
of  capital  of  a  further  function  besides  that  of  the  mercantile  inter- 
mediary— the  function  of  actually  directing  and  supervising  the 
manufacturing  process  itself.  And  this,  if  it  did  not  produce  abso- 
lutely new  phenomena,  immensely  intensified  the  effects  of  the 
capitalist  control  already  established.  The  effects,  I  hasten  to  add, 
were  good  as  well  as  bad.  For  the  advent  of  capital  brought  about  a 
vast  enlargement  and  cheapening  of  production.  This  should  never 
be  lost  sight  of,  though  it  is  so  obvious  that  one  sometimes  forgets  it. 

D.     Some  Examples  of  Differentiation  of  Function 
76.    THE  RISE  OF  FUNCTIONAL  MIDDLEMEN1 

It  is  necessary  to  analyze  the  functions  performed  by  the  middle- 
man. Roughly  the  general  functions  may  be  listed  as  follows:  (1) 
sharing  the  risk;  (2)  transporting  the  goods;  (3)  financing  the  opera- 
tions; (3)  selling  (communication  of  ideas  about  the  goods);  (5) 
assembling,  assorting,  and  reshipping. 

These  functions  were  at  first  taken  over  by  areas;   that  is,  each 
successive  middleman  in  the  series  took  over  a  part  of  each  function. 
Each  took  the  risk  of  destruction  of  the  goods  while  he  held  title. 
Each  took  the  risk  of  credit  losses.     Each  took  a  share  in  the  transpor 
tation  of  the  goods  along  the  route  from  the  producer's  stockroom  t< 
the  hands  of  the  consumers.     Each  took  a  part  in  financing  the  entir 
operation.     Each  had  a  part  in  the  selling,  disposing  of  the  goods  to  b 
purchased  to  succeeding  middlemen  and  finally  to  the  consumer.    An 
each  finally  took  a  part  in  assembling,  assorting,  and  reshipping  th 
goods  to  make  them  physically  available  to  the  consumer. 

But  at  a  relatively  early  date  a  taking-over  of  these  functions  b 
kind  instead  of  by  area  appeared.     Today  we  have  what  may  bt 
termed  functional  middlemen  in  the  insurance  companies,   direcl 
transportation  companies,  and  banks. 

The  insurance  company  is  in  a  real  sense  a  middleman  in  distribu 
tion.  When  it  insures  the  producer  against  loss  of  goods  by  fire,  againsl 
credit  losses,  and  the  like,  it  is  taking  over  the  function  of  risk  formerly 

1  Taken  by  permission  from  A.  W.  Shaw,  "Some  Problems  in  Market  Dis 
tribution,"  Quarterly  Journal  of  Economics,  XXVI  (191 2),  731-33. 


THE  COMING  IN  OF  CAPITALISM  199 

shared  by  successive  middlemen.  Today  the  insurance  company 
will  assume  practically  the  entire  element  of  risk.  It  is  possible,  for 
instance,  for  a  large  department  store  to  insure  against  unseasonable 
holiday  weather.  The  insurance  company  differs  from  the  ordinary 
middlemen  in  that  it  takes  over  one  function  as  such  rather  than 
portions  of  a  number  of  functions. 

So  improvements  in  direct  transportation  have  enabled  the  pro- 
ducer to  turn  to  a  functional  middleman  to  convey  the  goods  to  the 
consumer.  The  transportation  companies  and  the  express  companies 
are  in  a  true  sense  middlemen  in  distribution,  though  they  perform 
but  one  of  the  functions  formerly  shared  by  the  successive  middlemen 
who  took  over  functions  by  area.  The  physical  conveyance  of  the 
goods  to  the  consumer  was  formerly  one  of  the  most  important  func- 
tions performed  by  a  series  of  middlemen. 

So  the  function  of  financing  the  operations  has  largely  been  taken 
from  the  regular  middleman.  In  former  times  the  middleman  took 
his  part  in  the  burden  of  finance,  in  addition  to  his  other  functions.  In 
most  industries  today  the  bank,  as  a  functional:  middleman,  cares  for 
the  element  of  finance  in  the  operations  of  distribution.  By  advancing 
on  goods  and  on  commercial  paper,  it  largely  absorbs  the  function  of 
finance  in  distribution. 

Another  development  has  lessened  the  dependence  of  the  producer 
upon  the  middleman  for  financial  assistance.  The  application  of  the 
corporate  form  to  industrial  organization  has  made  it  possible  to  draw 
together  larger  bodies  of  operating  capital  and  hence  to  place  the 
producer  in  a  stronger  financial  position. 

As  a  result  of  the  development  of  functional  middlemen,  ready  to 
take  over  the  functions  of  sharing  the  risk,  transporting  the  goods,  and 
financing  the  operations,  the  importance  of  the  middleman  for  these 
functions  has  diminished.  There  remain  the  function  of  selling  (the 
communication  of  ideas  about  the  goods)  and  the  function  of  assem- 
bling, assorting,  and  reshipping.  It  is  as  to  these  functions  that  the 
middleman  is  of  most  importance  today. 

77.    CARRIERS  AND  COMMUNICATORS1 

Under  the  old  market  system  the  farmers  did  their  own  carrying 
to  market.  A  very  good  description  of  the  method  of  carriage  is 
given  by  Henry  Best  in  1641.    The  custom  was  to  dispatch  a  train 

1  Adapted  by  permission  from  R.  B.  Westerfield,  "Middlemen  in  English 
Business,"  Transactions  of  the  Connecticut  Academy  of  Arts  and  Sciences,  XIX, 
362-69.     (Yale  University  Press,  191$.) 


I 


200  INDUSTRIAL  SOCIETY 

of  eight  horse-loads  at  a  time  under  the  charge  of  two  men.  A  load 
consisted  of  two  three-bushel  sacks  of  oats.  The  trip  required  a  long 
day.  A  like  system  of  horse-pack  carriers  was  used  by  the  Stafford- 
shire potteries  to  distribute  their  products  and  to  bring  fuel.  The 
Manchester  men  employed  horse-pack  trains  in  their  own  charge  or 
in  that  of  their  agents.  The  petty  chapmen  and  travelling  merchants 
were  carriers  as  well  as  tradesmen. 

The  effect  of  improvements  in  transport  facilities  was  to  call 
forth  a  specialized  class  of  carriers,  to  reduce  the  costs  of  carriage, 
make  possible  larger  loads,  increase  the  speed  of  transit,  and  add  to 
the  safety,  comfort,  and  convenience  of  travel  and  traffic.  It  also 
broke  down  the  local  prejudices  and  customs,  travel  became  less  an 
adventure  among  unknown  peoples,  news  travelled  more  quickly, 
England  became  more  metropolitan,  sensitive,  united. 

Carriage  by  wagon  and  cart  increased  as  the  roads  were  improved. 

Wagoners  brought  wool  and  cloth  to  London  by  regular  time-schedules 
in  1706  and  this  was  spoken  of  as  a  "wonted"  practice.  In  1745 
many  farmers  and  others  kept  teams  and  carriages  for  hire  to  others 
to  bring  corn,  meal,  and  malt  to  London,  and  carry  back  coal,  gro- 
ceries, wine,  salt,  iron,  cheese,  and  other  heavy  goods  for  the  shop- 
keepers and  tradesmen  of  the  country.  It  was  said  that  there  were 
in  London  in  1770  a  hundred  and  fifty  inns  at  least  for  the  reception 
of  such  commodities  and  provisions  as  were  brought  thither  by  land 
in  wagons  out  of  the  country,  and  that  these  returned  at  stated  times 
with  London  commodities. 

A  kind  of  stage-coach  was  introduced  into  London  in  1608.  This 
hackney-coach  soon  acquired  a  "general  and  promiscuous  use"  in  the 
city  and  spread  into  the  country.  By  1685  there  had  become  estab- 
lished a  system  of  stage-coach  service  between  London  and  important 
termini  scattered  over  England,  and  even  Edinburgh.  Schedules  of 
times  and  rates  were  published.  Many  private  parties  took  up  the 
occupation  of  common  carrier;  they  owned  stage-coaches  of  their  own, 
had  regular  places  and  times  of  departure  and  arrival,  and  sought 
public  patronage  by  advertising.  The  "Stage-coachmen  upon  the 
grand  roads  of  England"  were  derived  from  and  fostered  by  other 
trades,  such  as  the  innholders,  the  coach  and  harness  makers,  and 
the  licensed  coachmen  of  London.  The  rise  of  the  stage-coach  was 
opposed  by  a  large  part  of  the  people  on  the  grounds  that  it  would 
destroy  the  breed  of  good  horses,  destroy  good  horsemanship,  lessen 
the  king's  revenues,  etc. ;  but  it  became  the  most  common  means  of 
travel  in  the  eighteenth  century. 


THE  COMING  IN  OF  CAPITALISM  201 

Another  line  of  carrier  activity  pushed  by  the  trading  classes  was 
_the  postal  service.  The  early  English  post  office  had  a  political  and 
military  origin,  but  the  carriage  of  mail  for  private  parties  was  used 
to  help  defray  the  expense  of  the  royal  mail.  In  1638  Thomas 
Withering  laid  the  basis  of  modern  postal  systems;  his  reforms  were 
to  provide  for  the  carriage  of  private  letters  at  fixed  rates,  to  increase 
the  speed  of  the  posts,  and  to  put  the  post  office  on  a  successful 
financial  footing. 

The  tradesmen  found  several  particular  uses  for  the  mails  besides 
their  regular  correspondence.  One  was  the  carriage  of  certain  light 
goods  by  post,  such  as  laces,  diamonds,  etc.  Another  was  the  device 
introduced  by  the  Bank  of  England  in  1738  to  facilitate  the  trans- 
mission of  large  sums  of  money  by  post  called  "Bank  Post  Bills"; 
the  notes  were  payable  at  seven  days'  sight  so  that  in  case  the  mail 
was  robbed  the  parties  might  have  time  to  stop  payment  of  the  bills. 
Still  another  use  was  the  transmission  of  mercantile  papers  and  bills 
receivable  and  payable.  Special  forms  of  assignation  or  indorsement 
were  invented  to  insure  against  robberies  or  loss  of  the  mails.  Lastly, 
a  very  important  usage  was  the  sending  of  patterns  and  samples  by 
mail.  It  is  probable  that  the  franking  privilege  as  it  was  abused  in 
the  eighteenth  century  was  of  itself  a  considerable  inducement  for  a 
merchant  to  enter  public  life. 

A  final  method  of  mercantile  communication  must  be  mentioned, 
viz.,  the  newspaper.  The  first  Weekly  Newes  appeared  in  162 1.  The 
first  business  advertisement  in  a  newspaper  dates  from  1658.  The 
average  number  of  newspapers  sold  annually  in  England  1751-1753 
was  7,411,757,  and  in  1760  it  was  9,464,790.  This  was  surely  a 
prodigious  increase  in  the  circulation  of  news  over  what  it  was  a 
century  earlier. 

The  commercial  and  business  uses  of  newspapers  consisted  in 
diffusing  the  political  events  of  the  day  at  home  and  abroad;  in 
communicating  consular  letters  and  essays  on  trade,  as  well  as  reports 
of  the  markets  and  the  movement  of  ships;  and,  lastly,  in  advertising. 
Advertising  in  newspapers  after  its  start  in  1658  made  rapid  progress. 
In  1675  a  mercury  was  devoted  to  "Advertisements  Concerning 
Trade,"  and  was  followed  in  1679  by  a  gratuitous  sheet  of  advertise- 
ments for  "promoting  Trade,"  trusting  for  profit  to  the  payment  for 
insertions  only.  The  increase  in  the  number  and  influence  of  the 
newspapers  improved  their  value  as  means  of  advertising.  The 
advertisements  lacked  the  attractive  qualities  of  the  modern  type, 
but  related  to  a  wide  range  of  subjects  and  interests.     By  the  middle 


I 


202  INDUSTRIAL  SOCIETY 

of  the  century  advertising  in  newspapers  had  become  quite  the  uni- 
versal practice  of  the  merchant,  trading  and  moneyed  classes. 

Summary  and  conclusions. — In  the  foregoing  paragraphs  effort 
has  been  made  to  demonstrate  that  between  1660  and  1760  in 
particular,  extensive  developments  were  made  in  the  means  of 
communication  and  transport;  that  these  means  were  of  increasing 
service  to  the  trading  class;  and  that  they  were  fostered  by  this 
class. 

One  result  of  this  general  progress  in  communication  and  transport 
was  to  widen  the  market  area.  The  transport  of  goods,  people,  and 
news  was  the  basal  and  causal  element  in  the  expansion  of  business 
before  1760.  The  means  of  production  in  workshop  and  farm  were 
practically  unchanged.  The  increase  in  the  volume  of  products  was 
in  response  to  the  larger  market,  made  possible  by  better  communica- 
tion, and  stimulated  by  lower  prices,  larger  variety,  and  suggestive 
advertisements.  But  the  larger  volume  of  goods  passing  from 
producer  to  consumer  wrought  not  only  a  greater  occasion  for  the 
middleman,  but  also  effected  a  further  differentiation  of  the  middle- 
man: branches  of  the  trade  which  hitherto  could  not  support  a 
specialized  agent  could  now  afford  a  profitable  employment  for 
him. 

A  second  result  was  to  concentrate  trade  in  the  most  convenient 
ports  and  inland  markets  and  cause  a  decline  in  the  local  market  town 
and  fair.  London,  Bristol,  Liverpool,  and  Leeds  became  wholesale 
centers,  discharging  goods  to  provincial  retailers.  They  also  became 
centers  of  a  more  general  trade,  places  of  mutual  exchange  of  goods 
from  all  parts  of  the  kingdom.  The  mechanism  of  trade  became  most 
complex  at  these  points,  and  the  larger  volume  of  wares  that  came 
thither  furthered  the  complexity  by  enabling  the  middlemen  to  dif- 
ferentiate. Warehouses  became  a  necessary  complement  to  these 
wholesaling  centers,  and  the  capitalistic,  speculative  middleman 
played  a  larger  role.  Factors  became  a  common  class  seated  in  the 
Exchanges  of  these  cities. 

A  third  result  was  to  render  commerce  more  sensitive  and  more 
responsive"  to  local  or  individual  needs.  Local  dearths  and  surpluses 
were  more  readily  equalized.  Differences  in  prices  were  reduced  by 
the  fall  in  the  price  of  carriage.  Business  arose  where  none  heretofore 
could  exist.  More  rapid  and  reliable  information  about  methods  of 
production,  markets,  changes  in  price  and  trade  reduced  distances 
practically.     Sectionalism  and  local  jealousies  and  customary  se 


THE  COMING  IN  OF  CAPITALISM  203 

sufficiency  were  supplanted  by  commercial  unity.  The  nation  became 
metropolitan.  The  business  men  of  the  cities  controlled  the  pulse 
of  a  trade  that  flowed  to  and  from  all  parts  of  the  kingdom. 

78.    METHODS  OF  MARKETING  ABROAD1 

Five  methods  of  marketing  abroad  were  devised  by  the  merchant: 
(a)  travelling  merchant,  (b)  supercargo,  (c)  factor,  (d)  foreign  resident 
commission  house,  and  (e)  branch  house.  This  is  roughly  the  histori- 
cal order  by  which  they  rose  to  importance. 

Supercargo. — The  earliest  merchants  either  were  captains  and 
masters  of  ships  or  were  merchants  who  accompanied  their  goods,  the 
cargo  of  another's  ships.  As  such  they  attended  and  did  their  own 
buying  and  selling  abroad.  The  differentiation  of  the  merchant 
function  and  the  ship-master  function,  and,  further,  the  ship-owner 
function  was  in  process  during  the  seventeenth  and  eighteenth  cen- 
turies. So  long  as  the  practice  was  for  the  merchants  to  accompany 
their  cargoes  very  strait  limitations  were  thus  put  to  the  volume  of 
business  that  could  be  done;  few  voyages  could  be  made  in  a  year; 
foreign  connections  had  to  be  made  each  time;  few  markets  could 
be  reached;  business  abroad  was  spasmodic;  business  at  home  was 
interrupted  by  their  going  away;  and  so  forth.  By  reason  of  such 
inconveniences  a  recourse  was  had  to  the  supercargo. 

"Supercargo"  is  defined  as  an  agent  "confined  to  the  sale  of  goods 
under  direction  on  some  voyage,  and  it  may  be  the  purchase  of  others, 
in  conformity  with  the  orders  his  employer  may  give  him."  The 
merchant  prepared  and  shipped  the  cargo  in  his' own  or  another's 
ship  and  sent  a  supercargo  to  conduct  the  sales  abroad;  the  return 
cargo  was  bought,  prepared,  shipped,  and  accompanied  by  the  super- 
cargo. This  system  of  agency  was  necessitated  in  the  period  before 
international  bills  and  machinery  of  exchange  had  been  instituted 
between  the  countries  trading. 

Factor. — A  factor  is  a  merchant's  agent,  residing  abroad,  consti- 
tuted by  letter  of  attorney,  to  transact  the  business  of  purchasing, 
selling,  transporting,  and  exchanging,  that  shall  be  committed  to  his 
care  by  his  principal. 

The  chief  functions  of  the  factor  were  stated  in  the  definition  of  the 

term:   he  cared  for  the  commercial  interests  of  his  principal  in  the 

port  where  he  resided.    The  sale  of  the  cargoes  consigned  to  him  and 

1  Adapted  by  permission  from  R.  B.  Westerfield,  "Middlemen  in  English 
Business,"  Transactions  of  the  Connecticut  Academy  of  Arts  and  Sciences,  XIX, 
551-61.     (Yale  University  Press,  1915.) 


I 


204  INDUSTRIAL  SOCIETY 

the  purchase  of  return  cargoes  were  his  prime  business;  but  scarcely 
less  important  were  the  accessory  business  of  insurance,  exchange, 
packing  and  lading,  paying  customs,  etc.,  collecting  debts  due  his 
principal,  securing  and  maintaining  the  favor  of  foreign  princes  and 
mercantile  houses,  and  the  various  other  business  attendant  upon 
foreign  negotiation.  A  factor  was  free  to  serve  several  merchants, 
principals  simultaneously,  in  which  case  the  ris^  of  his  actions  was 
joint.  By  means  of  factors  the  merchants  were  enabled  to  negotiate 
with  the  whole  world  without  leaving  their  stores  or  accounts;  by 
correspondence  they  learned  the  relative  dearth  and  abundance  of 
goods  in  its  different  parts,  and  by  correspondence  the  principal 
directed  a  consignment  of  goods  from  one  of  his  factors  to  another. 
The  settled  residence  of  the  factor  in  the  section  in  which  he  operated 
was  a  distinct  advantage  over  the  supercargo  system;  he  had  opportu- 
nity for  furthering  his  principal's  interests  without  interruption;  his 
residence  gave  him  credit  and  clientele  as  well  as  better  insight  into 
the  needs  of  the  people  and  methods  of  dealing  with  them,  and  in 
many  places  he  was  able  to  effect  political  changes  in  his  district 
highly  beneficial  to  his  business. 

Commission  house. — The  line  of  demarcation  between  factor  and 
commission  house  cannot  be  absolutely  drawn,  because  a  commission 
merchant  is  a  factor.  A  commission  house  buys  and  sells  in  foreign 
trade,  in  its  own  name,  for  a  number  of  principals  a  variety  of  goods, 
on  commission.  It  receives  the  goods  by  consignment  from  a  mer- 
chant or  manufacturer.  It  is  entrusted  with  the  possessions,  control, 
management,  and  disposal  of  the  goods  sold.  It  does  business  in  its 
own  name  but  on  the  account  and  at  the  risk  of  the  principal. 

These  houses  are  houses  of  reputation,  capital  and  credit.  They 
allow  the  consignor  to  draw  on  them  for  a  large  per  cent  of  the  value 
of  the  goods  consigned,  immediately  upon  receipt.  Such  advances 
require  large  capital  on  the  part  of  the  consignee.  They  store  the 
goods,  sell  them  in  their  own  name,  and  guarantee  payments  of  the 
accounts  to  the  consignor.  They  carry  out  the  shipping  details, 
caring  for  lading,  shipping,  insurance,  commercial  papers,  etc.  They 
also  buy  goods  upon  order  from  foreign  houses,  and  finance  and  shij 
the  order,  collecting  their  outlay  from  the  consignee.  Their  profit 
arise  from  the  commission  paid,  interest  on  their  outlay,  insurant 
profits,  etc. 

Branch  house. — A  merchant  firm  may  conduct  other  houses 
like  kind  abroad  and  use  these  as  means  of  carrying  on  their  forei^ 


THE  COMING  IN  OF  CAPITALISM  205 

business.  Such  branch  houses  have  distinct  advantages  which 
recommend  them  to  modern  business.  ■  A  branch  house  permits 
foreign  customers  to  fill  orders  without  delay  or  the  formalities 
connected  with  long  distance  ordering,  and  to  order  small  quantities; 
it  impresses  the  customer  with  a  feeling  of  security  in  the  responsi- 
bility of  the  distant  firm;  by  it  mistakes  and  disputes  are  easily 
adjusted  and  redress  effected  without  delay  which  a  long  tedious 
correspondence  entails;  and  it  may  carry  a  limited  stock  of  goods, 
and  quote  two  prices,  one  for  prompt  shipment  from  the  branch,  the 
other  for  shipment  from  the  home  office. 

79.    THE  EARLY  HISTORY  OF  INSURANCE  IN  ENGLAND1 

Just  as  production  was  at  first  carried  on  under  the  domestic 
system,  so  insurance  at  a  very  early  period  in  England  had  reference 
to  the  provision  against  the  various  adverse  conditions  that  might 
befall  a  family  or  any  one  of  its  members.  This  characteristic  was 
of  equal  importance  with  the  social  one  in  the  organization  of  the 
Saxon  and  Anglo-Norman  gilds.  These  bodies  provided  against 
losses  from  fire,  besides  securing  gildsmen  an  income  during  sick- 
ness, arranging  for  their  burial,  and,  in  some  cases,  making  loans  to 
members  or  their  children,  either  without  interest  or  at  a  low  rate. 
On  the  decay  of  the  original  undifferentiated  gild,  some  of  its  func- 
tions were  continued  by  its  successors  the  gild  merchant,  the  craft 
gild,  the  city  company,  and  even  to  a  small  extent  by  the  regulated 
and  joint-stock  companies.  Between  the  fourteenth  and  seven- 
teenth centuries  social  conditions  had  been  changing.  On  the  whole 
although  death  by  violence  was  still  only  too  common,  life  risks  had 
become  less.  The  more  permanent  style  of  domestic  architecture 
should  have  tended  to  diminish  losses  by  fire;  so  that,  great  as  were  the 
risks  to  life  and  property  from  a  modern  standpoint,  it  may  have 
appeared  that  the  need  for  insurance  was  not  so  great;  and,  at  the 
same  time,  the  decline  of  the  gilds  had  removed  the  organization 
through  which  hitherto  the  provision  had  been  made. 

While  the  practice  of  something  resembling  fire  and  life  insurance 
seems  to  have  diminished,  the  principle  of  assurance  was  being  devel- 
oped in  quite  a  new  direction,  namely  in  securing  against  marine 
risks.  The  method  by  which  this  was  effected  introduces  the  new 
dement  of  the  substitution  of-  a  proprietary  for  a  mutual  insurance. 

Adapted  by  permission  from  W.  R.  Scott,  Joint  Stock  Companies  to  1720, 
}  363-74.     (The  Cambridge  University  Press,  191 1.) 


206  INDUSTRIAL  SOCIETY 

In  the  gild  the  members  really  constituted  a  species  of  benefit 
society,  whereas  marine  insurance  was  conducted  by  persons  who 
had  no  special  connection,  outside  that  transaction,  with  those 
assured. 

It  is  "difficult  to  determine  how  early  this  species  of  transaction 
began.  It  may  have  been  a  development  of  the  foenus  nauticum  of 
the  later  Roman  Empire;  or,  on  the  other  hand,  the  loan  on  bottomry 
may  have  been  called  into  existence  independently  to  meet  the 
exigencies  of  the  case.  A  loan  on  bottomry  inverts  the  modern 
practice  in  marine  insurance.  The  assured  or  borrower  obtained  the 
advance  of  a  specified  amount  of  capital,  on  condition  that  he  should 
repay  it,  together  with  a  premium  on  the  return  of  his  ship — the  ship 
itself  being  the  security.  If  the  vessel  were  lost,  there  was  no  obliga- 
tion to  make  good  the  sum  lent.  During  the  Middle  Ages  the  position 
of  the  church  with  regard  to  usury  made  this  form  of  investment  a 
favorite  one  for  persons  who  had  capital  at  their  disposal  and  who  did 
not  wish  to  undertake  the  trouble  of  management  in  a  partnership. 

It  would  seem  that  at  first  marine  insurance  was  conducted  as  a 
part  of  a  general  financial  business,  either  by  a  body  of  merchants, 
such  as  those  of  the  Steelyard,  or  by  the  goldsmiths.  It  was  not  until 
the  eve  of  the  South  Sea  period  that  joint-stock  marine  insurance, 
as  far  as  is  known,  came  into  existence.  Although  marine  insurance, 
on  a  non-mutual  basis,  was  earlier,  it  was  the  last  of  the  three  groups 
to  be  developed  by  means  of  joint-stock  companies. 

After  marine  insurance  came  some  form  of  provision  against 
certain  adverse  life-contingencies.  It  is  stated  by  Francis  that  persons 
who  intended  to  make  pilgrimages  to  distant  countries  were  in  the 
habit  of  effecting  a  bargain  before  they  started  by  which  in  considera- 
tion of  a  certain  payment,  the  assurer  agreed  to  provide  a  ransom  for 
the  assured,  in  the  event  of  the  latter  being  taken  captive.  Similar 
arrangements  were  made  by  merchants  who  went  on  trading  voyage 
Or  again,  the  contract  might  be  of  a  different  nature,  when  t 
~~j  \  traveller  would  deposit  a  sum  of  money  on  the  understanding  tha., 
/  Y  should  he  return  to  claim  it,  he  was  to  receive  a  large  addition  to  his 
deposit;  if  he  failed  to  arrive  home,  the  assurer  retained  the  amount 
lodged  with  him. 

There  remains  one  species  of  insurance  as  yet  undealt  with,  namely 
the  provision  against  loss  in  the  case  of  fire.  It  seems  that,  for  several 
centuries  after  the  dissolution  of  the  gilds,  there  was  no  organization 
carry  on  this  class  of  business.     Proposals  for  establishing  fire  insu 


es. 


THE  COMING  IN  OF  CAPITALISM  207 

ance  were  made  in  1635  and  1638;  but,  though  as  early  as  1591  the 
system  was  in  operation  at  Hamburg,  it  was  not  until  after  the  Great 
Fire  of  London  that  offices  began  to  come  into  existence  in  England. 
The  earliest  undertaking  that  can  be  traced  is  that  established  in 
1667  by  Dr.  Nicholas  Barbon,  a  prominent  building  speculator  and 
the  author  of  A  Discourse  of  Trade  (1690).  This  office  was  at  first 
known  as  "Barbon's"  and  it  continued  in  Barbon's  hands  till  1680 
when  it  was  transferred  to  a  company,  and  it  was  then  described  as 
The  Insurance  Office  at  the  Back-side  of  the  Royal  Exchange. 

Up  to  1706  fire  insurance  had  been  confined  to  provision  for  losses 
on  buildings,  and  in  that  year  Charles  Povey  first  founded  offices  to 
insure  against  losses  of  goods  and  merchandize.  One  of  these  was  for 
London  and  the  other  for  the  country.  Both  were  eventually  trans- 
ferred to  the  Company  of  London  Insurers,  which  became  known  as 
the  Sun  Fire  Office. 

The  period  of  excitement  at  the  time  of  the  South  Sea  Bubble  was 
marked  in  London  by  many  insurance  proposals.  Some  were  intended 
to  rival  the  existing  fire,  life,  and  marine  undertakings,  while  others 
branched  out  in  new  directions.  Amidst  schemes  that  were  chimerical 
there  were  some  that  anticipated  developments  realized  later,  such 
as  burglary  insurance,  the  insurance  of  debts  and  of  live  stock. 


See  also  191.     Some  Functions  and  Effects  of  Insurance. 

80.    THE  RISE  OF  FINANCIAL  MIDDLEMEN  IN  ENGLAND1 

Now,  in  a  general  manner,  may  be  presented  the  rise  in  the  volume 
of  capital  handled  in  commercial  transactions,  the  rise  of  a  specialized 
class  of  financial  middlemen,  and  the  rise  of  modern  business  methods 
with  respect  to  commercial  paper.  The  capitalistic  quality  so 
permeates  the  middlemen's  business  that  some  attention  to  this  phase 
is  required  in  a  treatment  of  their  work.  The  most  characteristic 
thing  of  modern  industrial  and  commercial  life  is  the  dominant  impor- 
tance of  capital. and  credit.  Quite  the  opposite  fact  characterized 
the  mediaeval  market  system.  A  momentous  transition  in  the  nature 
of  commercial  and  manufacturing  activity  was  in  progress  in  the  two 
centuries  preceding  the  Industrial  Revolution  in  which  event  the 
capitalistic  regime  was  established. 

1  Adapted  by  permission  from  R.  B.  Westerfield,  "Middlemen  in  English 
Business,"  Transactions  of  the  Connecticut  Academy  of  Arts  and  Sciences,  XIX, 
82.     (Yale  University  Press,  1915.) 


:" 


208  INDUSTRIAL  SOCIETY 

With  minor  exceptions  the  great  system  of  modern  credit  in  the 
business  life  of  the  English  people  arose  in  the  century  before  1760. 
International  exchange,  book-credit,  promissory  notes,  and  a  few 
other  representatives  of  credit  had  a  meager  use  before  1650,  but  the 
real  age  of  credit  was  inducted  by  the  goldsmith  banker  during  the 
Civil  War  and  the  Puritan  regime. 

Book-credit  was  the  simplest,  earliest,  and  most  general  form  of 
credit.  Nearly  every  seller  was  likely  to  grant  credit  of  this  kind 
occasionally  or  customarily  to  buyers.  Traders  bought  on  time  rather 
than  borrow  money  directly  at  interest;  in  fact  the  two  practices 
were  alike,  except  that  book-credit  usually  drew  a  higher  but  implicit 
rate  of  interest,  double  or  more.  Shopkeepers  and  larger  tradesmen 
and  merchants  carried  running  accounts  with  one  another  and  with 
their  customers.  The  clothier  was  a  considerable  giver  and  taker 
of  this  sort  of  credit. 

Loans  attested  by  promissory  notes  were  facilitated  in  two 
respects  about  1700.  Greater  security  was  provided  by  the  intro- 
duction of  fire-insurance.  It  at  once  became  the  practice  to  refuse 
to  lend  money  upon  houses  unless  they  were  first  insured;  by  1723 
it  was  said  that  not  one  in  a  hundred  would  lend  otherwise.  A  means 
of  greater  security  was  also  procured  by  the  initiation  of  a  system  of 
public  registry  of  deeds,  mortgages,  and  conveyances.  The  country 
gentlemen  had  suffered  many  inconveniences  and  abuses  in  borrowing 
money  on  their  land's  security.  The  passage  of  this  law  gave  a  legal 
standing  to  a  registered  mortgage  which  made  it  sound  collateral  for 
loans. 

Banking  was  inaugurated  by  the  goldsmiths.  They  had  long 
done  a  pawnshop  business  in  connection  with  their  smith  work. 
About  1645  they  became  buyers  and  exporters  of  bullion.  During 
this  period  of  insecurity  due  to  the  civil  wars  the  merchants  deposited 
their  cash  and  plate  with  the  goldsmiths  for  safekeeping.  By  a 
inducement  of  four  pence  a  day  interest  paid  on  deposits  they  soo 
acquired  large  holdings,  and  set  up  "running  cashes,"  making  loa 
to  merchants  and  others  for  weeks  and  months  and  trusting  "some  to 
come  as  fast  as  others  were  paid  away."  By  discounting  merchants' 
bills  of  exchange  at  high  interest  they  made  a  considerable  profit 
They  loaned  to  Cromwell  and  Charles  II;  loaned  on  pawns  and  bot 
tomry;  loaned  on  "notorious  Contracts,  or  upon  personal  Securities 
from  Heirs  whose  Estates"  were  "in  expectancy";  the  rates  in  these 
cases  were  exorbitant. 


ed 

E 


i 


THE  COMING  IN  OF  CAPITALISM  209 

In  1677  the  list  of  all  the  goldsmiths  keeping  " running  cashes" 
numbered  forty-four.  From  this  time  to  1690  there  was  a  progressive 
differentiation  between  banking,  pawn-broking  and  goldsmithing. 
Francis  Child,  "the  Father  of  the  Profession,"  was  the  first  to  devote 
himself  exclusively  to  banking. 

It  seems  that  the  fundamental  purpose  or  function  of  banks  was 
the  transfer  of  ownership  of  money  by  the  assignation  of  deposits, 
"without  the  danger  and  trouble  of  keeping,  carrying,  or  telling  it." 
The  original  of  this  was  likely  the  use  of  safety  deposit  vaults  as 
depositories  for  valuables.  The  goldsmiths  performed  both  these 
services.  They  received  on  deposit  gold  and  silver  plate  and  coin, 
as  well  as  government  tallies,  and  gave  the  depositors  book-credits 
and  -notes.  The  earliest  known  record  of  a  goldsmith's  note  issued  for 
an  amount  of  money  deposited  with  him  dated  from  1667.  These 
were  the  original  of  the  modern  bank-note.  The  principle  of  the 
check  and  check-system  was  also  devised  at  this  time  by  the  gold- 
smiths. 

Throughout  the  latter  half  of  the  seventeenth  century  there  was 
a  growing  demand  for  a  commercial  bank  as  an  aid  to  merchants. 
It  appears  that  the  merchants  resorted  to  the  goldsmiths  with  reluc- 
tance; but  the  dispatch  of  trade  forced  them,  in  spite  of  extensive 
losses,  to  use  goldsmiths'  notes. 

In  1676  there  was  formulated  a  plan  for  a  "Bank  of  Credit"  and 
proposed  to  the  Mayor,  Aldermen,  and  Common  Council  of  London. 
After  several  examinations  it  was  undertaken  as  a  project  "highly 
conducing  to  the  general  good."  It  provided  for  a  subscription  to  a 
fund  under  the  care  and  management  of  trustees  chosen  by  the 
subscribers;  and  "many  Considerable  and  Wealthy  Inhabitants" 
subscribed  a  "  Fund  more  Substantial  than  any  Bank  abroad."  Sub- 
scriptions were  paid  in  kind,  e.g.,  tin,  lead,  copper,  iron,  raw  silk, 
wool,  cotton,  etc.  These  wares  were  put  in  warehouses  provided 
for  the  purpose,  for  one  year,  and  substitutions  of  other  goods  were 
allowed  during  the  year.  Credit  was  allowed  on  such  deposits  up  to 
two-thirds  or  three-fourths  of  their  market  value,  depending  on  the 
durability  of  the  goods  and  the  stability  of  price.  The  "bank" 
failed  in  1683. 

It  was  also  frequent  for  merchants  about  1670  to  enter  into 
partnerships  among  themselves  and  give  joint  bonds  for  security  to  all 
persons  who  offered  to  deposit  money  with  them.  With  these 
deposits  they  ventured  in  all  sorts  of  undertakings.    The  above-cited 


I 


210  INDUSTRIAL  SOCIETY 

[citation  omitted]  Thompson,  for  example,  dealt  in  wine  and  silk,  was 
an  interloper  in  the  India  trade,  traded  to  Russia,  and  ventured  in 
mines,  Irish  manufactures,  and  international  exchange.  This  firm 
failed  in  1 6 7 5 .  The  business  world  had  learned  a  lesson.  The  charter 
of  the  Bank  of  England  prohibited  it  from  trading  directly  or 
indirectly. 

The  Bank  of  England  was  founded  in  1694  primarily  as  a  revenue 
measure  to  sustain  the  government  of  the  Revolution  in  its  foreign 
wars.  The  Bank  at  once  became  "the  very  heart  of  the  economic 
life  of  the  country,"  and  performed  invaluable  functions' with  com- 
merce. 

The  Bank  added  to  the  available  capital  of  the  country  and  gave 
wider  opportunity  for  trading  on  borrowed  capital.  In  conjunction 
with  the  reform  of  the  currency  in  1696  it  corrected  the  disadvan- 
tageous rate  of  foreign  exchange.  But  it  did  not  perform  as  many 
functions  as  commercial  banks  might  and  many  extensions  of  service 
were  suggested,  such  as  advances  to  importers  to  pay  duties,  loans 
on  landed  security,  etc.  By  the  middle  of  the  eighteenth  century, 
however,  it  was  agreed  that  the  methods  of  business  employed  by  the 
Bank  of  England  were  more  satisfactory  to  the  commercial  world 
than  those  of  any  foreign  country. 

Banking  institutions  extended  themselves  very  little  in  the  first 
half  of  the  eighteenth  century.  The  following  numbers  of  banks 
existed:  in  1677,  44;  1738,21;  1754,18;  1763,  23;  1736,  21;  1740, 
28;  1759,24;  the  fluctuations  were  caused  by  failures,  amalgamations, 
and  foundations.  ___ 

See  also  53.     Mediaeval  Currency. 

128.     Various  Services  of  Banks. 

81.  THE  EXCHANGE  IN  ENGLAND1 

Exchange,  as  Bourse:  (a)  A  place  where  merchants,  bankers, 
brokers,  etc.,  assemble  at  certain  hours  for  the  transaction  of  business; 
and  (b)  the  assemblage  itself.  In  both  senses  the  word  is  commonb 
contracted  into  'Change. 

"The  last  yere,  I  shewyed  your  goode  lordeshipe  a  platte,  that 
was  drawen  howte  for  to  make  a  goodely  Bursse  in  Lombert  strette 
for  marchaunts  to  repayer  unto.     I  doo  suppose  yt  wyll  coste  ii.  M. 

1  Taken  by  permission  from  George  Clare,  "Exchange,  as  Bourse,"  in  Palgrave's 
Dictionary  of  Political  Economy,  I,  767-68.     (Macmillan  &  Co.,  Ltd.,  1910.) 


THE  COMING  IN  OF  CAPITALISM  21 1 

(£2000)  and  more,  wyche  shalbe  very  beautyfull  to  the  citti,  and 
allsoo  for  the  honor  of  our  soverayngne  lord  the  Kynge."  Thus 
wrote  Lord  Mayor  Sir  Richard  Gresham  in  1538  to  Cromwell,  the 
lord  privy  seal.  He  had  recently  seen  and  admired  the  new  Burse 
at  Antwerp,  and  was  anxious  that  London  merchants  whose  custom 
it  was  to  congregate  twice  a  day  in  the  open  air  at  Lombard  street, 
should  be  provided  with  a  similar  house,  or  covered  walk,  to  shelter 
them  from  the  inclemency  of  the  weather.  But  powerfully  as  he 
advocated  the  scheme,  it  did  not  find  favor.  Owners  of  property 
were  difficult  to  treat  with;  and,  as  the  merchants  themselves  appear 
to  have  been  completely  indifferent,  the  plan  was  suffered  to  fall 
through.  After  the  lapse  of  a  quarter  of  a  century,  it  was  however 
again  brought  forward  by  his  public-spirited  son,  Sir  Thomas  Gresham. 
On  the  death  of  his  only  child  in  1564,  Sir  Thomas  appears  to  have 
conceived  the  idea  of  making  his  country  his  principal  heir:  he 
munificently  offered,  provided  the  city  would  furnish  a  suitable  site, 
to  erect  the  building  at  his  own  expense.  His  fellow-citizens  grate- 
fully accepted  the  offer;  they  raised  a  sufficient  sum  by  subscription, 
purchased  the  piece  of  land  on  which  the  Royal  Exchange  now  stands, 
and  conveyed  it  over  to  him.  By  the  end  of  1568,  merchants  were 
able  to  hold  their  meetings  within  the  building.  It  consisted  of  a 
quadrangular  arcade,  enclosing  an  open  court,  and  bore  a  general 
resemblance  to  the  Burse  at  Antwerp,  which  had  suggested  the  plan. 
After  completion,  it  was  inspected  and  formally  opened  (January  23, 
1571)  by  Queen  Elizabeth,  who  "  caused  the  same  Burse  by  an 
herralde  and  a  trompet  to  be  proclaimed  the  Royal  Exchange,  and 
so  to  be  called  from  thenceforth,  and  not  otherwise."  Gresham  had 
ordained  in  his  will  that  on  the  death  of  his  wife,  who  was  to  enjoy 
the  rents  during  her  lifetime,  the  Royal  Exchange  should  be  vested 
in  the  hands  of  the  Corporation  of  the  City  of  London  and  of  the 
Mercers'  Company,  conjointly,  and  to  them  it  in  due  time  reverted. 
Exactly  100  years  after  the  laying  of  the  foundation  stone,  the  build- 
ing was  swept  away  in  the  great  fire  of  1666;  and  its  successor,  the 
second  exchange,  was  also  destroyed  by  fire  in  1838.  The  present 
structure  dates  from  1844. 

To  the  inquiring  foreigner  or  stranger  who  nowadays  visits  the 
Royal  Exchange,  as  many  do,  in  the  expectation  of  finding  there  the 
very  heart  and  focus  of  the  business  of  London,  the  silence  and  the 
deserted  appearance  of  its  interior  are  a  constant  source  of  wonder- 
ment, for,  with  the  exception  of  a  short  interval  in  the  afternoon,  when 


212  INDUSTRIAL  SOCIETY 

it  is  resorted  to  by  dealers  in  some  of  the  minor  branches  of  com- 
merce (paper,  oil,  drugs,  etc.)  and  of  an  hour  or  so  on  Tuesdays  and 
Thursdays,  when  foreign  bills  are  dealt  in,  it  appears  to  the  observer 
to  be  entirely  given  over  to  loungers.  As  a  matter  of  fact  it  has  to  a 
great  extent  outlived  its  object.  In  the  time  of  Gresham,  and  for 
many  years  afterwards,  the  space  afforded  by  the  quadrangle  and 
ambulatory  was  doubtless  amply  sufficient  for  all  requirements,  but 
today  the  building  would  hardly  give  standing  room  to  a  tithe  of  those 
who  every  day  come  together  in  the  city  to  discuss  and  transact 
affairs;  long  ago  it  became  apparent,  as  the  throng  grew  more  and 
more  dense,  either  that  the  exchange  must  be  greatly  enlarged,  or  that 
some  of  those  who  frequented  it  must  foregather  elsewhere.  One 
after  another,  accordingly,  the  larger  and  wealthier  sections  of  traders 
forsook  the  parent  assembly  and  built  homes  for  themselves  in  more 
convenient  localities.  The  dealers  in  stocks  and  shares,  the  produce 
merchants,  shipowners,  insurance  underwriters,  coal-,  metal-,  corn-, 
hop-,  wool-traders,  and  others,  now  possess  their  own  separate 
exchanges.  There  is,  however,  one  small  but  important  group  which 
still  transacts  business  in  the  old  parent  centre,  and  which  the  mind 
more  particularly  associates  with  the  word  "  'Change. "  On  Tuesdays 
and  Thursdays,  immediately  after  luncheon  time,  the  principals  of 
the  great  merchant-banking  houses,  and  of  the  foreign  and  Anglo- 
foreign  joint-stock  banks,  collect  at  the  eastern  end  of  the  courtyard 
to  discuss  matters  of  common  interest  and  to  deal  in  foreign  bills. 
The  attendance  is  never  very  large — not  more,  perhaps,  including  the 
brokers,  than  five  or  six  score;  but  it  comprises  members  of  firms 
whose  names  are  "household  words"  on  every  bourse  throughout  the 
world,  and  is  eminently  representative  of  the  financial  side  of 
England's  Weithandel.  Hubbub  and  excitement,  apparently  neces- 
sary concomitants  of  the  dealings  in  other  commercial  assemblies,  are 
here  entirely  absent;  the  negotiations  are  conducted  in  a  quiet  under- 
tone, and  with  an  air  of  nonchalance  which  might  almost  lead  the 
onlooker  to  believe  that  the  chief  object  of  the  meeting  is  conversation 
and  that  business  is  quite  a  secondary  consideration. 


See  also  97.    Produce  Exchanges. 

98.  The  Cotton  Exchange  of  New  Orleans. 

99.  Stock  Exchanges. 


THE  COMING  IN  OF  CAPITALISM  213 

E.     The  Industrial  Revolution  the  Current  Phase  of  Capitalism 
82.    THE  CHANGES  WROUGHT  BY  THE  REVOLUTION1 

At  the  close  of  the  eighteenth,  and  the  opening  of  the  nineteenth, 
century  a  change,  or  rather  a  series  of  changes,  passed  over  the 
agricultural  and  manufacturing  industry  of  England,  which  has  been 
aptly  described  by  the  name  of  the  "Industrial  Revolution."  The 
changes  which  then  took  place  were  of  considerable  magnitude,  and 
the  conditions  of  industry,  both  in  manufactures  and  in  agriculture, 
may  without  any  great  extravagance  belaid  to  have  been  revolution- 
ized. Until  this  time  the  general  character  of  industry  in  England 
presented  broadly  the  same  features  as  those  which  it  had  exhibited 
during  the  greater  part  of  the  Middle  Ages;  and  from  that  time  the 
commencement  of  our  modern  system  of  industry  dates.  Agricul- 
ture in  England  and  manufactures  alike  were  then  generally  prose- 
cuted on  what  we  should  term  primitive  and  unsystematic  methods. 
Men  were  raising  complaints  that  half  of  the  land  of  the  country  was 
waste.  The  size  of  the  farms  was  small  and  the  method  of  cultiva- 
tion unscientific.  In  many  parts  of  the  country  there  were  still  open 
uninclosed  fields;  in  nearly  all  there  was  an  absence  of  any  proper 
system  of  rotation  of  crops  and  of  turnips  and  artificial  grasses. 
Quarrels  were  continually  arising  about  the  rights  of  pasture  on  the 
.  common  meadows,  and  about  the  boundaries  of  the  many  scattered 
minute  parcels  of  land  of  which  an  individual  holding  was  made  up. 

Nor  was  the  position  or  character  of  manufacturing  industry 
different..  It  was  carried  on,  with  few  exceptions,  by  craftsmen 
working  with  their  own  hands  in  their  own  homes,  although  even 
then  there  were  exceptions,  for  some  capitalistic  employers  existed, 
and  some  factories  had  been  built  by  the  middle  of  the  eighteenth 
century.  The  mechanical  appliances  and  tools  which  the  craftsmen 
used  were  generally  of  a  simple  and  rude  description,  and  the  number 
of  persons  working  under  their  direction  was  small.  The  apprentices, 
limited  in  number  and  term  of  service,  and  the  journeymen,  with  their 
wages  fixed,  in  theory  if  not  in  practice,  by  the  magistrates,  lived  in 
the  house  and  ate  at  the  table  of  the  master-craftsman.     Employ- 

tient,  such  as  it  was,  was  regular;  fashions  varied  slowly  and  slightly; 
nd  men  produced  in  the  main,  though  not  exclusively,  for  a  market 
which  was  close  at  hand.    They  were  intimately  acquainted  with 

t1  Taken  by  permission  from  L.  L.  Price,  "The  Industrial  Revolution,"  in 
algrave's  Dictionary  of  Political  Economy,  II,  399-401.  (Macmillan  &  Co.,  Ltd., 
r 


214  INDUSTRIAL  SOCIETY 

the  conditions  of  that  market,  and  the  state  of  the  roads  was  such 
that  intercourse  and  trade  with  distant  towns  were  rendered  difficult. 
The  workman  who  ventured  to  move  from  one  town  to  another  was 
not  merely  liable  to  be  sent  back  to  his  original  abode  under  the 
law  of  settlement,  stigmatized  by  Adam  Smith  as  an  "evident  viola- 
tion of  natural  liberty  and  justice,"  for  fear  that  he  might  eventually 
come  upon  the  rates  in  his  new  dwelling-place,  but  he  might  also  be 
excluded  from  employment  by  the  restrictive  privileges  of  some 
exclusive  trade  corporation,  which  were,  in  Adam  Smith's  words,  a 
"plain  violation"  of  that  "most  sacred  and  inviolable  property  which 
every  man  has  in  his  own  labor."  The  goods  which  the  craftsmen 
made  were  often  taken  to  the  halls  of  the  different  corporations  to 
be  stamped  as  genuine.  The  woollen  industry  was  now,  as  it  had 
been  for  a  long  time  previously,  the  staple  industry  of  the  country, 
and  was  carried  on  at  Norwich,  and  in  the  west  of  England,  and  the 
West  Riding  of  Yorkshire.  The  iron  industry,  which  was  prose- 
cuted in  Sussex,  where  the  iron  was  still  smelted  by  charcoal  in  small 
furnaces  blown  by  leathern  bellows  worked  by  oxen,  was  said  to  be 
gradually  dying  out;  and  the  cotton  industry  was  so  insignificant 
as  to  be  mentioned  but  incidentally  by  Adam  Smith,  who  lived  on  the 
very  eve  of  the  Industrial  Revolution,  and  himself,  perhaps,  assisted 
in  affording  a  shelter  within  the  walls  of  Glasgow  University  to  James 
Watt,  the  inventor  of  the  steam  engine,  seeking  protection  from  the 
exclusive  tyranny  of  the  local  corporation  of  hammermen,  who  had 
refused  to  allow  him  to  practice  his  trade.  Adam  Smith  declared  that 
there  had  been  only  three  inventions  of  note  in  the  cotton  industry 
for  the  space  of  three  centuries.  Banking  was  as  yet  in  its  infancy, 
and  the  Bank  of  England  did  not  issue  notes  of  a  lower  denomination 
than  £20.  The  external  commerce  of  the  country  was  hampered 
by  a  number  of  vexatious  restrictions,  and  duties  on  imports  and 
bounties  on  exports  abounded,  while  the  colonies  were  regarded  as 
a  field  for  the  commercial  monopoly  of  the  mother  country. 

Such  was  the  general  condition  of  affairs  before  the  changes 
which  introduced  the  modern  industrial  system.  These  changes 
were  bewildering  in  their  magnitude,  and,  to  some  extent  also,  in  the 
rapidity  with  which  they  were  effected. 

Agriculture  underwent  a  transformation,  the  chief  part  of  which, 
however,  seems  to  have  been  accomplished  in  the  earlier  half  or  two- 
thirds  of  the  eighteenth  century.  Large  farms  began  to  take  the 
place  of  small  farms.    The  inclosure  of  the  open  field  was  actively 


THE  COMING  IN  OF  CAPITALISM  215 

prosecuted,  and  sometimes  injustice  was  done  to  the  rights  of  the 
smaller  commoners.  Scientific  cultivation  was  substituted,  in  a  more 
or  less  considerable  degree,  in  different  parts  of  the  country,  for  primi- 
tive methods.  Bakewell  improved  the  breed  of  cattle.  Townshend — 
"Turnip  Townshend"  as  he  was  nicknamed — introduced  the  culti- 
vation of  turnips.  Coke  at  a  later  time  devised  an  improved  system 
of  rotation  of  crops. 

But  in  manufacturing  industry  the  changes  were  more  revolu- 
tionary, and  they  occurred  in  the  latter  part  of  the  century.  Four 
great  inventions  were  made  in  the  cotton  industry — that  of  the 
spinning- jenny  by  Hargreaves;  that  of  the  water  frame  by  Ark- 
wright;  that  of  the  mule  by  Crompton;  and,  the  most  considerable 
and  important,  in  its  consequences  to  the  old  handicraft  occupations, 
of  all,  that  of  the  power-loom  by  Cartwright.  This  last  invention 
dealt  a  fatal  blow  to  the  fortunes  of  the  old  hand-loom  weavers,  and 
their  distress  has  furnished  a  stock  illustration  of  the  temporary  misery 
which  may  be  occasioned  by  the  introduction  of  machinery,  at  any 
rate  to  those  workmen  the  labor  of  whose  hands  it  supersedes.  But 
other  industries  besides  that  of  the  manufacture  of  cotton  were 
affected  by  the  changes  of  the  times.  The  smelting  of  iron  by  coal  was 
introduced  by  Roebuck  and  the  decaying  iron  industry  revived,  and 
abandoned  the  charcoal  forests  of  Sussex  for  the  coal  seams  of  the 
north  and  the  middlelands.  Canals,  such  as  the  Grand  Trunk  con- 
necting the  Trent  with  the  Mersey,  and  the  Grand  Junction  which 
afforded  the  means  of  communication  between  London  and  the  chief 
towns  of  the  Midlands,  were  constructed  under  the  direction  of 
the  inventive  genius  of  Brindley,  and  the  roads  of  the  country  were 
improved  under  that  of  Telford.  Mills  were  erected  on  the  banks  of 
rivers  in  order  that  use  might  be  made  of  the  water-power  which  was 
there  available  to  drive  the  new  machinery,  and  then  came  the  most 
wonderful  and  important  discovery  of  all — that  of  the  steam  engine, 
to  be  followed  in  its  turn  by  the  railway. 

All  these  changes  gave  a  great  stimulus  to  the  production  of  wealth 
and  the  growth  of  population.  They  kindled  a  spirit  of  eager  and 
restless  enterprise,  which  was  sometimes  inclined  to  be  reckless  of 
injury  occasioned  to  human  life  and  health,  and  to  give  little  con- 
sideration to  the  wrench  to  human  affections  which  was  not  infre- 
quently the  consequence,  direct  or  indirect,  of  the  changes.  For 
trade  passed  from  quiet  villages  to  noisy  towns;  from  the  home  of  the 
handicraftsman  to  the  factory  of  the  employer;  from  the  master  who 


I 


216  INDUSTRIAL  SOCIETY 

lived  together  with  his  apprentices  and  journeymen,  and  was  in 
general  "so  joined  together"  with  them  in  "sentiment  and  love 
that  they  did  not  wish  to  be  separated  if  they  could  help  it,"  to  the 
employer  who  had  hundreds  of  "hands"  working  under  him,  whose 
very  faces  he  might  not  himself  know.  Division  and  subdivision  of 
labor,  organization,  and  localization  of  industry  were  carried  out  on  a 
scale  and  to  an  extent  unknown  before.  Master-merchants  and 
wholesale  dealers  arose.  Manufacturers  began  to  produce  for  distant 
and  fluctuating  markets,  and  to  crowd  into,  and  dismiss  from,  their 
factories,  as  the  changing  demands  of  varying  trade  required,  multi- 
tudes of  men,  women,  and  children.  There  seems  to  be  reason  for 
believing  that  something  like  a  regular  system  of  transporting  children 
from  London  to  the  new  manufacturing  districts  of  the  country  was 
in  operation;  and  there  is  unfortunately  no  doubt  that  the  greed 
of  parents  joined  with  the  eagerness  of  employers  to  increase  the 
number  and  intensify  the  labor  of  the  young  apprentices  in  the  fac- 
tories. Population  was  stimulated  by  the  lax  administration  of  the 
poor  law  and  by  the  numerous  chances  of  earning  a  livelihood  which 
presented  themselves,  and  was,  so  to  say,  torn  up  by  the  roots  from 
its  old  abodes,  while  the  industrial  world  was  pervaded  by  restless 
movement.  The  workmen  were  forbidden  by  law  to  combine  with  a 
view  to  the  regulation  of  trade,  but  under  the  guise  of  friendly  societies 
they  formed  themselves  into  trade  unions,  and  attempted  in  certain 
trades  to  restore  the  old  system,  by  which  the  number  of  apprentices 
was  limited  and  the  magistrates  determined  the  rates  of  wages.  They 
failed  ultimately  in  this  endeavor;  but  they  did  not  cease  to  main- 
tain, under  circumstances  of  difficulty,  their  unions;  and  the  state,  by 
its  Factory  Acts,  placed  restrictions  of  increasing  rigor  and  com- 
prehensiveness on  the  employment  of  women  and  children.  The 
Industrial  Revolution  was  undoubtedly  a  time  of  great  distress,  which 
may  have  been  increased  by  the  Corn  Laws,  preventing  the  importa- 
tion of  food  from  abroad  to  make  up  for  the  scarcity  occasioned  by 
bad  harvests  at  home,  and  by  the  depression  of  trade  which  followed 
the  close  of  the  great  war.  The  financial  demands  of  the  war  com- 
bined with  the  opportunity  afforded  to  England  to  supply  the  com- 
mercial wants  of  the  Continental  nations,  in  whose  country,  and  by 
whose  soldiers  the  war  was  chiefly  prosecuted,  to  stimulate  increasec 
production;  and  the  brilliant  series  of  inventions  which  were  made 
toward  the  close  of  the  last  century  permitted  the  stimulus  to  be 
effective.    The  pressing  need  of  the  time  seemed  to  be  that  of  increasec 


THE  COMING  IN  OF  CAPITALISM  217 

production;  and  the  nation  was  less  inclined  to  regard  those  perma- 
nent interests,  which  might  have  been  consulted  by  greater  considera- 
tion for  the  health  and  the  education  of  the  young,  than  to  promote 
the  obvious  and  immediate  interests  of  the  moment. 

83.    THE  CAUSES  AND  THE  ACHIEVEMENTS  OF  THE 
REVOLUTION1 

The  term  "Industrial  Revolution"  was  applied  by  Toynbee  to  the 
economic  history  of  England  between  1760  and  1830.  Neither  begin- 
ning nor  end  can  be  marked  as  definitely  as  with  some  political  revolu- 
tions, but  economic  change  during  these  years  was  sufficiently  sudden 
and  dramatic  to  justify  the  use  of  the  term.  The  old  order  had  not 
really  been  stationary,  but  change,  as  has  been  seen,  had  been,  for  a 
century  and  a  half,  abnormally  slow.  It  now  acquired  suddenly  un- 
precedented momentum.  Again,  whilst  it  is  true  that  this  momentum 
has  gathered  rather  than  lost  force  since  1830,  the  close  of  the  revolu- 
tion may  be  dated  from  that  year.  Men  had  begun  to  realise  the 
extent  and  direction  of  the  change  which  had  come  upon  England, 
and  were  shaping  ideas  and  policies  conformable  to  the  new  conditions 
of  life. 

The  Industrial  Revolution  was  the  work  of  a  mere  handful  of  men. 
Some  ten  or  twelve  individuals  revolutionised,  or  created,  each  of  a 
number  of  great  industries.  What  these  men  had  in  common  was  a 
power  of  surveying  economic  problems  in  a  cool  and  rational  spirit,  of 
cutting  themselves  loose  from  the  control  of  what  had  been  done,  and 
of  the  way  in  which  it  had  been  done.  Viewed  in  this  light  the  Indus- 
trial Revolution  falls  into  its  proper  place  in  relation  to  the  main 
stream  of  eighteenth-century  history.  It  denotes  the  triumph  of 
rationalism  in  the  economic  sphere.  It  need  hardly  be  added  that  a 
peculiar  combination  of  circumstances  was  required  to  enable  a 
handful  of  men  to  produce  such  enormous  results  in  a  particular 
country  and  at  a  particular  time.  Events  had  been  working  for 
centuries  to  make  possible  the  Industrial  Revolution  in  England, 
as  they  had  also  been  working  for  centuries  to  make  possible  a  political 
revolution  in  France. 

In  general,  the  feasibility  of  large-scale  production  was  the  one 
thing  which  permitted  a  few  individuals  to  alter  the  economic  life  of  the 
aation.     It  gave  to  the  cotton  or  iron  king  a  greater  direct  authority. 

1  Adapted  by  permission  from  H.  O.  Meredith,  Outlines  of  the  Economic  His- 
ory  of  England,  pp.  231-42.     (Sir  Isaac  Pitman  &  Sons,  Ltd.,  1908'.) 


II 


218  INDUSTRIAL  SOCIETY 

He  controlled,  as  the  result  of  it,  a  larger  field.  Indirectly  the  scale 
of  his  success  advertised  his  methods  proportionately  and  led  to 
their  more  rapid  spread  among  secondary  imitators.  The  rush  to 
open  up  new  industries,  the  phenomenally  rapid  growth  of  manu- 
facturing and  mining  districts,  were  prophetic  of  later  developments 
in  the  United  States  or  on  Australian  gold  fields. 

Hence  in  seeking  the  causes  of  the  Industrial  Revolution,  we 
must  ask  what  were  the  conditions  which  made  possible  the  sudden 
growth  of  large-scale  production  at  this  particular  period.  These 
causes  have  been  presented  in  outline  already:  (i)  The  decay  of  state 
regulation  of  industry,  which  left  to  the  individual  a  freer  hand  in 
utilising  capital  and  labour  and  marketing  his  products.  (2)  The 
growth,  in  all  departments  of  thought,  of  rationalism.  In  the  eco- 
nomic sphere  progress  in  production  had  gradually  ceased  to  depend 
primarily  upon  the  imitative  faculty,  guided  by  the  survival  of  the 
/fittest  among  chance  variations:  it  came  now  to  depend  primarily 
^  upon  imagination,  experiment,  and  reason.  (3)  Political  events. 
The  empire  and  prestige  of  England  had  opened  markets  which 
promised  to  absorb  any  imaginable  increase  in  the  output  of  certain 
commodities.  At  the  same  time  the  security  of  the  country  from 
invasion  and  the  maintenance  of  order  Within  its  borders  had  per- 
mitted the  investment  habit  to  develop  until  »men  were  ready  to  lay 
out  money  on  capital  which  could  easily  be  destroyed,  which  yielded 
its  returns  slowly,  and  which  could  not  be  removed  or  secreted.  These 
conditions  had  been  slowly  ripening  since  the  close  of  the  seventeenth 
century,  and  meantime  an  initial  process  of  experiment  had  been  gone 
through  leading  up  to  the  needful  technique  of  large-scale  industry. 
The  ground  was  thus  prepared  for  the  rise  of  the  great  staple  industries 
of  the  nineteenth  century — mining,  metallurgy,  textiles,  ceramics. 
Men  had  been  familiarised  in  London  with  the  possibilities  of  banking 
credit  and  joint-stock  enterprise.  The  first  steps  had  been  taken  in 
the  improvement  of  communications. 

The  achievements  of  the  Industrial  Revolution,  between  1760  and 
1830,  may  be  summarised  briefly  as  follows.  The  two  considerable 
industries  which  existed  in  1760,  namely,  agriculture  and  cloth,  h 
changed  much  both  in  technique  and  structure,  whilst  several  oth 
industries,  notably  coal,  cotton,  iron,  and  ceramics,  had  risen  to  the 
first  rank.  Whilst  manufactures  of  the  domestic  type  had  continued 
to  expand,  the  influence  of  capitalism  over  them  had  increased,  and 
whole  branches  of  important  industries  were  now  carried  on  in  largi 


t 


THE  COMING  IN  OF  CAPITALISM  219 

scale  establishments  with  expensive  plants.  Throughout  the  country, 
and  between  England  and  the  rest  of  the  world,  exchange  had  grown 
swiftly,  as  particular  centres  and  districts  served  wider  and  wider 
markets.  Correspondingly  the  most  important  manufacturing  in- 
dustries had  been  localised  in  districts  especially  well  provided  with 
clay,  ore,  coal,  or  water  power,  whilst  in  agriculture  also  had  occurred 
a  marked  increase  of  local  specialisation.  These  changes  had  partly 
caused,  partly  been  caused  by,  a  general  extension  of  banking  facilities 
throughout  the  country,  and  the  construction  of  two  systems  of  com- 
munication— roads  and  canals.  The  increase  in  productive  power, 
combined  with  the  breaking  up  of  traditional  arrangements,  and  in 
some  degree  also  defects  in  poor  law  administration,  had  brought 
about  rapid  growth  of  population.  The  population  of  England  and 
Wales  is  supposed  to  have  reached  5,000,000  in  1600  and  6,500,000  in 
1750.  At  the  census  of  1831  it  was  13,800,000.  Its  centre  of  gravity 
had  shifted  from  the  south  and  eastern  counties  to  the  Midlands, 
Lancashire,  and  the  West  Riding,  and  a  very  considerable  part  of  the 
increased  numbers  was  packed  densely  in  towns.  It  was  clear  already 
that  if  the  population  continued  to  increase,  England  would  not  be 
able  to  provide  the  whole  of  the  necessary  food  supply.  She  was 
already  dependent  on  foreign  countries  for  cotton  and  other  important 
raw  materials.  Finally  the  changes  which  had  occurred  had  shifted 
the  conditions  on  which  economic  and  social  regulations  depend. 
Much  of  the  traditional  system  had  been  already  destroyed,  and  the 
beginnings  of  new  methods  could  be  seen. 

These  changes  had  been  accompanied  by,  and  were  in  part  at 
least  responsible  for,  an  incalculable  quantity  of  human  misery  and 
degradation.  The  evil  which  inevitably  attends  any  considerable 
change  in  the  technique  of  production  had  been  accentuated  by 
irregularity  in  the  course  of  change.  During  the  whole  seventy  years 
there  had  been  a  rapid  succession  of  enormous  fluctuations.  The 
difficulties  of  the  period  had  been  increased  by  faulty  regulation  of 
banking  and  by  the  uncertainties  of  war.  In  spite  of  much  general 
benevolence  there  was  a  growing  distrust  of  interference  by  the  state 
in  economic  matters,  a  distrust  which,  however  indefensible  in  theory, 
was  partly  justified  by  the  practical  defects  of  existing  political 
machinery.  The  rapid  growth  of  towns  was  bringing  with  it  evils 
which  had  long  resisted  remedy  in  London,  but  which  now  first  began 
:o  affect  a  large  proportion  of  the  total  population.  Employment 
n  mines  and  factories,  together  with  the  use  of  machinery,  gave  birth 


220  INDUSTRIAL  SOCIETY 

to  problems  for  whose  understanding  and  treatment  no  background 
of  experience  existed.  Finally  the  accidental  coincidence  in  time 
between  the  Industrial  Revolution  and  the  most  serious  strain  of  war 
to  which  the  nation  had  ever  been  subjected,  intensified  all  other 
evils.  It  drew  men's  attention  into  other  channels:  it  made  them 
ready  to  acquiesce  in  any  evils  which  could  be  represented  as  incidental 
to  increased  productive  power:  it  increased  the  pressure  of  taxation 
upon  men  whose  earnings  were  already  close  to,  if  not  below,  the  level 
necessary  to  efficiency. 

If  we  glance  now  for  a  moment  at  the  history  of  the  succeeding 
period,  1 830-1 900,  we  notice  first  a  continuance  of  the  economic 
reorganisation,  whose  earlier  stages  have  been  traced  above.  There 
is  growth  of  large-scale  production  together  with  distribution  of  the 
product  from  local  centres  over  wider  and  wider  areas;  growth  of 
transport  and  credit  facilities;  increased  dependence  upon  other 
parts  of  the  world  for  food  and  raw  materials;  continued  growth  of 
population  in  manufacturing  districts,  and  especially  in  commercial 
and  manufacturing  towns.  On  the  other  hand,  the  problems  of  social 
organisation  which  were  generated,  or  thrown  into  relief,  by  the 
Industrial  Revolution  have  absorbed  more  and  more  attention. 
Starting  with  a  grave  distrust  of  the  power  of  the  state  to  interfere 
with  advantage,  the  nation  gradually  reconstructs  its  political 
machinery,  and  swings  round  to-  something  like  confidence  in  its 
power  to  formulate  and  carry  out  deliberate  schemes  for  good.  To 
a  period  which  may  be  called  a  period  of  laissez  /aire — roughly  1830- 
1870 — succeeds  a  period  which  has  been  called  collectivist. 

The  superficial  facts  of  the  Industrial  Revolution  have  been  often 
described.  They  may  be  resumed  briefly  under  two  heads:  First, 
there  are  the  changes  in  the  technique  of  production,  the  use  of  new 
mechanical  devices  and  scientific  processes  either  to  attain  ends 
which  had  previously  been  attained  more  expensively  and  clumsib 
or  to  produce  what  before  could  not  be  produced  at  all.  The  indus 
tries  chiefly  affected  were  agriculture,  textiles,  coal,  iron  and  steel 
and  mechanical  and  civil  engineering. 

Secondly,  attention  must  be  directed  to  structural  alteratioi 
in  the  economy  of  the  country.  In  the  industries  whose  technique 
had  been  revolutionised,  the  old  organisation  was  no  longer  suitabh 
Important  shifts  in  the  distribution  of  economic  functions  took  place, 
the  most  obvious  being  the  tendency  towards  enlargement  in  the 
productive  unit,  which  resulted  from  the  increased  importance  of 


THE  COMING  IN  OF  CAPITALISM  221 

fixed  capital.  Structural  change,  however,  was  by  no  means  confined 
to  the  industries  whose  technique  had  undergone  extensive  alteration. 
The  increased  facilities  for  transport  affected  almost  every  class  of 
producers  by  extending  at  once  the  range  of  the  market  which  they 
could  supply,  and  of  the  competition  which  it  was  necessary  for  them 
to  face.  The  result  was  a  quite  general  increase  in  production  for 
exchange  and  a  narrowing  of  the  number  of  distinct  tasks  to  which  an 
individual  could  profitably  apply  his  labour.  Further,  this  increase 
of  exchange  led  to  the  growth  of  intermediary  classes  of  agents  and 
traders — particularly  important  being  the  rise  of  banking,  the  develop- 
ment of  produce  markets,  and  of  retail  trade. 

84.    SIGNIFICANCE    OF   THE   INDUSTRIAL   REVOLUTION1 

Our  historical  sketch  requires  for  its  completion  a  study  of  that 
later  aspect  of  social  development  which  we  so  often  and  so  strangely 
call  the  "Industrial  Revolution."  This  movement  has  done  far  more 
than  shower  upon  us  a  series  of  "great  inventions"  or  bless  mankind 
with  a  new  technique.  Appearing  gradually  and  working  indirectly, 
as  well  as  directly,  it  has  affected  our  whole  world  of  thought,  of  action, 
and  of  institutions;  it  has  modified  our  economics,  our  politics,  our 
ethics,  and  even  our  religion;  it  has  changed  in  nature,  number,  and 
form  our  baffling  problems;  it  has  written  itself  large  in  our  culture. 
In  view  of  its  many-sidedness  and  the  gradual  way  in  which  it  has 
effected  and  is  still  effecting  its  changes,  it  seems  amiss  either  to  call  it 
" industrial "  or  to  refer  to  it  as  a  "revolution." 

We  look  in  vain  for  its  beginnings.     We  know  that  early  medi- 
evalism could  have  given  us  nothing  which,  even  erroneously,  could 
3e  called  an  "industrial  revolution."     Before  it  could  appear  the 
nediaeval  scheme  of  values  had  to  be  transformed.     Desires  for 
earthly  things  had  to  be  freed  from  their  unethical  taint;  a  wholesome 
espect  for  the  world  had  to  be  built  up ;  man  had  to  acquire  greater 
everence  for  his  own  powers  and  functions;  people  had  to  learn  to 
onform  to  the  things  of  this  world  if  they  would  transform  it.     This 
hange  in  the  attitude  toward  life  and  its  problems  was  intimately 
ssociated  with  several  other  lines  of  development.    There  appeared 
new  interest  in  nature  as  nature,  a  new  philosophy,  a  new  mathe- 
latics,  and  a  new  physics.    These  laid  the  foundation  of  the  new 

1  Taken  by  permission  from  W.  H.  Hamilton,  Current  Economic  Problems, 
?•  36-37-     (The  University  of  Chicago  Press,  1915.) 


I 


222  INDUSTRIAL  SOCIETY 

technique.  Many  discoveries  of  new  lands  were  made,  adding  tre- 
mendous resources  calling  for  utilization.  There  was  brought  to 
Europe  gold  alike  serviceable  for  the  furtherance  of  the  new  money 
economy  and  the  more  rapid  accumulation  of  capital.  Colonial 
ventures  led  to  an  extension  of  the  market  and  a  great  increase  in  the 
size  of  the  industrial  unit.  This  necessitated  a  reorganization  of  the 
"factory"  and  a  more  extensive  use  of  the  principle  of  the  division  of 
labor.  The  last  produced  a  minute  specialization  which  both  served 
to  create  an  incentive  for  the  invention  of  new  machines  and  furnished 
an  opportunity  for  their  use.  Together  with  accumulated  capital  and 
the  necessary  scientific  knowledge  this  new  organization  led  to  the  new 
technique.  Even  this  is  not  the  whole  story;  for  in  England  the 
movement  was  hastened  by  conditions  peculiar  to  the  country.  The 
indented  coastline,  by  cheapening  transportation  and  enlarging 
the  market,  must  have  been  a  factor  of  prominence.  It  has  been 
suggested,  too,  that  an  institution,  seemingly  as  extraneous  as  primo- 
geniture, played  its  part  by  forcing  into  mercantile  pursuits  those 
whose  veins  contained  the  adventurous  blood  of  nobility. 

The  course  of  the  "revolution"  has  been  as  comprehensive  as  its 
antecedents.  The  changes  in  technique  are  most  clearly  appreciated. 
Even  here  the  tendency  toward  a  "machine-process"  embracing  a 
large  part  of  the  industrial  system  is  generally  overlooked  as  is  also 
the  seemingly  antagonistic  fact  that  up  to  the  present  the  conquest 
of  the  older  system  by  the  machine  has  been  partial  and  incomplete. 
On  the  economic  side,  the  increasing  importance  of  capital,  the  ris 
of  the  "factory  system,"  the  disappearance  of  "domestic  industry," 
the  trend  toward  large-scale^  production,  the  separation  of  the  laborer 
from  the  "  tools  of  his  trade,"  and  increasing  class  differentiation  base< 
upon  differences  in  industrial  functions  are  most  clearly  seen.  Thest 
aspects  of  the  movement  raise  the  questions  of  artificially  controlling 
the  tendencies  inherent  in  the  development  of  the  machine-system, 
the  determination  of  the  size  of  the  industrial  entity,  the  social  control 
of  large  aggregates  of  wealth  such  as  railroads  and  capitalistic  monopc 
lies,  the  elimination  of  economic  insecurity  which  alike  attends  labor 
and  capital,  the  equities  of  the  distribution  of  wealth,  and  the  urbai 
enigmas  of  overcrowding,  housing,  sanitation,  vice,  and  poverty. 
They  reveal,  too,  just  over  the  horizon  the  more  ominous  questioi 
of  property,  inheritance,  and  the  reconstruction  of  industrial  society. 

The  questions  reveal  but  a  single  aspect  of  the  influence  of  th( 
Industrial  Revolution.     Political,  ethical,  religious,  and  social  ques- 


THE  COMING  IN  OF  CAPITALISM  223 

tions  have  all  been  involved  in  the  general  transformation  of  life 
and  values.  In  many  cases  they  are  inseparably  connected  with 
economic  problems.  For  instance,  when  the  machine  took  over 
the  work  of  the  home,  the  latter  became  a  new  institution.  One 
writer  insists  that  the  home,  and  woman  as  well,  for  all  that,  has  not 
yet  adapted  herself  to  the  new  society.  We  all  complain  that  the 
"  machine-process  "  has  entered  our  colleges,  and  that  college  instruc- 
tion is  being  " standardized "  and  college  graduates  "tagged."  We 
all,  at  least  occasionally,  complain  of  the  inability  of  law  and  religion 
alike  to  adjust  themselves  to  modern  industrialism.  And  our  friends 
in  ethics  tell  us  that  the  newer  industrial  life  is  effecting  startling 
changes  in  our  standards  of  social  and  individual  ethics. 

And  are  we  sure  that  we  have  reached  the  end  of  the  "revolu- 
tion"? Most  likely  we  are  in  a  second  stage  of  the  process  where 
problems  are  vastly  different  from  those  met  in  the  first  stage  which 
occupied  the  larger  part  of  the  nineteenth  century.  Perhaps  there 
will  be  a  third  stage  unlike  the  second.  Clearly  the  end  of  the  new 
technology  is  not  as  yet.  The  technique  first  introduced  has  not  as 
yet  produced  its  full  complement  of  social  results.  Quite  as  impor- 
tant, the  new  technique  is  being  rapidly  extended  over  a  wider  and 
wider  area,  constantly  affecting  the  fortunes  of  people  less  and  less 
adapted  to  it.  Its  extension  preserves  a  frontier  where  machine- 
culture  is  constantly  pushing  back  a  civilization  founded  on  a  less  com- 
plex technique.  The  reaction  upon  our  system  is  fraught  with  grave 
consequences. 


I 


jpakt  n* 

SOME  OUTSTANDING  FEATURES  OF  MODERN 
INDUSTRIAL  SOCIETY 


CHAPTER  IV 

INDIVIDUAL  EXCHANGE  CO-OPERATION 

A.     Problems  at  Issue 

There  was  a  time — the  time  of  household  economy — when  wants 
were  gratified  by  what  may  be  called  the  direct  method.  The  local 
group  produced  the  identical  goods  it  consumed,  and  produced  them 
with  simple  rudimentary  tools.  There  was  little  specialization  or 
differentiation  of  function.  Subsistence  was  meager.  Today  a 
very  different  condition  of  affairs  exists.  Practically  no  one  produces 
all  or  even  many  of  the  things  he  consumes,  and  the  goods  are  produced 
by  the  " roundabout"  process.  Specialization  has  been  carried  to 
great,  even  to  extreme,  lengths.  Specialists  are  able  to  produce  more 
than  non-specialists.  Productive  capacity  is  enormous  when  com- 
pared with  that  of  the  earlier  period. 

But  how  do  these  modern  specialists  gratify  their  multitudinous 
wants  ?  By  the  indirect  process.  Almost  no  one  produces  many  of 
the  things  he  consumes.  Figuratively  speaking,  the  individual 
specialized  producers  pour  their  products,  whether  wealth  or  services, 
into  a  vast  social  reservoir  and  from  that  reservoir  draw  (other)  goods 
to  apply  to  their  wants.  Whether  your  wants  or  my  wants  will 
be  comfortably  gratified  will  of  course  depend  upon  three  factors: 
(a)  the  size  of  the  reservoir,  (b)  the  variety  of  goods  contained  therein, 
and  (c)  the  size  of  our  claims  to  draw.  The  whole  procedure  is  here 
called  the  exchange  co-operative  process.  The  co-operation,  which  is 
none  the  less  real  because  it  is  carried  on  unconsciously,  is  effected 
through  exchange  and  largely  regulated  by  it. 

What  determines  the  size  of  the  reservoir?  Clearly  the  degree 
3f  productive  efficiency.  This  will  be  high,  according  to  the  richness 
}f  natural  resources,  the  amount  and  efficiency  of  labor,  the  abund- 
mce  of  capital,  the  adequacy  of  the  organization  of  these  factors,  and 
:he  suitableness  of  the  institutional  environment.  The  significance 
)f  these  matters  was  hinted  at  in  the  introduction  to  our  study  (p.  15) 

twill  become  clearer  as  the  study  progresses. 
What  determines  how  much  you  or  I  Can  draw  from  this  reservoir  ? 
ability  to  draw  results  from  (a)  our  purchasing  ability  in  the 
227 


228  INDUSTRIAL  SOCIETY 

market  (for  the  goods  spoken  of  as  being  in  a  reservoir  are  in  the  main 
really  in  the  "market") ;  (b)  privileges  such  as  free  school  attendance, 
use  of  highways  and  parks,  and  protection  derived  from  our  being 
members  of  a  society  which,  acting  in  a  collective  capacity,  provides 
these  goods;  (c)  miscellaneous  conditions  including  such  widely 
different  items  as  gift  and  theft. 

Our  purchasing  ability  in  the  market  may  of  course  result  from 
gift,  inheritance,  etc.  At  this  point,  however,  emphasis  should  be 
placed  on  that  part  of  our  purchasing  ability  which  comes  from  the 
wages  we  receive  as  workers,  or  the  rent  we  receive  as  landowners,  or 
the  interest  as  capital  owners,  or  the  profits  as  entrepreneurs.  These 
"distributive  shares"  we  receive  as  bribes  or  rewards  for  our  activities 
(in  production,  commonly).  With  them  we  command  goods  from  the 
reservoir — the  market.  Ultimately  we  shall  wish  to  know  how  justly 
the  size  of  these  distributive  shares  is  fixed,  but  this  is  not  a  part  of 
our  present  problem. 

How  does  it  happen  that  the  reservoir  contains  the  variety  of 
goods  our  desires  call  for  ?  Why  does  not  everyone  make  the  same 
commodity?  How  does  it  happen  that  the  things  produced  are 
generally  the  things  we  want  ? .  By  what  miracle  is  even  an  approxi- 
mation of  the  right  amount  of  watches  or  reapers  or  flour  or  clothing 
or  steel  mills  dumped  into  that  social  reservoir?  Is  there  a  vast 
statistical  bureau  which  is  consulted  by  the  producers  ?  How  can  you 
or  I  decide  what  pursuit  to  take  up  when  we  start  out  to  "make  a 
living"?  These  questions  suggest  that  there  must  be — is — ar 
apportionment  of  productive  energy.  This  apportionment  involves 
not  only  the  allocation  of  land,  labor,  capital,  and  organization  amon^ 
the  various  occupations  of  society,  but  also  the  proper  proportioning 
of  these  factors  within  each  occupation  and  ultimately  within  eacl 
business  unit.     How  are  the  apportioning  and  proportioning  effected 

The  initiative  in  this  apportionment  rests,  we  say,  with  tin 
individual.  This  statement  should  not  be  interpreted  as  denyinj 
that  much  apportionment  is  carried  out  by  associations,  e.g.,  by  th 
state,  nor  as  denying  that  the  individual's  action  is  largely  controlle 
by  his  environment,  both  physical  and  social.  The  statement  mean 
merely  that,  by  and  large,  we  expect  individual  entrepreneurs  t 
assume  the  responsibility  of  directing  our  economic  activity.  ] 
follows  that,  in  the  main,  the  regulation  of  the  distribution  of  pr< 
ductive  energy — or  the  regulation  of  our  unconscious  exchange  c< 
operation — is  accomplished,  aside  from  blind  chance  and  ignoranc 


INDIVIDUAL  EXCHANGE  CO-OPERATION  229 

by  these  factors:  (a)  the  personal  tastes  of  the  individual,  (b)  social 
control  whether  formal  or  informal  in  character,  and  (c)  prices  and 
margins  of  profit.  These  factors  are  not  separate  and  distinct. 
There  is  much  overlapping. 

The  influence  of  the  personal  tastes  of  the  individual  is  a  matter 
of  common  observation.  The  artist  will  face  privation  cheerfully 
for  the  sake  of  continuing  the  line  of  work  which  appeals  to  him,  and 
will  continue  it  even  in  the  face  of  demonstrated  unfitness.  An 
equivalent  statement  applies,  doubtless,  to  individuals  in  every  other 
walk  of  life. 

The  influence  of  social  control  is  also  readily  seen — in  part  it 
works  by  affecting  personal  tastes.  We  do  not  enter  pursuits  not  in 
good  repute  with  "our  set."  Once  in  a  specific  vocation,  we  operate 
according  to  the  code  of  ethics  of  that  group.  Formal  social  control, 
such  as  may  be  found  in  conscious  state  action,  manifests  itself  in 
particularly  clear  forms,  ranging  from  absolute  prohibition. of  some 
callings  (witness  that  of  the  burglar),  through  provision  for  the  neces- 
sity of  passing  a  state  examination  as  a  prerequisite  to  admission  to 
certain  other  callings,  to  promotive  intervention  such  as  protection 
of  infant  industries. 

The  third  factor  is  prices  and  margins  of  profit.  Other  things 
being  equal,  we  do  what  "pays  best,"  since  production  today  is 
typically  for  gain  rather  than  for  direct  subsistence.  And  what  will 
pay  best  ?  Who  or  what  determines  what  will  pay  best  ?  Answering 
in  the  rough,  demand  determines.  An  increase  of  demand  for  a 
*iven  commodity  will  ordinarily  mean  an  increase  in  the  price  of  that 
:ommodity,  and  that  will  ordinarily  mean  an  increase  in  the  gains 
)f  those  producing  it,  and  that  will  ordinarily  cause  a  flow  of  pro- 
luctive  energy  to  that  pursuit.  The  opposite  consequences  will 
:nsue  if  there  is  a  falling  off  of  demand. 

It  should  be  noted  that  an  increased  price  may  not  necessarily 
nean  an  increased  gain.  For  example,  the  increased  price  of  x  may  be 
lue  entirely  to  a  scarcity  of  some  component  raw  material.  It  might 
ven  occur  that  the  gains  from  producing  x  were  less  after  an  increase 
f  price  from  such'  a  cause.  There  would  not  necessarily  be  a  flow 
f  social  energy  to  the  making  of  x.  In  other  words,  it  is  well  to  use 
ie  expression  "prices  and  margins  of  profit"  rather  than  "prices." 

I  The  foregoing  statements  concerning  our  individual  exchange 
>operation  show  that  an  understanding  of  "exchange"  and  of  "the 
larket" — using  these  terms  in  a  very  inclusive  sense — is  essential. 


I 


230  INDUSTRIAL  SOCIETY 

We  can  have  no  vivid  appreciation  of  our  co-operation,  its  merits,  its 
defects,  unless  we  understand  something  of  the  agencies  through  which 
it  is  effected  and  regulated. 

Is  individual  exchange  co-operation  the  best  way  of  gratifying 
our  wants?  We  are  not  yet  in  a  position  to  give  any  final  answer 
to  the  question.  Perhaps  we  never  shall  be  in  such  a  position.  For 
the  present,  it  is  to  be  noted  that  the  apportionment  of  social  energy, 
which  is  one  of  the  largest  issues  at  stake,  can  be  efficiently  carried 
out  under  our  present  regime,  only  provided  this  energy  can  flow 
readily  from  one  pursuit  into  another.  In  other  words,  there  must 
be  mobility  of  the  factors  of  production. 

QUESTIONS 

i.  Name  two  or  three  kinds  of  goods  which  could  be  produced  in  your 
neighborhood,  but  which  you  obtain  more  cheaply  through  co-operating 
with  the  people  of  other  districts. 

2.  Make  a  list  of  the  most  important  articles  of  wealth  you  enjoy  which 
are  supplied  in  whole  or  in  part  by  other  people.  Make  another  list 
of  those  things  supplied  by  your  own  unaided  activities.  Do  these 
facts  justify  the  use  of  the  term  co-operative  as  descriptive  of  the  existing 
economic  order  ? 

3.  Was  there  co-operation  in  the  family  economy?  Would  there  be 
co-operation  in  communistic  society  ?  in  a  socialistic  society  ?  Would 
the  co-operation  in  these  cases  be  effected  through  exchange  ?  In  what 
sense  can  co-operation  be  said  to  be  effected  through  exchange  in  the 
existing  order  ? 

4.  "The  mill-hand  co-operates  with  the  ploughman,  the  policeman,  the 
clergyman,  and  the  musician."     What  does  this  mean  ? 

5.  "Our  co-operation  is  not  merely  a  matter  of  the  generation  in  which  we 
live.  The  work  of  our  predecessors  lives  after  them.  An  inventor  of 
an  earlier  generation  contributes  to  want-satisfying-power  in  the 
present  generation."  Cite  other  illustrations.  Is  this  phase  of  this 
matter  a  manifestation  of  exchange  co-operation  ?  Substitute  the  word 
"interdependence"  for  "co-operation"  in  the  quotation. 

6.  "It  is  worth  noting  that  an  exchange  organization  enables  us  to  enlist 
the  co-operation  of  persons  who  may  not  be  in  sympathy  with  us  or 
our  purposes."     What  does  this  mean  ?     Why  is  it  worth  noting^ 

7.  What  is  meant  by  the  indirect  method  of  satisfying  wants  ?  Later,  we 
shall  need  to  consider  roundabout  or  indirect  methods  of  producing 
goods.     What  should  you  guess  the  latter  statement  involves  ? 

8.  Co-operation  is  advantageous  because  it  permits  us  (a)  to  enjoy  go< 
which  we  could  not  ourselves  produce,  (b)  to  enjoy  a  larger  quanti 


INDIVIDUAL  EXCHANGE  CO-OPERATION  231 

of  those  goods  which  we  ourselves  could  produce,  and  (c)  to  enjoy  a 
better  quality  of  goods  than  would  otherwise  be  possible.  Demonstrate 
and  illustrate  each  of  these  points. 
9.  "Exchange  does  not  really  help.  Indeed  it  hinders.  Time  and  energy 
are  spent  in  merely  passing  goods  on."  Do  you  agree  ?  Attempt  to 
summarize  the  social  benefits  of  exchange  co-operation. 

10.  "The  present  order,  being  a  co-operative  one,  each  person  or  com- 
munity tends  to  gain  from  any  increase  in  the  economic  efficiency  of 
other  persons  or  communities  with  whom  or  with  which  said  person  or 
community  maintains  economic  relations."     Just  how  ? 

11.  "Internal  commerce  does  not  increase  the  wealth  of  a  nation,  since 
it  only  transfers  goods  from  one  person  to  another."     Is  this  true  ? 

12.  Enumerate  as  many  gains  as  you  can  which  flow  from  international 
trade. 

13.  Give  two  or  three  illustrations  of  how  a  specialized  tool  makes  possible 
a  better  quality  of  goods  than  does  a  non-specialized  one.  Has  this 
question  any  bearing  on  the  topic  "co-operation"  ? 

14.  "During  1904  more  ships  were  built  on  the  Clyde  than  in  the  whole  of 
the  United  States.  This  fact  is  creditable  to  Great  Britain,  but  not 
to  us."  Show  that  the  fact  is  probably  not  discreditable  to  the  United 
States. 

15.  We  hear  much  of  the  "elimination  of  the  middleman."  Can  his  func- 
tions ever  be  eliminated  ?  Would  they  be  eliminated  by  co-operative 
buying?  by  co-operative  selling?  by  the  mail-order  house?  by  a 
selling  bureau  in  connection  with  the  parcels  post  ?  Can  you  draw  a 
distinction  between  the  possibility  that  there  are  too  many  middlemen 
and  the  possibility  that  all  middlemen  are  unnecessary  ?  Can  you  draw 
a  distinction  between  eliminating  the  middleman  and  eliminating  his 
functions  ?     What  are  his  main  functions  ? 

16.  A  certain  grocer  who  is  a  Socialist  and  no  longer  young  often  expresses 
regret  that  the  obligation  to  support  a  family  compels  him  to  continue 
in  an  occupation  which  makes  him  a  "parasite" — one  who  lives  on 
others,  consumes  without  producing.     Is  his  position  well  taken  ? 

17.  "Commerce  robs  society  by  taking  off  from  productive  labor  agents 
of  trade  nineteen-twentieths  of  whom  are  mere  parasites."  Is  this  a 
criticism  of  commerce  or  of  inefficiency  in  commerce  ? 

18.  "  Commerce  robs  society  by  destroying  for  want  of  a  sale  vast  quantities 
of  goods  which  have  been  accumulated."  Is  the  evil  here  complained 
of  properly  chargeable  against  commerce  as  such  ? 

19.  When  people  congregate  at  a  certain  place  and  exchange  goods  by 
barter,  can  we  say  that  they  constitute  a  market  ? 

20.  Is  the  retail  grocery  a  market  ?  For  whom  ?  Is  the  wholesale  grocery 
store  a  market  ?  For  whom  ?  Is  the  place  the  market  ?  Suppose 
that  this  wholesale  grocery  has  no  stock  on  hand,  but  consists  merely 


232  INDUSTRIAL  SOCIETY 

of  an  office,  an  office  force,  and  means  of  communication  with  importers 
and  producers  and  customers.     Is  it  a  market  ? 

21.  You  have  $1,000.  Can  its  services  be  sold  ?  If  so,  is  the  selling  of  them 
a  market  operation  ?  Trace  five  possible  different  channels  through 
which  the  services  of  your  $1,000  might  go  in  getting  into  the  possession 
of  the  person  who  finally  utilizes  them. 

22.  You  are  an  expert  machinist  and  there  is  only  one  machine  shop  in  your 
town.  The  owner  engages  your  services.  Is  this  a  market  transac- 
tion? Make  a  list  of  the  ways  in  which  the  market  for  your  labor 
could  be  "widened." 

23.  A  physician  renders  service  and  later  presents  a  bill,  which  is  paid.  Is 
this  a  market  operation  ? 

24.  Draw  up  a  definition  of  market. 

25.  Draw  up  a  list  of  "markets"  that  would  not,  in  your  judgment,  occur 
to  the  "man  of  the  street"  as  being  markets. 

26.  How  do  you  account  for  the  presence  of  so  many  "types  of  market 
distribution"  in  our  society  ?  What  is  meant  by  the  "orthodox"  method 
of  distribution  ? 

27.  What  is  meant  by  "market  structure"  ? 

28.  Does  the  work  of  a  real-estate  agent  fit  into  some  market  structure  of 
our  society  ?  If  so,  can  you  name  other  persons  or  institutions  pertain- 
ing to  the  same  structure  ? 

29.  Under  what  circumstances  do  we  have  "organized  exchanges"?  What 
are  their  functions  ? 

30.  "It  is  a  curious  thing  that  society  of  the  twentieth  century  permits  the 
continuance  of  the  organized  exchanges  for  the  sole  purpose  of  per- 
mitting gamblers  to  bet  with  each  other  and  against  outside  victims 
concerning  price  fluctuations . ' '     Comment . 

31.  "The  produce  exchange  helps  to  regulate  the  rate  at  which  the  year's 
crop  is  consumed."  What  does  this  mean  ?  If  there  were  no  produce 
exchanges  would  there  be  no  regulator  ? 

32.  "Stock  exchanges  play  useful,  almost  indispensable,  roles  in  the  eco- 
nomic order."     Explain. 

33.  Why  is  the  market  to  be  regarded  as  one  of  the  most  significant 
institutions  of  the  present  economic  order  ? 

34.  Could  exchange  exist  if  there  were  no  recognition  of  private  property 

35.  "The  present  organization  of  society  throws  a  great  burden  of  respoi 
sibility  upon  the  individual.    The  individual  is  to  be  the  pioneer, 
he  succeeds,  society  will  reward  him.     If  he  fails,  the  loss  falls  upon  hii 
— and  it  is  all  done  through  price  and  profit  levels."    Assume  this 
be,  in  the  main,  true,     (a)  When  the  individual  "guesses  wrong"  am 
the  loss  falls  upon  him,  does  society  escape  the  burden  ?     (b)  Whe 
we  say  that  experimentation  is  left  to  the  individual,  does  this  met 
that  society,  as  such,  performs,  or  should  perform,  no  experiments! 


INDIVIDUAL  EXCHANGE  CO-OPERATION  233 

(c)  If  a  socialistic  society  "guessed  wrong"  and  put  up  a  useless  plant 
would  that  be  harmful  to  society,  or  merely  a  matter  of  indifference  ? 

(d)  When  an  individual  " guesses  right"  and  makes  great  gains  out 
of  his  enterprise,  is  this  a  benefit  or  a  matter  of  indifference  to  the  rest 
of  society  ? 

36.  "It  is  just  this  burden  of  responsibility  upon  the  individual  which 
guarantees  his  development.  Nothing  else  will  quite  take  its  place,  and, 
without  such  a  force  making  for  the  soundness  of  the  individual  parts, 
there  can  be  no  hope  for  the  industrial  machine  as  a  whole."   Is  this  true  ? 

37.  "Competition  places  the  individual."  Can  you  cite  any  proposals  or 
movements  devoted  to  finding  some  other  method  of  placement  ?  Are 
you  sure  the  things  you  have  in  mind  are  not  merely  designed  to  make 
the  working  of  competition  smoother  and  more  accurate  ? 

38.  Compare  competition  and  status  as  methods  of  placing  the  individual. 

39.  "We  do  what  pays  best."  Does  this  statement  require  any  quali- 
fications ? 

40.  It  is  clear  that  we  use  association,  for  example,  government,  very  much. 
What  then  is  meant  by  saying  ours  is  a  regime  of  individual  exchange 
co-operation  ? 

41.  What  is  meant  by  saying  that  one  advantage  of  a  society  organized  on 
the  individual  is  the  possibility  of  efficient  motivation  at  every  joint, 
process,  or  phase  ? 

42.  Adam  Smith,  in  a  famous  passage  in  his  Wealth  of  Nations,  observes 
that  every  individual  who,  in  pursuit  of  his  own  gain,  directs  his  industry 
in  such  a  way  that  the  product  may  have  the  greatest  possible  value 
is  "led  by  an  invisible  hand"  to  promote  unintentionally  the  public 
welfare.  Should  you  accept  as  true  the  implication  that  exchange 
co-operation  completely  reconciles  the  interests  of  individuals  and  the 
community?  Are  individuals  ever  rewarded  for  actions  which  yield 
a  present  benefit  to  some,  but  are  in  the  long  run  detrimental  to  society  ? 

43.  What  gains  flow  from  having  matters  so  arranged  as  to  depend  consider- 
ably on  self-interest  ?  Wherein  does  self-interest  fail  to  live  up  to  the 
claims  of  its  more  ardent  advocates  ? 

14.  Make  a  list  of  the  "motives  to  economic  activity." 

1.5.  How  was  co-operation  regulated  in  the  family  economy?  How  would 
it  be  regulated  in  a  communistic  society  ?  How  would  it  be  regulated 
under  socialism  ?  Show  how  it  is  regulated  by  exchange  in  the  existing 
economic  order. 

[6.  "Demand  is  the  main  motive  power  in  the  industrial  system.  It  is 
the  weight  in  the  clockwork  of  production  and  distribution,  the  force 
which  sets  the  industrial  system  in  motion."  What  does  this  mean  ? 
How  is  the  demand  ascertained  today  ?  How  would  it  be  ascertained 
under  socialism?   under  communism?    Would  demand  be  "the  main 


234  INDUSTRIAL  SOCIETY 

47.  "If  the  wheat  crop  of  the  world  should  fall  off  one-half  next  year,  a  rise 
in  price  would  then  be  of  great  social  advantage — in  fact  almost  indis- 
pensable."    Explain. 

48.  If  the  potato  crop  of  a  communistic  society  which  had  no  commerce 
with  other  communities  were  to  fall  off  one-half,  how  would  it  regulate 
the  consumption  of  potatoes  for  the  following  year  ?  How  is  it  done 
under  the  present  order  ? 

49.  Under  socialism  would  men  ever  need  to  withdraw  capital  from  one 
industry  and  put  it  into  another  ?  If  so,  in  what  ways  could  it  be  done  ? 
In  what  ways  is  it  done  in  our  present  society  ? 

50.  Under  socialism  would  men  ever  need  to  develop  new  capital  ?  If  so, 
how  could  they  do  it  ?  Would  they  need  to  determine  how  much  new 
capital  they  ought  to  have  ?  Would  they  need  to  apportion  it  among 
various  industries  ?  What  devices  could  they  use  in  doing  these  things  ? 
How  do  we  do  them  today?  How  do  we  determine  whether  to  sub- 
stitute capital  for  labor?  How  would  a  socialistic  community 
determine  it  ? 

51.  "Cost  accounting*  is  an  instrument  of  control  in  the  hands  of  the  busi- 
ness executive.  Through  it  he  helps  work  out  the  proportioning  of  the 
various  productive  factors  in  his  business."    What  does  this  mean? 

52.  "The  apportionment  of  productive  energy  is  but  a  phase  of  the  regula- 
tion of  our  exchange  co-operation."     Is  this  true  ? 

53.  "Price  levels  and  profit  margins  sent  productive  forces  into  industry  x 
rather  than  into  industry  y"  Show  how.  Is  any  other  method  pos- 
sible ? 

54.  "Industrial  conscription  in  war  times  is  a  method  of  apportioning  pro- 
ductive energy.  So  also  is  the  conscription  of  men."  Is  this  true? 
Would  this  method  secure  results  more  rapidly  than  reliance  upon 
margins  of  profit  ? 

55.  "Scrapping  capital  goods  is  often  regarded  as  socially  beneficial 
moment's  thought  should  convince  us  this  cannot  be  true.     Socia 
energy  is  lost  when  capital  goods  are  scrapped."     Comment. 

56.  John  Smith  saves,  out  of  his  wages,  $10  a  month.  How  does  societj 
get,  for  use,  a  specific  piece  of  capital  goods  out  of  this?  Make  2 
generalized  statement  of  the  function  of  the  savings  bank  in  the  forma 
tion  of  capital  goods. 

57.  "This  equalizing  process,  commonly  described  as  the  transfer  of  capita 
from  one  employment  to  another,  is  not  necessarily  the  slow,  onerous 
and  almost  impracticable  process  which  it  is  often  represented  to  be. 
Why  or  why  not  ?  What  is  the  situation  with  respect  to  the  transfe 
of  labor  ? 

58.  What  is  meant  by  saying  that  interest  is  a  bribe  which  induces  ar 
appropriate  apportionment  of  capital  ?  Can  you  cite  instances  of  th( 
rate  of  interest  operating  to  call  capital  from  one  locality  to  another 


INDIVIDUAL  EXCHANGE  CO-OPERATION  235 

59.  How  do  wages  have  any  bearing  upon  the  apportionment  of  social 
energy?  What  is  meant  by  saying  each  employment  should  pay  its 
workers  a  true  subsistence  wage,  at  least  ? 

60.  "Any  payment  to  a  factor  of  production  in  excess  of  the  costs  of  main- 
tenance and  progress  is  a  source  of  industrial  waste  and  damage." 
Explain. 

61.  What  meaning  do  you  get  out  of  the  phrase  "wage  sufficient  to  secure 
individual  and  social  efficiency"?  If  you  substitute  "interest"  or 
"profits"  for  "wage"  has  the  phrase  meaning  to  you? 

62.  "An  omniscient  benevolent  despot  would  know  it  to  be  desirable  for 
capital  goods  to  be  available  and  he  would  direct  some  productive  energy 
into  their  creation.  Of  course,  a  nice  problem  would  exist  with  refer- 
ence to  how  much  productive  energy  should  be  devoted  to  the  making  of 
capital  goods  as  opposed  to  the  amount  that  should  be  devoted  to  better- 
ment of  land,  betterment  of  labor,  etc.  But  being  omniscient,  the 
despot  would  understand  the  mechanical  situation  involved  and  would 
take  steps  to  make  the  proper  apportionment."  What  is  the  mechanical 
situation  involved?     What  would  be  the  "proper"  apportionment? 

63.  What  is  meant  by  the  "technological  law  of  diminishing  return"? 
What  bearing,  if  any,  does  it  have  on  the  apportioning  of  productive 
energy  ? 

54.  Cite  instances  of  the  operation  of  the  technological  law  of  diminishing 
return.  Does  it  apply  to  the  erection  of  buildings  ?  to  the  operation 
of  a  mine  ?  to  the  operation  of  a  factory  already  constructed  ?  Is  the 
exhaustion  of  the  "powers"  of  a  mine  or  of  a  plot  of  agricultural  land 
the  same  thing  as  the  diminishing  return  here  referred  to  ? 

•5.  "Given  a  changing  society,  and  any  system  of  exchange  co-operation 
must  have  mobility  with  respect  to  the  factors  or  agents  of  production." 
Why  or  why  not  ? 

6.  State  the  elements  of  mobility  and  of  immobility  in  the  case  of  capital; 
of  labor;  of  land. 

7.  What  is  meant  by  saying  that  the  modern  laborer  has  formal  freedom 
in  that  no  law  prevents  his  going  from  place  to  place,  but  that  he  lacks 
real  freedom  in  that  he  cannot  afford  to  move  from  place  to  place? 
Can  there  be  real  mobility  in  his  case  without  real  freedom?  Does 
real  freedom  involve,  in  this  case,  merely  the  carfare  necessary  to  the 
travel  ? 

S.  "Mobility  for  labor  involves  not  merely  spacial  mobility  but  also 

occupational  mobility."     What  does  this  mean  ? 
).  "Where  there  is  no  mobility  of  the  laborer  there  may  be  and  is  mobility 

of  labor."     How  can  this  be  true  ? 
1.  "Effective  mobility  does  not  imply  that  it  must  be  possible  at  all  times 

to  turn  every  portion  of  capital  or  every  laborer  into  a  given  occupation. 

It  will  suffice  if  a  relatively  small  amount  can  be  shifted,  that  is  to  say, 


236  INDUSTRIAL  SOCIETY 

marginal  shifting  will  suffice."     Illustrate.     Under  what  general  con- 
ditions is  the  quotation  particularly  applicable  ? 

71.  Explain  what  is  meant: 

"Production  is  today  a  social,  not  an  individual,  process." 
"Competition  is  an  organizing  force — a  method  of  organization." 
"Self-interest  is  not  to  be  allowed  unrivaled  sway." 
,  "Society  is  today  in  unrest  because  of  violation  of  reciprocity." 
"It  is  through  individual  initiative  that  our  co-operative  organiza- 
tion of  society  is  effected." 
"In  our  co-operative  society  price  is  the  organizing  force." 
"Specialization  leads  to  mutual  dependence." 

72.  It  has  been  stated  that  the  conception  of  our  society  as  one  of  individual 
exchange  co-operation  throws  light  upon  such  expressions  as  "all  labor 
is  noble,"  "every  calling  is  sacred,"  "there  is  little  use  in  trying  to 
distinguish  between  sacred  and  secular  callings."     Comment. 

73.  "The  whole  machinery  of  buying  and  selling  is  simply  a  convenient 
means  of  combining  effectively  the  various  factors  in  production,  and 
of  assigning  the  appropriate  shares  of  the  product  to  those  who  have 
claims  upon  it."    Explain. 


B.    The  Co-operation  of  Our  Society 

See  4.  The  System  of  Individual  Exchange  Co-operation. 
85.    THE  GREAT  CO-OPERATION 
A1 

In  a  simpler  state  of  things  we  may  suppose  that  the  woman 
worker  spins  and  weaves  her  own  cloth,  and  say,  without  serious 
inaccuracy,  that  her  real  income  is  what  she  produces. 

Employed  in  a  mill,  the  spinner  cannot  take  her  income  in  yarn, 
for  she  cannot  use  the  yarn;  nor  can  the  weaver  take  her  income  in 
cloth,  for  she  could  use  only  a  fraction  of  the  cloth.  But  neither  yarn 
nor  cloth  can  be  said  accurately  to  be  the  product  of  these  two.  They 
are  the  product  of  all  those  persons  and  things  that  have  finally  found 
issue  in  the  yarn  and  cloth,  and  both  spinner's  and  weaver's  contribu- 
tions are  but  an  insignificant  fraction  of  the  whole.  Yarn  and  cloth 
are,  indeed,  the  product  into  which  their  labour  visibly  enters;  but 
the  labour  of  the  machine-maker  who  makes  nothing  else  than  spinning 
and  weaving  machinery,  and  of  the  miner  who  digs  the  coals  which  sup- 
ply the  power,  enters  just  as  visibly  and  directly  into  the  making  of  yarn. 

1  Adapted  by  permission  from  William  Smart,  The  Distribution  of  Incc 
pp.  109-10.     (Macmillan  &  Co.,  Ltd.,  1899.) 


INDIVIDUAL  EXCHANGE  CO-OPERATION  237 

If,  again,  we  look  beyond  factory  industry  to  such  offices  as  that 
of  a  policeman,  soldier,  judge,  and  ask  how  their  service  is  to  be 
assessed  and  divided  out  among  those  to  whom  it  is  rendered,  we  find 
that  all  we  can  say  is  that  the  total  of  goods — the  total  income — is 
produced  by  all  the  workers  acting  together,  but  that  to  assign  any 
particular  share  to  any  individual  or  class  according  to  its  product  is 
impossible.  The  mill  girl  no  more  "produces "  yarn  than  she  "grows " 
potatoes.  She  co-operates  with  the  machine-maker  and  the  coal- 
miner,  and  all  those  whose  exertions  are  necessary  to  the  turning  out 
of  yarn  and  cloth;  but  she  co-operates  just  as  truly  with  the  plough- 
man, the  policeman,  the  clergyman,  and  the  musician.  If  one  makes 
cloth  for  all  and  another  preaches  sermons  for  all,  the  one  co-operates 
with  the  other  in  the  producing  of  the  sermons  and  the  other  co- 
operates in  the  "producing"  of  cloth. 

B1 

Observe  the  accommodation  of  the  most  common  artificer  or  day- 
labourer  in  a  civilized  and  thriving  country,  and  you  will  perceive  that 
the  number  of  people  of  whose  industry  a  part,  though  but  a  small 
part,  has  been   employed   in   procuring  him  this  accommodation 
exceeds  all  computation.    The  woolen   coat,   for  example,   which 
:overs  the  day-labourer,  as  coarse  and  rough  as  it  may  appear,  is  the 
product  of  the  joint  labour  of  a  great  multitude  of  workmen.    The 
ihepherd,  the  sorter  of  the  wool,  the  wool-comber  or  carder,  the  dyer, 
he  scribbler,  the  spinner,  the  weaver,  the  fuller,  the  dresser,  with 
nany  others,  must  all  join  their  different  arts  in  order  to  complete 
ven  this  homely  production.    How  many  merchants  and  carriers, 
•esides,  must  have  been  employed  in  transporting  the  materials  from 
ame  of  those  workmen  to  others  who  often  live  in  a  very  distant  part 
f  the  country!    How  much  commerce  and  navigation  in  particular, 
Ow  many   ship-builders,    sailors,   sail-makers,   rope-makers,   must 
ave  been  employed  in  order  to  bring  together  the  different  drugs 
lade  use  of  by  the  dyer,  which  often  come  from  the  remotest  corners 
3  the  world!    What  a  variety  of  labour  too  is  necessary  in  order 
1  produce  the  tools  of  the  meanest  of  those  workmen.    To  say  nothing 
such  complicated  machines  as  the  ship  of  the  sailor,  the  mill  of  the 
Her,  or  even  the  loom  of  the  weaver,  let  us  consider  only  what  a 
iriety  of  labour  is  requisite  in  order  to  form  that  very  simple  machine, 
e  shears  with  which  the  shepherd  clips  the  wool.    The  miner,  the 

1  From  Adam  Smith,  Wealth  of  Nations,  Book  I,  chap.  i. 


I 


238  INDUSTRIAL  SOCIETY 

builder  of  the  furnace  for  smelting  the  ore,  the  feller  of  the  timber, 
the  burner  of  the  charcoal  to  be  made  use  of  in  the  smelting-house, 
the  brick-maker,  the  bricklayer,  the  workmen  who  attend  the  furnace, 
the  millwright,  the  forger,  the  smith,  must  all  of  them  join  their 
different  arts  in  order  to  produce  them.  Were  we  to  examine,  in  the 
same  manner,  all  the  different  parts  of  his  dress  and  household  furni- 
ture, the  coarse  linen  shirt  which  he  wears  next  his  skin,  the  shoes  which 
cover  his  feet,  the  bed  which  he  lies  on,  and  all  the  different  parts 
which  compose  it,  the  kitchen  grate  at  which  he  prepares  his  victuals, 
the  coals  which  he  makes  use  of  for  that  purpose,  dug  from  the  bowels 
of  the  earth,  and  brought  to  him  perhaps  by  a  long  sea  and  a  long  land 
carriage,  all  the  other  utensils  of  his  kitchen,  all  the  furniture  of  his 
table,  the  knives  and  forks*,  the  earthen  or  pewter  plates  upon  which 
he  serves  up  and  divides  his  victuals,  the  different  hands  employed 
in  preparing  his  bread  and  his  beer,  the  glass  window  which  lets  in  the 
heat  and  the  light,  and  keeps  out  the  wind  and  the  rain,  with  all  the 
knowledge  and  art  requisite  for  preparing  that  beautiful  and  happy 
invention,  without  which  these  northern  parts  of  the  world  could 
scarce  have  afforded  a  very  comfortable  habitation,  together  with 
the  tools  of  all  the  different  workmen  employed  in  producing  those 
different  conveniences;  if  we  examine,  I  say,  all  these  things,  and 
consider  what  a  variety  of  labour  is  employed  about  each  of  them,  we 
shall  be  sensible  that  without  the  assistance  and  co-operation  of  many 
thousands  the  very  meanest  person  in  a  civilized  country  could  not  be 
provided,  even  according  to,  what  we  very  falsely  imagine,  the  easy 
and  simple  manner  in  which  he  is  commonly  accommodated.  Com- 
pared, indeed,  with  the  more  extravagant  luxury  of  the  great,  his 
accommodation  must  no  doubt  appear  extremely  simple  and  easy;  a: 
yet  it  may  be  true,  perhaps,  that  the  accommodation  of  an  Europe 
prince  does  not  always  so  much  exceed  that  of  an  industrious  a 
frugal  peasant  as  the  accommodation  of  the  latter  exceeds  that  of 
many  an  African  king,  the  absolute  master  of  the  lives  and  liberties 
ten  thousand  naked  savages. 

86.    THE  INDIRECT  METHOD  OF  SATISFYING  WANTS1 

Every  man  has  certain  purposes,  impulses,  and  desires.  Th< 
may  be  of  a  merely  instinctive  and  elementary  nature,  or  they  mi 
be  deliberate  and  far-reaching;  they  may  be  self-regarding  or  socis 

1  Adapted  by  permission  from  P.  H.  Wicksteed,  The  Common  Sense  of  Politic 
Economy,  pp.  165-68.     (Macmillan  &  Co.,  Ltd.,  1910.) 


his 

= 


INDIVIDUAL  EXCHANGE  CO-OPERATION  239 

they  may  be  spiritual  or  material;  but  whatever  they  are,  it  is  impos- 
sible for  him  to  give  effect  to  them  by  his  own  unaided  action  upon  the 
forces  and  substances  of  nature.  No  man,  standing  naked  upon  the 
face  of  the  earth,  can  feed,  clothe,  or  house  his  body,  or  secure  an 
entrance  for  his  mind  into  the  regions  of  intellectual,  imaginative, 
and  emotional  enjoyment;  nor  (suppose  he  has  altruistic  impulses) 
can  he,  thus  unaided,  minister  to  like  needs  or  develop  like  possibilities 
in  others.  Neither  can  he  accomplish  these  things  by  the  direct 
application  of  his  own  faculties  supported  by  all  the  material  supplies 
and  instruments  he  possesses  or  can  possess;  nor  yet,  except  under 
very  special  circumstances,  simply  by  enlisting  the  co-operation 
directly  inspired  by  sympathy  with  him  or  with  his  purposes.  But 
by  direct  and  indirect  processes  of  exchange,  by  the  social  alchemy  of 
which  money  is  the  symbol,  the  things  I  have  and  the  things  I  can 
are  transmuted  into  the  things  I  want  and  the  things  I  would.  By 
these  processes  I  can  convert  my  acquaintance  with  the  nature  of 
different  kinds  of  wood,  and  my  skill  in  handling  certain  tools,  or 
my  knowledge  of  the  higher  mathematics,  or  my  capacity  for  firing 
men's  imaginations,  or  for  chastening  or  stimulating  their  religious 
emotions,  into  food  and  clothing,  into  books  and  pictures,  into  the 
rapid  transport  of  my  own  person  through  distant  lands,  into  dinners 
for  hungry  children,  into  May  festivities  for  listless  villagers,  into  the 
collation  of  Syriac  manuscripts,  or  into  any  of  the  thousand  other 
things  that  I  want  to  have,  to  experience,  or  to  get  done;  and  all  this 
independently  of  any  interest  in  these  desires  of  mine,  or  any  knowl- 
edge of  them,  on  the  part  of  very  many  of  the  persons  who  assist  me  to 
accomplish  them.  Why,  then,  do  they  co-operate  with  me  at  all? 
Not  primarily,  or  not  solely,  because  they  are  interested  in  my  pur- 
poses, but  because  they  have  certain  purposes  of  their  own;  and  just 
as  I  find  that  I  can  only  secure  the  accomplishment  of  my  purposes 
by  securing  their  co-operation,  so  they  find  that  they  can  only  accom- 
plish theirs  by  securing  the  co-operation  of  yet  others,  and  they  find 
that  I  am  in  a  position,  directly  or  indirectly,  to  place  this  co-operation 
it  their  disposal. 

A  vast  range,  therefore,  of  our  relations  with  others  enters  into  a 
>ystem  of  mutual  adjustment  by  which  we  further  each  other's 
purposes  simply  as  an  indirect  way  of  furthering  our  own.  All  such 
•elations  may  be  fitly  called  "economic."  The  range  of  activity  they 
•.over  is  "business."  If  one  man  possesses  wheat  in  such  quantities 
hat  he  finds  it  well  to  exchange  some  of  it  for  potatoes,  and  another 


240  INDUSTRIAL  SOCIETY 

for  like  reasons  is  glad  to  change  potatoes  for  wheat,  this  is  not  gener- 
ally the  result  of  any  miscalculation,  and  not  necessarily  the  result  of 
any  original  and  inevitable  diversity  of  opportunities  or  faculties.  It 
was  deliberately  contemplated  and .  planned  from  the  beginning, 
because  the  one  man  believed  that  the  most  economical  way  for  him 
to  increase  his  stock  of  potatoes  was  to  grow  wheat,  and  vice  versa. 
By  the  system  of  "economic  relations,"  then,  I  understand  that  sys- 
tem  which  enables  me  to  throw  in  at  some  point  of  the  circle  of 
exchange  the  powers  and  possessions  I  directly  command  and  draw 
out  other  possessions  and  the  command  of  other  powers  whether  at 
the  same  point  or  at  some  other. 

Lastly,  "economic  forces"  or  "the  economic  force"  may  suitably 
be  used  to  indicate  the  resultant  pressure  of  all  the  conditions,  material 
and  psychological,  that  urge  men  to  enter  into  economic  relations  with 
each  other.  By  economic  forces  I  shall  mean  anything  and  everything 
which  tends  to  bring  men  into  economic  relations.  Thus,  the  inven- 
tion of  machinery  which  tends  to  increase  division  of  labour,  the  con- 
centration of  the  industrial  population,  improved  means  of  transport 
and  communication,  the  credit  system,  the  general  demand  for  ele- 
mentary and  technical  education,  and,  in  a  word,  the  whole  structure, 
organization,  and  movement  of  society,  is  perpetually  opening  and 
closing  opportunities  for  combination  and  for  the  mutual  furtherance 
of  each  other's  purposes  by  men  of  differing  faculty,  opportunity,  and 
desire.  And  these  conditions  determine  how  far  and  in  what  way  the 
general  desire  of  every  man  to  accomplish  his  own  purposes,  whatever 
they  may  be,  shall  become  an  economic  force,  urging  him  to  enter 
into  relations  with  other  men,  with  a  view  to  the  more  effective 
accomplishment  of  his  own  purposes.  Whether  I  pursue  my  pur- 
poses directly  through  the  application  of  my  own  resources  and 
capacities  to  their  accomplishment,  or  indirectly  by  entering  into  an 
economic  relation  with  other  men,  applying  my  resources  directly 
to  the  accomplishment  of  their  purposes  and  only  indirectly  to  the 
accomplishment  of  my  own,  in  either  case  my  motives  are  identical. 

87.    UNREST  BECAUSE  OF  VIOLATION  OF  RECIPROCITY1 

The  fundamental  assumption  upon  which  civilized  society  rests 
is  that  each  member  of  society  is  doing  something  to  make  the  general 
conditions  of  life  easier  for  society  as  a  whole.     If  there  were  no  such 

1  Taken  by  permission  from  A.  W.  Small,  "Private  Business  a  Public 
Trust,"  American  Journal  of  Sociology,  I  (1895-96),  283-89. 


! 


INDIVIDUAL  EXCHANGE  CO-OPERATION  241 

thing  as  society,  this  would  not  be  the  case.  If  the  world  were 
divided  up  among  a  population  of  hermits,  each  home  would  prac- 
tically be  a  world  by  itself,  having  nothing  to  do  with  other  homes. 
Since  the  world  is  the  home  of  people  who  have  complicated  dealings 
with  each  other,  it  has  come  to  pass  that  each  gets  tolerated  by  the 
other  in  seeking  his  own  personal  ends  solely  upon  the  implied  con- 
dition that  each  will  be  an  agent  to  do  some  sort  of  work  for  his 
fellows. 

Wherever  a  collection  of  human  beings  begins  to  resolve  itself 
into  a  society,  the  process  involves  a  tacit  agreement  that  some  of 
the  persons  will  attend  to  a  certain  work  needed  by  the  society, 
while  others  will  look  after  the  remainder.  If  a  hundred  farmers 
should  happen  to  buy  land  in  the  same  township  remote  from  other 
settlements,  these  farmers  would  sooner  or  later  illustrate  the  change 
that  has  gone  on,  with  difference  of  detail,  in  the  development  of  every 
civilization  or  part  of  civilization.  It  would  be  a  process  of  division 
of  labor,  resting  upon  a  common  understanding,  never  put  into  codified 
form,  to  be  sure,  that  the  farmer's  work,  from  which  a  part  of  the 
community  withdraw,  will  still  be  carried  on  by  the  rest;  and,  on 
the  other  hand,  that  terms  of  reciprocal  advantage  will  put  the  work 
of  those  who  cease  to  be  farmers  at  the  disposal  of  those  who  continue 
to  till  the  soil.  The  smith,  the  carpenter,  the  miller,  the  tanner,  the 
cobbler,  are  enabled  to  live  without  procuring  their  own  food  supply 
directly  from  the  soil,  by  becoming  agents  of  the  farmers  in  doing 
needed  work  of  which  the  farmers  are  thus  relieved.  On  the  other 
hand,  the  farmers  fall  into  line  with  the  necessity  of  industriously 
extracting  from  the  soil  a  supply  of  food  sufficient  for  the  whole 
community,  as  the  condition  of  getting  the  use  of  other  men's 
skill. 

The  fundamental  grievance  of  classes  against  other  classes  in 
modern  society  is  that  the  supposed  offenders  are  violators  of  this 
primal  law  of  reciprocity.  Criticisms  of  institutions  or  of  the  persons 
operating  them  resolve  themselves  into  charges  that  whereas  the 
parties  in  question  are  presumed  to  be  useful  social  agencies,  they 
are  in  reality  using  their  social  office  for  the  subordination  of  public 
weal  to  private  gain.  This  is  at  bottom  the  charge  of  the  dissatisfied 
proletarian  of  all  classes  against  employers,  capitalists,  corporations, 
trusts,  monopolies,  legislators,  and  administrators.  This  is  also 
in  large  part  the  implied  countercharge  against  organized  labor.  The 
most  serious  count  in  the  wage-earner's  indictment  of  other  classes  is 


242  INDUSTRIAL  SOCIETY 

not  primarily  that  these  classes  draw  too  much  pay,  but  that  they  are 
not  doing  the  work  that  their  revenues  are  supposed  to  represent. 

Back  of  all  formal  contracts  or  statutes  or  institutions,  therefore, 
is  this  unwritten  law  of  civilization  that  every  citizen  shall  be  a  public 
servant.  The  cycles  of  social  growth,  arrest,  decay,  have  always 
illustrated  in  turn  observance,  neglect,  and  violation  of  this  law. 
Men  and  institutions  have  begun  by  serving  their  day  and  generation 
in  a  socially  needful  way.  They  have  sometimes  ended  by  making 
their  day  and  generation  serve  them  in  a  socially  harmful  way.  Then 
has  come  social  condemnation,  rejection,  substitution. 

The  unrest  of  our  society  today  is  due,  in  large  measure,  to  sus- 
picion that  men  are  falling  more  and  more  into  the  position  of  toilers 
for  other  men  who  are  evading  the  law  of  reciprocal  service.  Dis- 
satisfaction is  fed  by  belief  that  many  occupations,  needful  in  them- 
selves, are  becoming  less  and  less  a  social  benefaction  and  more  and 
more  a  means  of  levying  tribute  over  and  above  the  value  of  the 
service.  Successful  and  arrogant  individualism  seems  to  defy  the 
law  of  mutualism  that  must  reign  in  right  society. 


See  also  Chapter  vi,  "Specialization  and  Interdependence." 

C.     Exchange  in  Our  Society 
88.    THE  MEANING  OF  EXCHANGE 

We  must  be  careful  not  to  use  the  term  "exchange"  in  too  narrow  a 
sense.     "Exchange  society"  implies  more — very  much  more — than 
a  society  in  which  ordinary  commodities  are  bought  and  sold.     In 
terms  of  our  present  society  it  implies  not  merely  a  specialization  of 
occupations  according  to  which  one  man  raises  potatoes,  another 
teaches,  another  operates  a  department  store,  etc;   it  also  implies 
specialization  which  involves  economic  groups  such  as  laborers,  land 
lords,  capitalists,  tenants,  and  entrepreneurs.     When  a  laborer  sell 
his  services  for  a  wage,  when  a  landlord  sells  the  services  of  his  Ian 
for  rent,  when  a  capitalist  sells  the  services  of  his  capital  for  interes 
exchange  takes  place.    Exchange  is  thus  a  term  covering  all  th 
commercial  transactions  of  our  society.    It  is  generally  conducte 
in  terms  of  money  and  price,  but  not  inevitably  so. 

A  moment's  thought  will  make  it  clear  that  exchange  is  todaj 
interwoven  with  other  mechanisms  and  devices — notably,  private 
property,  contract,  and  competition. 


INDIVIDUAL  EXCHANGE  CO-OPERATION  243 

89.    BENEFITS  OF  EXCHANGE1 

Co-operation  enables  the  individual  to  enjoy  not  a  few  goods  which 
otherwise  he  could  not  enjoy  at  all  because  he  could  not  produce  them. 
Thus,  (a)  homogeneous  co-operation  makes  possible  results  which  no 
person  acting  alone  can  bring  about,  and  which,  therefore,  the  indi- 
vidual could  not  enjoy  were  it  not  for  co-operation,  (b)  Heterogene- 
ous co-operation — doing  different  things  and  exchanging  the  products 
— often  enables  the  individual  to  get  and  enjoy  goods  which  he, 
anyhow,  cannot  produce,  whether  acting  alone  or  with  others,  and 
which,  therefore,  he  could  not  have  at  all  were  he  dependent  on  himself 
entirely.  Thus  some  articles  can  be  produced  in  only  a  few  places. 
Some  services  can  be  performed  by  only  a  few  persons.  A  literally  com- 
plete exclusion  of  co-operation  would  mean  death  to  not  a  few  persons. 

Co-operation  enables  the  individual  to  enjoy  a  far  larger  quantity 
of  those  goods  which  he  himself  could  produce.  Specialization 
enables  both  the  farmer  and  the  carpenter  to  become  more  productive 
than  if  each  worked  at  both  trades.  Consequently,  each,  in  co- 
operating with  the  rest,  gives,  and  so  gets,  more  goods  than  he  would 
if  he  worked  by  himself. 

Co-operation  enables  the  individual  to  enjoy  a  far  better  quality 
of  goods  than  otherwise.  Specialization  enables  each  to  produce 
better  goods  than  if  he  tried  to  produce  all  kinds.  Through  exchange 
co-operation  each  gets  the  benefit  of  this  improvement. 

90.    THE  BENEFITS  OF  INTERNATIONAL  TRADE2 

The  gains  may,  perhaps,  be  better  realized  by  regarding  them  in  a 
more  concrete  way.  From  this  point  of  view  it  appears  that  a  nation 
gains  the  following  advantages  by  its  foreign  trade: 

1.  It  is  able  to  procure  commodities  which  it  is  absolutely  unable 
to  produce  itself — tropical  spices  furnish  a  good  example. 

2.  It  obtains  commodities  which  it  could  not  produce  with  the 
same  facility  even  from  the  technical  aspect;  and  it  may  be  noted 
that  between  this  case  and  the  first  the  difference  is  sometimes  very 
slight.  There  are  few  articles  which  could  not,  to  some  extent  and 
by  sufficient  outlay,  be  produced  in  any  country.  "By  means  of 
glasses,  hot-beds,  and  hot- walls,"  says  Adam  Smith,  in  his  celebrated 

1  Adapted  by  permission  from  F.  M.  Taylor,  Principles  of  Economics,  pp.  14-15. 
(University  of  Michigan,  1916.) 

3  Adapted  by  permission  from  C.  F.  Bastable,  Theory  of  International  Trade, 
pp.  18-21.     (Macmillan  &  Co.,  Ltd.,  1903.) 


244  INDUSTRIAL  SOCIETY 

reductio  ad  absurdum  of  the  mercantile  theory,  "very  good  grapes 
can  be  raised  in  Scotland,  and  very  good  wine,  too,  can  be  made  of 
them,  at  about  thirty  times  the  expense  for  which  at  least  equally 
good  can  be  brought  from  foreign  countries."  In  fact,  there  are 
many  commodities  which  could  not  be  produced  in  sufficient  quantity, 
or  at  a  price  low  enough  to  induce  consumers,  but  which  are  easily 
obtained  by  means  of  international  exchange.  Again,  there  are 
many  articles  which  could  be  produced  at  a  moderate  cost  at  home, 
but  which  can  be  gained  at  still  lower  terms,  owing  to  the  superior 
resources  of  other  countries. 

3.  The  case  of  a  country,  with  superior  powers  of  production, 
importing  from  one  which  is  inferior  in  all  respects,  comes  next  in 
order,  and  the  examples  already  given  need  not  be  repeated. 

4.  The  productive  force  of  each  community  is  set  free  for  applica- 
tion to  those  natural  agents  and  materials  which  offer  the  best  chance 
of  high  returns,  so  that  the  efficiency  of  each  productive  unit  is  much 
increased. 

5.  The  concentration  of  special  branches  of  production  in  one 
place  leads,  as  the  law  of  increasing  return  so  generally  applicable 
to  elaborative  industry  implies,  to  further  gain.  This  advantage 
is  nothing  else  than  one  of  the  advantages  of  division  of  labour,  since 
international  exchange  is  really,  what  Torrens  has  well  called  it, 
"the  territorial  division  of  labour." 

In  enumerating  these  several  advantages,  no  place  has  been  made 
for  that  which  is  most  often  put  forward  in  popular  discussions,  viz., 
the  creation  of  new  markets  for  exports.  At  the  same  time,  the  bond 
which,  as  we  shall  see,  connects  all  international  trade  and  establishes 
a  definite  relation  between  imports  and  exports,  must  not  be  lost  sight 
of.  Exports  are  the  sacrifice  made  in  order  to  obtain  imports,  and 
anything  that  makes  the  gain  by  exchange  greater,  which  new  markets 
may  do,  ought  not  to  be  overlooked  in  a  complete  theory.  It  is  highly 
probable  that  the  opening  of  new  markets  will  stimulate  industry, 
and  also  bring  about  a  better  adjustment  of  productive  force. 

The  social  and  moral  effects  of  foreign  trade  are  in  no  respect 
inferior  to  the  purely  economic  ones. 


INDIVIDUAL  EXCHANGE  CO-OPERATION  245 

91.     SOME  CRITICISMS  OF  COMMERCE1 

The  Fourierists,  through  their  principal  organ,  M.  Considerant 
(in  his  Destinee  Sociale),  enumerate  the  evils  of  commerce  in  the 
following  order: 

"The  trader  is  a  go-between,  who  profits  by  the  general  anarchy 
and  the  non-organization  of  industry.  The  trader  buys  up  products, 
he  buys  up  everything;  he  owns  and  detains  everything,  in  such 
sort  that: 

"1.  He  holds  both  Production  and  Consumption  under  his  yoke 
because  both  must  come  to  him  either  finally  for  the  products  to  be 
consumed,  or  at  first  for  the  raw  material  to  be  worked  up.  Commerce 
with  all  its  methods  of  buying,  and  of  raising  and  lowering  prices,  its 
innumerable  devices,  and  its  holding  everything  in  the  hands  of 
middlemen,  levies  toll  right  and  left;  it  despotically  gives  the  law 
to  Production  and  Consumption,  of  which  it  ought  to  be  only  the 
subordinate. 

"2.  It  robs  society  by  its  enormous  profits — profits  levied  upon 
the  consumer  and  the  producer,  and  altogether  out  of  proportion  to  the 
services  rendered,  for  which  a  twentieth  of  the  persons  actually 
employed  would  be  sufficient. 

"3.  It  robs  society  by  the  subtraction  of  its  productive  forces; 
taking  off  from  productive  labor  nineteen- twentieths  of  the  agents 
of  trade  who  are  mere  parasites.  Thus,  not  only  does  commerce  rob 
society  by  appropriating  an  exorbitant  share  of  the  common  wealth, 
but  also  by  considerably  diminishing  the  productive  energy  of  the 
human  beehive. 

"4.  It  robs  society  by  the  adulteration  of  products,  pushed  at  the 
present  day  beyond  all  bounds.  And  in  fact,  if  a  hundred  grocers 
establish  themselves  in  a  town  where  before  there  were  only  twenty, 
it  is  plain  that  people  will  not  begin  to  consume  five  times  as  many 
groceries.  Hereupon  the  hundred  virtuous  grocers  have  to  dispute 
between  them  the  profits  which  before  were  honestly  made  by  the 
twenty;  competition  obliges  them  to  make  it  up  at  the  expense  of  the 
consumer,  either  by  raising  the  prices,  as  sometimes  happens,  or  by 
adulterating  the  goods,  as  always  happens.  In  such  a  state  of  things 
there  is  an  end  to  good  faith.  Inferior  or  adulterated  goods  are 
sold  for  articles  of  good  quality  whenever  the  credulous  customer  is 
not  too  experienced  to  be  deceived. 

Adapted  by  permission  from  J.  S.  Mill,  "Chapters  on  Socialism,"  Fort- 
nightly Review,  XXXI  (1879),  231-34. 


I 


246  INDUSTRIAL  SOCIETY 

"5.  It  robs  society  by  accumulations,  artificial  or  not,  in  conse- 
quence of  which  vast  quantities  of  goods  collected  in  one  place  are 
damaged  and  destroyed  for  want  of  a  sale.  Fourier  says:  'The 
fundamental  principle  of  the  commercial  systems,  that  of  leaving 
full  liberty  to  the  merchants,  gives  them  absolute  right  of  property 
over  the  goods  in  which  they  deal;  they  have  the  right  to  withdraw 
them  altogether,  to  withhold  or  even  to  burn  them,  as  happened 
more  than  once  with  the  Oriental  Company  of  Amsterdam,  which 
publicly  burnt  stores  of  cinnamon  in  order  to  raise  the  price.  What 
it  did  with  cinnamon  it  would  have  done  with  corn;  but  for  the  fear  of 
being  stoned  by  the  populace  it  would  have  burnt  some  corn  in  order 
to  sell  the  rest  at  four  times  its  value.  Indeed,  it  actually  is  of  daily 
occurrence  in  ports  for  provisions  of  grains  to  be  thrown  into  the 
sea  because  the  merchants  have  allowed  them  to  rot  while  waiting 
for  a  rise.  It  is  society  that  bears  the  cost  of  this  waste,  which  takes 
place  daily  under  the  shelter  of  the  philosophical  maxim  of  full  liberty 
for  the  merchants. ,' 

"6.  Commerce  robs  society,  moreover,  by  all  the  loss,  damage, 
and  waste  that  follow  from  the  extreme  scattering  of  products  in  mil- 
lions of  shops,  and  by  the  multiplication  and  complication  of  carriage. 

"7.  It  robs  society  by  shameless  and  unlimited  usury — usury 
absolutely  appalling.  The  trader  carries  on  operations  with  fictitious 
capital,  much  higher  in  amount  than  his  real  capital.  A  trader 
with  a  capital  of  twelve  hundred  pounds  will  carry  on  operations, 
by  means  of  bills  and  credit,  on  a  scale  of  four,  eight,  or  twelve 
thousand  pounds.  Thus  he  draws  from  capital  which  he  does  not 
possess,  usurious  interest,  out  of  all  proportion  with  the  capital  which 
he  actually  owns. 

"8.  It  robs  society  by  innumerable  bankruptcies,  for  the  daily 
accidents  of  our  commercial  system,  political  events,  and  any  kind  of 
disturbance  must  usher  in  a  day  when  the  trader,  having  incurred 
obligations  beyond  his  means,  is  no  longer  able  to  meet  them;  his 
failure,  whether  fraudulent  or  not,  must  be  a  severe  blow  to  his  credi 
tors.  The  bankruptcy  of  some  entails  that  of  others,  so  that  bank 
ruptcies  follow  one  upon  another,  causing  widespread  ruin.  And  it  is 
always  the  producer  and  the  consumer  who  suffer;  for  commerce,  con- 
sidered as  a  whole,  does  not  produce  wealth,  and  invests  very  little  in 
proportion  to  the  wealth  which  passes  through  its  hands. 

"9.  Commerce  robs  society  by  the  independence  and  irresponsi 
bility  which  permit  it  to  buy  at  the  epochs  when  the  producers  are 


INDIVIDUAL  EXCHANGE  CO-OPERATION  247 

forced  to  sell  and  compete  with  one  another,  in  order  to  procure 
money  for  their  rent  and  necessary  expenses  of  production.  When  the 
markets  are  overstocked  and  goods  cheap,  trade  purchases.  Then 
it  creates  a  rise,  and  by  this  simple  manoeuvre  despoils  both  producer 
and  consumer. 

"  10.  It  robs  society  by  a  considerable  drawing  of  of  capital  which 
will  return  to  productive  industry  when  commerce  plays  its  proper 
subordinate  part,  and  is  only  an  agency  carrying  on  transactions  be- 
tween the  producers  (more  or  less  distant)  and  the  great  centres  of 
consumption — the  communistic  societies.  Thus  the  capital  engaged 
in  the  speculations  of  commerce  (which,  small  as  it  is,  compared  to 
the  immense  wealth  which  passes  through  its  hands,  consists  never- 
theless of  sums  enormous  in  themselves)  would  return  to  stimulate 
production  if  commerce  was  deprived  of  the  intermediate  property  in 
goods  and  their  distribution  became  a  matter  of  administrative 
organization.  Stock-jobbing  is  the  most  odious  form  of  this  vice  of 
commerce. 

"11.  It  robs  society  by  the  monopolising  or  buying  up  of  raw 
materials,  'For'  (says  Fourier),  'the  rise  in  price  on  articles  that 
are  bought  up,  is  borne  ultimately  by  the  consumer,  although  in  the 
first  place  by  the  manufacturers,  who,  being  obliged  to  keep  up  their 
establishments,  must  make  pecuniary  sacrifices,  and  manufacture 
at  small  profits  in  the  hope  of  better  days;  and  it  is  often  long  before 
they  can  repay  themselves  the  rise  in  prices  which  the  monopoliser 
has  compelled  them  to  support  in  the  first  instance ' 

"In  short,  all  these  vices,  besides  many  others  which  I  omit,  are 
multiplied  by  the  extreme  complication  of  mercantile  affairs;  for 
products  do  not  pass  once  only  through  the  greedy  clutches  of  com- 
merce; there  are  some  which  pass  and  repass  twenty  or  thirty  times 
before  reaching  the  consumer.  In  the  first  place,  the  raw  material 
passes  through  the  grasp  of  commerce  before  reaching  the  manu- 
facturer who  first  works  it  up;  then  it  returns  to  commerce  to  be  sent 
out  again  to  be  worked  up  in  a  second  form;  and  so  on  until  it  receives 
its  final  shape.  Then  it  passes  into  the  hands  of  merchants,  who  sell 
to  the  wholesale  dealers,  and  these  to  the  great  retail  dealers  of  towns, 
md  these  again  to  the  little  dealers  and  to  the  country  shops;  and 
iach  time  that  it  changes  hands  it  leaves  something  behind  it." 


248  INDUSTRIAL  SOCIETY 

92.     THE  MIDDLEMAN1 

The  middleman  performs  four  distinct  functions,  whose  value  to 
both  producers  and  consumers  should  not  be  overlooked. 

In  the  first  place,  the  middleman  provides  a  market.  He  organizes 
the  demand  for  all  the  various  sorts  of  produce  and  brings  it  into 
effective  touch  with  the  producer,  who  is  commonly  in  no  position  to 
find  it  for  himself.  The  latter's  farm  or  orchard  is  located  with 
reference  to  advantages  for  production,  and  therefore  far  away  from 
the  markets  in  which  he  must  sell  his  product.  His  abilities  are  too 
specialized  in  the  direction  of  agricultural  proficiency  to  give  him  the 
necessary  commercial  expertness.  The  time  of  harvesting  the  crop 
is  generally  the  busiest  season  of  the  year,  leaving  the  grower  little 
time  to  devote  to  the  intricate  details  of  marketing  his  product. 
Finally,  there  are  comparatively  few  producers  who  have  a  suffi- 
cient volume  of  goods  to  enable  them  to  ship  in  carload  units,  and 
yet  they  must  move  in  such  quantities  if  they  are  to  get  to  market 
at  all. 

A  kindred  function  is  that  of  " equalization."     Supplies,  on  the 
one  hand,  are  more  or  less  unreliable,  fluctuating  in  quantity  and 
quality  according  to  the  caprice  of  weather,  pests,  floods,  and  human 
nature;   and  demand,  on  the  other  hand,  is  no  less  arbitrary,  spa 
modic,  and  wayward.     But,  if  some  central  agency  gathers  the: 
supplies  together,  classifies  them  into  lots  of  appropriate  size,  and 
directs  them  into  channels  where  demand  is  at  the  moment  mos 
keen,  all  parties  are  benefited.     A  large  part  of  consumers'  wan 
cannot  be  put  in  the  form  of  definite  orders  some  time  ahead,  an 
only  a  small  portion  of  supplies  can  be  definitely  promised  in  advanc 
Accordingly  a  clearing-house  is  needed,  where  current  supplies  ca 
be  offset  against  the  day's  demand. 

This  consideration  looks  over  into  the  second  division,  name! 
the  middleman's  service  to  the  consumer.  To  only  a  small  extent 
the  modern  consumer  able  to  connect  himself  directly  with  sourc 
of  supply.  He  possesses  neither  the  facilities  nor  the  knowledg 
His  elaborate  market-basket  is  filled  from  all  over  the  world,  fro 
places  he  wots  not  of,  and  yet  is  replenished  daily  from  stocks  whic 
have  been  brought  within  his  daily  reach.  Commercial  agencies  of 
supply  are  scouring  the  world  for  better  goods  and  constantly  see 

1  Adapted  by  permission  from  E.  G.  Nourse,  "Middlemen  in  the  Produ 
Trade,"  in  Hamilton's  Current  Economic  Problems,  pp.  163-65.  (The  Universi 
of  Chicago  Press,  1916.) 


id 
in 

LS- 

se 


INDIVIDUAL  EXCHANGE  CO-OPERATION  249 

better  means  of  bringing  them  to  the  place  of  use  and  keeping  them 
in  the  best  condition  until  the  time  of  use. 

Alongside  of  these  commercial  activities  of  the  produce  dealer  is 
a  third  class  of  service  which  may  be  called  "technical" — the  actual 
handling  of  the  goods,  storage,  repacking  and  regrading,  culling, 
sorting  and  fitting  to  meet  needs  or  whims  of  the  buying  public.  It  is 
the  oft-repeated  comment  of  the  dealers  that  most  people  buy,  not 
according  to  reason,  but  according  to  their  prejudices;  not  to  get 
nourishment  or  flavor  or  real  excellence,  but  to  please  the  eye.  The 
extra  labor  and  material  thus  necessarily  pile  up  extra  cost. 

Storage  is  partly  a  technical  service,  but  it  is  charged  for  on  a  time 
basis  and  so  comes  also  under  the  head  of  financing  services.  This 
fourth  class  of  the  middleman's  services  is  of  great  importance  and 
yet  is  entirely  overlooked  by  those  who  regard  him  as  engaged  in 
merely  passing  goods  from  hand  to  hand.  When  the  householder 
buys  his  apples  or  potatoes  only  as  he  needs  them,  and  pays  for  them 
only  at  the  end  of  the  month  after  they  have  been  consumed,  he 
should  not  forget  that  someone  has  financed  that  portion  of  his  living 
expenses.  But  the  dealer  goes  farther  back  and  finances  the  trans- 
portation and  perhaps  the  growing  of  the  crop.  This  service  doubly 
benefits  the  producer,  because  without  it  producers  would  be  crippled, 
supplies  curtailed,  and  prices  advanced.  This  is  not  to  say  that 
producers  may  not  in  time  arrange  to  finance  their  own  operations, 
out  so  long  as  the  middleman  is  called  upon  to  do  it  he  is  undoubtedly 
performing  a  service  which  should  not  be  overlooked  when  we  are 
>alancing  his  account  with  the  public. 


See  also  76.     The  Rise  of  Functional  Middlemen. 

93.    IS  EXCHANGE  PRODUCTIVE? 

Is  the  middleman  a  "producer"  or  is  he  a  "parasite"?  Let  us 
egin  by  recalling  what  it  means  to  produce.  Man  cannot  bring  new 
latter  into  existence;  he  can  only  "confer  utilities"  upon  existing 
latter,  and,  with  reference  to  the  "production"  of  material  goods, 
e  have  come  to  classify  these  utilities  as  (a)  those  of  time,  (b)  those 
I  place,  and  (c)  those  of  form.  The  question  accordingly  becomes 
lis:  Does  the  middleman  make  possible  an  increase  of  any  or  all  of 
lese  kinds  of  utility  ? 

The  answer  is  simple  so  far  as  time  utilities  are  concerned.  Any- 
le  who  performs  the  function  of  storage  (and  in  one  form  or  another 


I 


250  INDUSTRIAL  SOCIETY 

the  middleman  does  a  deal  of  this)  is  "conferring  utility."  He  is 
taking  goods  at  a  time  when  their  (marginal)  utility  is  low,  presum- 
ably because  of  the  large  quantity  existing  at  that  time,  and  keeping 
'them  until  a  time  when  their  (marginal)  utility  is  greater,  presumably 
because  of  the  smaller  quantity  available  in  proportion  to  needs. 

The  answer  is  really  not  more  difficult  with  respect  to  place  utility. 
The  middleman  takes  goods  from  the  place  where  they  are  "less 
wanted"  to  the  place  where  they  are  "more  wanted,"  whether  he  be 
operating  as  a  delivery  boy  or  as  a  railroad  traffic  manager.  He  has 
"conferred  utility"  by  taking  goods  from  a  place  where  their 
(marginal)  utility  is  low  to  a  place  where  their  (marginal)  utility 
is  high. 

An  increase  in  the  total  available  form  utility  also  comes  about, 
indirectly,  through  the  work  of  the  middleman.  By  taking  over  cer- 
tain functions  he  makes  it  possible  for  the  maker  of  a  good  to  specialize 
and  thus  to  increase  the  total  available  form  utility  in  the  community. 
This  is,  of  course,  only  true  in  the  cases  where  the  gains  of  specialization 
exceed  its  losses — but  those  cases  are  legion. 

But  can  the  foregoing  statements  be  true  ?  If  they  are,  how  can 
we  account  for  the  too  common  notion  that  the  middleman  is  a 
parasite?  Each  will  decide  for  himself  how  convincing  is  the  logic 
of  the  statements  made.  As  for  the  prevalence  of  the  notion  that  the 
middleman  is  a  parasite,  the  explanation  is  readily  forthcoming. 

In  part  it  rests  upon  a  misapprehension  of  the  issues  in  the  case. 
It  is  one  thing  to  say  that  the  middleman  is  "productive":  it  is 
another  thing  to  assert  that  his  function  is  performed  with  ioo  per  cent 
efficiency.  Many  people  who  have  criticized  (properly  enough)  the 
social  wastefulness  of  some  of  the  operations  of  the  middleman  have 
jumped  to  the  erroneous  conclusion  that  they  are  criticizing  his 
functions,  and  their  hearers  and  readers  have  accompanied  them  in 
that  error. 

Still  another  reason,  and  probably  a  more  important  one,  lies  in 
our  social  inheritance  of  economic  doctrines  of  the  days  of  local 
self-sufficiency  and  customary  industry — doctrines  which  were  crystal- 
lized in  pronouncements  of  church,  gild,  and  state  and  which  have 
come  down  to  us  and  are  now  misleading  us  in  an  organization  of 
industry  vastly  different. 


INDIVIDUAL  EXCHANGE  CO-OPERATION  251 

D.     Some  Phases  of  Market  Structure 
94.     THE  MARKET 

Few  words  are  used  with  a  greater  number  of  connotations  than 
is  the  term  market.  Perhaps  the  two  extremes  are  represented  by 
these  cases:  (a)  the  use  of  the  term  to  mean  a  village  market-place 
with  its  buying  and  selling  operations;  (b)  a  more  abstract  use  of  the 
word  carrying  the  connotation  of  a  great  social  institution  covering 
a  range  of  activities  almost  as  broad  as  modern  economic  life.  The 
layman  is  likely  to  think  of  a  market  as  a  specific  place,  but  if  his 
attention  is  called  to  certain  matters  he  at  once  agrees  that  the  place 
is  not  necessarily  the  significant  element.  He  will  talk  of  the  coffee 
market,  the  money  market,  the  labor  market,  or  the  securities  market 
quite  without  reference  to  any  given  locality.  There  is  a  market 
when  the  forces  of  demand  and  supply  are  brought  together. 

In  other  words,  the  exchanging  functions  of  our  society  and  the 
market  functions  are  one  and  the  same.  Just  as  exchange  is  a  very 
broad  term,  embracing  all  the  commercial  transactions  of  our  society, 
so  also  is  market.  Ours  is  a  market  society,  organized  on  a  price  basis, 
the  prices  being  established  in  the  market,  in  the  exchanging  operations 
of  society.  A  discussion  of  the  implications  of  this  statement  would 
be  more  or  less  meaningless  at  this  stage  of  our  work.  It  will  suffice 
for  present  purposes  if  we  can  begin  to  think  of  the  market  as  a  social 
institution  of  great  significance — one  which  covers  the  commercial 
operations  of  the  banker,  the  employer,  the  renting  landlord,  the  man 
going  into  employment,  the  bond  house,  and  the  investor  as  truly 
as  it  does  the  acts  of  a  wholesaler  or  the  transactions  on  an  organized 
exchange. 

See  also  129.    A  Classification  of  Banks  and  Types  of  Banking 
Operations. 
131.     The  Services  of  Bond  Houses. 

133.  The  Functions  of  the  Stock  Exchange. 

134.  A  Favorable  View  of  Wall  Street. 

229.    The  Organization  of  the  Labor  Market. 


252  INDUSTRIAL  SOCIETY 

95.    THE  FRAMEWORK  OF  A  MARKET1 

The  diagram  on  p.  253  is  designed  to  show  the  central  position 
occupied  by  our  market  mechanism  as  a  mediating  force  between 
producers'  supplies  on  the  one  hand  and  consumers'  demands  on 
the  other.  Beginning  at  the  top  of  the  diagram,  and  following  it 
downward,  we  pass  from  natural  determinants  of  what  can  be  pro- 
duced to  rational  determinants  of  what  shall  be  produced.  The 
"business  of  farm  production"  is  very  much  influenced  by  the  char- 
acter and  activities  of  the  market.  What  a  particular  farmer  or  a 
given  section  decides  to  produce  is  based  very  much  upon  the  will- 
ingness which  marketmen  have  indicated  to  handle  one  or  another 
class  of  product.  Often  the  dealers  give  assistance,  financial  or  other, 
in  order  to  stimulate  the  production  of  some  certain  article.  Trans- 
portation, while  not  strictly  a  marketing  agency,  yet  occupies  a 
highly  important  intermediate  position,  determining  the  possibili- 
ties of  bringing  any  given  demand  within  touch  of  any  particular 
source  of  supply.  We  might  say  that  it  makes  any  actual  stock  an 
effective  supply  for  such  a  market  zone  as  it  reaches. 

If  we  turn  to  look  at  the  matter  from  the  side  of  demand,  the 
important  influence  of  the  market  mechanism  again  appears.     Begin- 
ning at  the  bottom  of  the  chart,  we  find  demand  resting  upon  condi- 
tions of  physiological  necessity  which  are  fixed  in  character.     But  we 
see,  as  we  look  at  the  other  factors  in  the  making  of  effective  demand, 
that  there  is  a  considerable  field  within  Which  the  agencies  of  thi 
market  are  able  to  modify  and  direct  the  character  and  volume  o 
actual  market  demand.     The  work  of  advertising,  of  making  tempting 
displays  of  certain  goods,  or  of  selecting  particular  articles  in  whose 
interest  the  buying  public  is  to  be  vigorously  solicited — all  thes( 
activities  of  the  market  go  far  to  modify  intellectual  estimates  oi 
social  esteem  and  to  determine  the  distribution  of  the  family  incomi 
to  various  classes  of  expenditures  or  even  the  relative  portion  whicl 
shall  be  spent  or  which  shall  be  saved. 

We  need  to  get  away  from  thinking  of  the  process  of  price-making 
in  vague  general  terms  and  in  the  passive  voice.  It  is  a  very  concrete 
process,  made  up  of  a  large  number  of  personal  transactions,  and  th< 
precise  conditions  under  which  each  of  these  personal  transaction; 
takes  place  are  created  by  the  activities  of  our  marketing  system. 


1  Taken  by  permission  from  E.  G.  Nourse,  Agricultural  Economics,  pp.  485 
(The  University  of  Chicago  Press,  1916.) 


" 


INDIVIDUAL  EXCHANGE  CO-OPERATION 


253 


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254  INDUSTRIAL  SOCIETY 

96.    TYPES  OF  MARKET  DISTRIBUTION  FOR 
ORDINARY  GOODS 


The  middleman  is  a  by-product  of  a  complex  industrial  organiza- 
tion. Chart  I  shows  in  rough  outline  the  evolution  of  the  middleman 
from  the  early  period  when  producer  dealt  directly  with  consumer  to 
the  appearance  of  the  orthodox  type  of  distribution  (late  in  the 
eighteenth  century  and  in  the  first  quarter  of  the  nineteenth  century) 
when  a  complicated  series  of  middlemen  existed.  It  should  be  noted 
that  this  chart  represents  the  typical  case  of  the  domestic  product 
rather  than  that  of  imported  commodities. 

In  the  early  days  of  the  factory  system,  shown  in  Chart  II,  we 
find  that  the  producers  have  lost  their  character  as  merchants  and  are 
devoting  themselves  to  the  problems  of  production.  The  pressure  on 
production  has  continued,  and  with  the  increasing  intricacy  of 
industry  producers  have  found  it  necessary  to  concentrate  their 
attention  on  production.  The  selling  agent  appears  as  a  link  in  the 
chain  of  distribution  to  relieve  the  producer  of  the  task  of  selling  his 
product.  The  selling  agent  undertakes  to  sell  the  entire  output  of  the 
producer,  distributes  it  among  wholesalers,  who  in  turn  distribute  it 
to  retailers,  and  the  retailers  to  the  consuming  public. 

This  may  be  termed  the  orthodox  type  in  distribution,  a  type 
almost  universal  in  the  early  decades  of  the  nineteenth  century,  and 
still  common,  as  in  the  textile  industry  in  New  England. 

Just  as  the  long  period  of  development  from  a  system  of  barter 
economy  to  the  early  decades  of  the  factory  system  showed  a  con- 
tinuous tendency  for  increase  in  the  number  of  middlemen  intervening 
between  the  producer  and  the  consumer,  so  recent  years  have  shown 
a  growing  tendency  to  decrease  the  number  of  successive  steps  in 
distribution.  The  tendency  is  apparent  in  nearly  every  industry  and 
has  been  clearly  marked  in  recent  years. 

Chart  II  is  an  attempt  to  show  diagrammatically  the  development 
of  this  tendency  to  decrease  the  number  of  successive  middlemen. 
By  the  use  of  salesmen  going  directly  to  the  wholesaler  and  by  adver- 
tising directed  to  the  retailer  the  producer  has  displaced  the  selling 
agent  in  many  cases.  Sometimes  the  advertising  is  directed  not  only 
to  the  retailers  but  also  to  the  wholesalers.    To  strengthen  still 

1  Taken  by  permission  from  A.  W.  Shaw,  "Some  Problems  in  Market  Distribu- 
tion," Quarterly  Journal  of  Economics,  XXVI  (191 2),  725-30. 


INDIVIDUAL  EXCHANGE  CO-OPERATION 


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INDUSTRIAL  SOCIETY 


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INDIVIDUAL  EXCHANGE  CO-OPERATION  257 

further  his  position  the  producer  will  often  use  advertising  directed  to 
the  consumer  to  build  up  a  demand  for  his  product.  This  involves 
the  necessity  for  a  product  differentiated  by  trade  mark,  brand,  or 
trade  name.  When  the  producer  thus  directly  builds  up  a  demand 
among  consumers,  he  often  takes  the  further  step  of  sending  his  sales- 
men to  the  retailer,  thus  omitting  the  wholesaler  entirely  from  his 
system  of  distribution. 

The  most  extreme  step  in  the  process  is  the  complete  elimination 
of  middlemen,  and  the  sale  direct  from  the  merchant-producer  to  the 
consumer,  either  by  advertising  alone  or  by  salesmen  supplemented 
by  advertising.  Manufacturers  of  specialties  have  largely  adopted 
this  scheme  of  distribution  and  the  enormous  growth  of  the  mail-order 
business  in  recent  years  gives  evidence  that  in  some  lines  of  distribution 
there  are  economies  in  this  system. 

B1 

Distributing   goods    through   wholesaler   and   retailer   may   be 

called  the  customary  or  regular  channel  of  distribution.     From  this 

method  there  are  many  variations.     In  some  lines  there  are  more 

than  these  two  links,  while  in  others  the  two  have  been  concentrated 

into  one.    The  struggle  for  markets  among  producers  both  large  and 

small  have  tended  to  make  distribution  very  complex;    and  when 

:ompetition  is  free  and  unchecked,  changes  from  one  system  to 

mother  are  both  frequent  and  abrupt.     So-called  eliminations  of 

niddlemen  have  proceeded  from  both  ends  of  the  system.     Many 

arge  retailers,  such  as  the  department  stores,  have  sent  their  buyers 

lirect  to  the  producers  to  procure  supplies,  while  many  of  the  pro- 

lucers  have  gone  direct  to  the  retailers  and  even  to  the  consumers 

rith  their  goods.     There  has  been  a  great  deal  of  experimenting  and 

Dme  changing  back  and  forth.    Not  all  changes  have  been  made 

1  the  interests  of  economy.     Friction  with  present  systems  has  been 

ot  the  least  among  the  causes  for  establishing  new  channels  in  many 

ises.    As  an  illustration  of  the  number  of  methods  of  distribution 

nployed  by  large  producers,  it  is  a  fact  that  out  of  102  concerns 

)ing  national  advertising,  17  sell  to  jobbers,  18  to  retailers,  11  through 

;encies,  and  8  to  consumers  direct;    29  sell  to  both  jobbers  and 

tailers,  13  to  retailers  and  through  agencies,  4  to  jobbers,  retailers, 

1  Taken  by  permission  from  Paul  H.  Nystrom,  The  Economics  of  Retailing^ 
;7~4o.     (The  Ronald  Press  Co.,  1915.) 


258 


INDUSTRIAL  SOCIETY 


and  through  agencies,  i  to  both  consumers  and  retailers,  and  i  to 
jobbers,  retailers,  and  consumers. 

To  give  a  clear  idea  of  the  customary  channels  of  distribution 
in  the  main  lines  of  trade  passing  from  the  producer  to  the  consumer 
through  retail  stores,  the  following  charts  are  presented: 


Groceries 


Farm  Products 


Light  Hardware 


Manufacturer 


Producer 


Manufacturer 


Wholesaler 


Retailer 


Local  Buyer 


Commission  Man 
or  Wholesaler 


Wholesaler 


Retailer 


Consumer 


Retailer 


Consumer 


Consumer 


Heavy  Hardware 


Silverware 


Manufacturer 


Retailer 


Agency 


Consumer 


INDIVIDUAL  EXCHANGE  CO-OPERATION 


259 


POSITION  OF  AUCTION  IN  CHANNEL  OF  DISTRIBUTION 


Taken  by  permission  from  a  paper  read  by  Victor  K.  McElheny,  Jr., 
>re  the  Pan-American  Scientific  Congress,  December  27,  19 15 — January  8, 
16.     (Copyright  by  the  American  Fruit  and  Produce  Auction  Association.) 


260  INDUSTRIAL  SOCIETY 

97.    PRODUCE  EXCHANGES1 

Modern  produce  exchanges  are  the  product  of  the  last  sixty  years 
and  have  developed  in  all  the  leading  grain,  cotton,  and  provision 
centers  in  response  to  the  desire  for  large  and  well-organized  markets. 
Their  ancestry  has  been  traced  back  to  the  large  and  nourishing  fairs 
of  several  centuries  ago,  which  prevailed  in  many  parts  of  Europe. 
Probably  the  first  instance  of  a  modern  exchange  is  that  of  the  Ant- 
werp Bourse,  established  in  the  middle  of  the  sixteenth  century  and 
followed  soon  after  by  the  Royal  Exchange  of  London.  Commodities 
were  bought  and  sold  here  upon  certificates,  although  the  general 
warehouse  or  elevator  receipts,  to  be  described  shortly,  were  developed 
much  later. 

With  the  development  of  enormous  agricultural  areas  in  the 
nineteenth  century  large  surplus  stocks  of  agricultural  staples  were 
created  which  far  exceeded  local  demands.  This  surplus  stock 
required  a  world-market  for  its  proper  distribution  to  the  consuming 
centers,  and  the  development  of  such  a  market  was  greatly  facilitated 
by  the  tremendous  strides  of  the  last  century  in  methods  of  transpor- 
tation and  communication.  Instead  of  the  local  fair,  the  trade  now 
required  a  market  where  buyers  and  sellers  from  all  parts  of  the  world 
might  meet  to  make  transactions  in  person  or  by  representatives. 
Convenience  and  promptness  in  buying  and  selling  now  became 
essential.  Uniformity  of  usages,  high  standards  of  conduct,  detailed 
organization  of  every  branch  of  the  trade,  and  efficiency  in  the  opera- 
tion of  the  business  became  highly  desirable.  And  so  about  the  middle 
of  the  nineteenth  century  numerous  exchanges,  sometimes  also  called 
boards  of  trade,  chambers  of  commerce,  and  bourses,  were  organize* 
with  a  view  to  standardizing  trade  and  giving  to  it  the  conditio 
just  enumerated.  The  Chicago  Board  of  Trade  was  incorporate 
in  1859,  although  organized  in  1848.  The  New  York  Produce 
Exchange,  having  existed  as  an  unincorporated  association  sin 
1850,  was  incorporated  in  1862.  The  Merchants'  Exchange  of  S 
Louis  assumed  the  characteristics  of  an  exchange  in  1854.  T 
New  York  Cotton  Exchange  was  organized  in  1870,  to  be  followed 
the  Minneapolis  Chamber  of  Commerce  in  1881,  and  the  New  Yo: 
Coffee  Exchange  in  1882.  Among  the  other  American  produ 
exchanges  where  buying  and  selling  is  conducted  may  be  mention 

1  Adapted  by  permission  from  S.  S.  Huebner,  "The  Functions  of  Produc 
Exchanges,"  Annals  of  the  American  Academy  of  Political  and  Social  Scie 

xxxviii  (ion),  319-39- 


= 


INDIVIDUAL  EXCHANGE  CO-OPERATION  261 

those  at  Duluth,  Kansas  City,  Missouri,  Omaha,  Milwaukee,  New 
Orleans,  Winnipeg,  Toledo,  Detroit,  and  Buffalo. 

A  modern  produce  exchange  may  be  defined  simply  as  an  organ- 
ized market-place  which  enables  people  to  buy  and  sell  freely  certain 
commodities  either  in  person  or  through  a  broker;  and  which  in 
order  to  facilitate  such  trade  has  for  its  fundamental  objects  the 
promotion  of  uniformity  in  customs  and  usages,  the  inculcation 
of  principles  of  justice  and  equity  in*  trade,  the  facilitation  of  the 
speedy  adjustment  of  business  disputes,  the  dissemination  of  valu- 
able commercial  and  economic  information,  and  the  securing  to  its 
members  all  the  benefits  of  co-operation.  The  exchange  itself  is 
not  organized  for  the  making  of  money,  and  does  not  fix  prices 
or  make  transactions  in  the  trade  as  an  organized  body.  It  is 
merely  instrumental  in  affording  a  convenient  market-place,  in  regu- 
lating trade,  and  in  disciplining  the  conduct  of  its  members.  Its 
members  act  on  their  own  responsibility.  They  may  do  as  much 
business  as  they  like,  provided  they  conform  to  the  standards  which 
the  rules  of  the  exchange  prescribe  for  the  regulation  of  the  trade. 

I.      EXCHANGES    GIVE    THE    QUALITY    OF    MOBILITY    TO    PRODUCE 

The  delivery  of  warehouse  receipts  on  exchange  contracts  gives 
to  the  grain,  cotton,  and  produce  they  represent  the  same  quality  of 
mobility,  for  purposes  of  sale  or  deposit  as  collateral,  as  is  given  to 
corporate  property  represented  by  stocks  and  bonds  listed  on  our 
stock  exchanges.  If  it  were  not  for  organized  markets  and  the  exist- 
ence of  warehouse  receipts,  the  vast  quantity  of  produce  lying  in 
warehouses  and  elevators,  aggregating  hundreds  of  millions  of  dollars, 
would  not  be  available  for  business  purposes  except  in  a  very  crude 
way.  If  the  holders  of  such  produce  wished  to  borrow  against  it,  it 
would  be  necessary  each  time  to  have  the  creditor  see  and  inspect  the 
same;  and  every  such  inspection  would  necessitate  great  incon- 
venience and  unnecessary  delay  and  expense. 

At  present  the  greater  part  of  the  country's  enormous  crops  is 
purchased  from  the  farmer  by  warehouse  and  elevator  men  during 
:  he  three  or  four  months  of  the  crop  moving  season,  and  is  then  gradu- 
;  illy  sold  to  the  consuming  public  during  the  balance  of  the  year.  The 
}  armers,  as  a  rule,  demand  immediate  cash  payment,  although  the 
I  rain  dumped  on  the  market  greatly  exceeds  the  current  demand, 
j  ?his  accumulation  of  grain  in  elevators  and  warehouses,  the  grain 
I    eing  paid  for  as  soon  as  it  leaves  the  farmers'  hands,  requires  the 


262  INDUSTRIAL  SOCIETY 

expenditure  of  hundreds  of  thousands  of  dollars  in  excess  of  the 
available  capital  of  the  buyers,  this  in  turn  necessitating  on  their  part 
extensive  borrowing  from  bankers  against  so-called  "grain  paper." 
If  grain  buyers  could  not  borrow  against  their  purchases,  it  would 
mean  that  upon  buying  a  consignment  of  grain,  they  would  have  to 
transport  the  same  with  a  view  to  selling  it  in  another  market  and 
wait  for  the  proceeds  of  the  sale  before  making  a  new  purchase.  This 
might  necessitate  several  weeks'  delay.  Since  their  business  is  a 
highly  competitive  one,  depending  upon  the  making  of  a  small  profit, 
averaging  about  i  per  cent  on  the  present  value,  such  delay  would 
make  the  grain  buyers'  business  not  only  an  unprofitable  one  but 
would  greatly  handicap  them  in  getting  their  share  of  the  grain 
within  the  three  or  four  months  of  the  crop  moving  season.  To  make 
the  grain  buying  business  profitable,  it  is  necessary  for  the  buyers  to 
transact  the  business  on  credit,  and  it  is  estimated  that  approximately 
nine-tenths  of  the  country's  grain  and  cotton  crop  is  originally 
purchased  with  borrowed  funds. 

II.      EXCHANGES  FURNISH  A  CONTINUOUS   MARKET 

But,  it  will  be  asked,  why  do  bankers  lend  so  extensively  on  grain 
paper  when  they  know  that  the  price  of  the  grain  held  as  collateral 
may  decline  in  a  week  or  two  by  much  more  than  the  10  per  cent 
margin  ?  The  answer  is  that  they  do  so  partly  because  the  grain  ma 
be  hedged  against  such  price  fluctuations,  and  also  because  they  kno 
that  grain  always  has  a  ready  market  on  our  produce  exchanges,  thus 
affording  them  ample  opportunity  at  any  time,  if  they  deem  it  neces- 
sary, to  sell  the  grain  held  as  collateral  before  the  margin  of  10  per 
cent  on  the  loan  is  exhausted.  During  every  hour  of  every  business 
day,  there  is  always  present  on  our  produce  exchanges  a  group  of 
brokers  and  speculators  always  ready  to  buy  and  sell,  and  so  numero 
as  to  furnish  a  continuous  market  where  in  the  course  of  a  few  minufc 
and  with  the  sacrifice  of  only  a  small  amount  in  the  price,  hundre 
of  thousands  of  bushels  of  grain  may  be  either  bought  or  sold.  This 
continuous  feature  of  large  produce  markets  serves  as  a  means 
insurance  to  farmers,  bankers,  grain  dealers,  speculators,  and  man 
facturers  in  so  far  that  it  gives  positive  assurance  to  all  holders 
grain,  cotton,  and  produce  that,  in  case  of  necessity,  they  can,  at 
moment's  notice,  by  selling  it  at  approximately  the  prevailing  pric 
convert  that  produce  into  cash. 

The  existence  of  such  continuous  markets  is  greatly  facilitated  b; 
the  presence  of  a  group  of  speculators  who  are  willing  to  buy  an; 


: 


01 

i 


INDIVIDUAL  EXCHANGE  CO-OPERATION  263 

supply  that  may  be  offered,  because  in  their  judgment  a  profit  will 
be  derived  by  selling  it  at  a  future  time.  The  advantage  of  such  con- 
tinuous buying  to  the  banker  has  just  been  explained;  and  its  abso- 
lute necessity  to  all  who  wish  to  hedge  their  holdings  of  produce  will 
be  explained  shortly.  But  a  continuous  market  throughout  the  year 
and  at  reasonably  steady  prices  is  also  essential  to  the  farmer.  As 
stated,  farmers  realize  upon  the  larger  part  of  their  crops  shortly  after 
harvest,  and  were  it  not  for  the  large  group  of  buyers  who  are  always 
willing  to  take  the  grain  with  a  view  to  storing  it  and  selling  it  for 
future  delivery,  it  would  necessarily  follow  that  prices  would  fall 
extremely  low  at  harvest  and  rise  unduly  just  before  harvest. 

III.      PRODUCE   EXCHANGES   ARE   CLEARING   HOUSES    OF   INFORMATION 

Produce  exchanges  also  serve  as  a  world's  clearing  house  for  trade 
and  crop  information,  and  in  this  respect  render  an  invaluable  service 
to  producer,  middleman,  and  consumer.  All  our  leading  crops  are 
produced  over  such  large  areas  that  few  individuals  have  it  in  their 
power  to  keep  in  daily  touch  with  current  crop  and  trade  events 
except  it  be  in  their  own  particular  locality.  The  prices  of  nearly 
all  leading  cereals  are  determined  by  national  or  world-wide  con- 
ditions, and  the  favorable  or  unfavorable  condition  of  a  crop  in  one 
locality  or  country  may  be  so  outweighed  by  the  opposite  condition 
elsewhere  as  to  render  worthless  a  price  quotation  based  upon  local 
evidence. 

Today,  however,  all  the  leading  produce  exchanges  are  in  constant 

touch  with  crop  conditions,  weather  reports,  the  movements  of  grain, 

changes  in  freight  rates,  the  rate  of  consumption,  economic  legislation, 

political  complications,  etc.;    and  all  this  information  as  currently 

received  is  given  immediate  expression  in  the  form  of  purchases  and 

sales  at  prices  which  are  immediately  transmitted  by  wire  to  all  the 

trade  centers,  and  soon  made  available  to  the  general  public  by  the 

daily  press.     Communication  by  wire  and  the  ticker  has  connected 

the  world's  exchange  markets  so  as  to  make  them  practically  one. 

Dnly  a  few  minutes  will  serve  to  place  the  leading  foreign  exchanges 

md  such  important  American  markets  as  those  at  Chicago,  New 

ifork,  Minneapolis,  Duluth,  St.  Louis,  Kansas  City,  and  Toledo  in 

>ossession  of  each  other's  quotations.    All  the  leading  exchanges  spend 

housands  of  dollars  for  the  prompt  acquisition  of  information.     This 

iformation  covers  a  very  wide  range  and  relates  to  the  size  and 

tlity  of  the  growing  crops  here  and  abroad,  daily  changes  in  the 

ither,  etc.,  affecting  the  crops,  the  volume  of  sales  and  the  price, 


264  INDUSTRIAL  SOCIETY 

the  arrival  and  the  shipment  of  cargoes  in  leading  markets  and  foreign 
centers,  and  the  "visible  supply"  here  and  abroad. 

The  value  of  this  prompt  and  elaborate  collection  of  trade  informa- 
tion is  fourfold,  viz.: 

1.  It  makes  possible  the  discounting  of  the  future,  i.e.,  it  enables 
dealers  and  speculators  to  exercise  their  best  judgment  at  once  in  the 
form  of  actual  transactions,  and  thus  to  reflect  this  current  information 
in  the  quotations  long  before  it  would  otherwise  be  impressed  upon  the 
general  public.  Thus,  the  effect  of  a  short  or  bumper  crop  upon  prices 
is  reflected,  i.e.,  discounted,  weeks  in  advance. 

2.  It  steadies  prices. — The  daily  discounting  of  current  events 
makes  unnecessary,  except  in  rare  instances  where  manipulation  has 
interfered  with  the  smooth  working  of  the  organized  market,  a  sudden 
decline  or  rise  in  price  upon  the  wide  publication  of  events  which  have 
been  slowly  developing.  An  elaborate  statistical  compilation  of 
prices  covering  a  period  of  forty  years,  one-half  of  this  period  ante- 
dating dealings  on  exchanges  and  the  other  half  following  the  intro- 
duction of  such  exchanges,  shows  clearly  that  the  fluctuations  in  the 
price  which  the  farmer  received  for  his  grain  or  cotton  was  not  nearly 
so  great  during  the  twenty  years  when  exchange  markets  were  in 
operation  as  it  was  prior  to  the  existence  of  exchanges. 

Without  organized  exchanges  for  the  immediate  discounting  of 
information,  the  individual  producer  would  find  himself  in  a  most 
defenceless  position,  unable  to  know  the  fair  value  of  his  crop  froi 
day  to  day.  In  this  respect  the  produce  exchanges  serve  the  producer 
in  the  same  way  that  the  stock  exchanges  benefit  the  holder  of 
securities. 

3.  //  helps  to  regulate  the  rate  at  which  the  year's  crop  is  consumed. - 
The  modern  grain  and  cotton  markets  are  so  organized  today  that  the 
distributing  interests  in  the  trade  are  constantly  informed  as  to  the 
"visible  supply"  on  hand,  which  may  be  defined  as  representing  al 
grain,  or  any  kind  of  given  produce,  which  is  stored  in  warehouses 
elevators,  cars,  or  boats,  and  which  is  available  for  purchase.  It  is 
a  well  recognized  fact  that  the  exchange  quotations  for  contracts  whk 
call  for  delivery  in  the  new  crop  months  depend  not  entirely  on  tht 
prospects  of  the  new  crop,  but  are  vitally  influenced  by  the  smallnes 
or  largeness,  as  cpmpared  with  previous  years,  of  the  old  crop  yet 
unsold,  as  reflected  by  the  "visible  supply,"  or  by  statistics  relating 
to  holdings  which  have  not  yet  left  the  producer's  hands.  If  th< 
visible  supply,  considered  in  connection  with  the  known  stocks 


INDIVIDUAL  EXCHANGE  CO-OPERATION  265 

grain  still  in  the  farmers'  hands,  is  unusually  low  as  compared  with 
the  same  supply  a  year  ago,  it  is  likely  under  normal  conditions  that 
the  price  will  be  bid  up  and  consumption  decrease,  and  if  unusually 
high  it  may  be  expected  that  prices  will  decline  and  consumption 
increase.  In  this  way  the  movement  of  prices  will  indirectly  benefit 
the  community  by  regulating  consumption  so  that  each  year's  crop, 
whether  large  or  small,  just  happens  to  meet  the  needs  of  the  con- 
suming world. 

4.  It  serves  to  level  prices  between  different  markets. — Reference  is 
had  here  to  the  practice  of  "  arbitraging "  between  markets.  Arbi- 
traging  may  be  defined  as  the  making  of  two  transactions,  one  a 
purchase  and  the  other  a  sale,  in  different  markets  or  in  the  same 
market  between  two  different  subjects  of  trade,  at  about  the  same  time 
with  a  view  to  shaving  a  profit  because  the  price  in  the  one  market,  or 
the  one  subject  of  trade,  is  lower  than  in  the  other. 

98.    THE  COTTON  EXCHANGE  OF  NEW  ORLEANS1 

The  exchange  is  composed  of  9  classes: 

1.  Commission  merchants  who  sell  cotton  for  planters. 

2.  Exporters  who  buy  cotton  for  spinners  and  merchants  in 
Europe. 

3.  Merchants  who  buy  cotton  for  spinners  in  the  United  States. 

4.  Bankers  through  whom  all  bills  of  exchange  drawn  against 
cotton  are  negotiated. 

5.  Ship  agents  who  represent  the  great  fleet  of  steamers  and  sailing 
vessels  by  which  the  cotton  is  carried  abroad  and  to  domestic  ports. 

6.  Insurance  agents  who  arrange  the  insurance  on  the  bulk  of  the 
cotton  seeking  a  market  through  this  port. 

7.  Cotton  brokers. 

8.  Expert  judges  of  the  raw  material,  who  buy  cotton  from  repre- 
sentatives of  the  planters  for  the  merchants  who  ship  to  Europe  and 
to  American  spinners. 

9.  Future  brokers,  who  buy  and  sell  contracts  for  forward  delivery 
for  account  of  members  of  the  exchange,  or  for  merchants  and  spinners 
in  Europe  and  the  United  States. 



See  also  193.     Hedging:  A  Form  of  Speculator's  Contract. 

194.    A  Case  Where  Organized  Speculation  Was  For- 
bidden. 

x  From  the  Report  of  the  Industrial  Commission,  1901,  XI,  27. 


266  INDUSTRIAL  SOCIETY 

99.    STOCK  EXCHANGES1 

Much  that  is  to  be  condemned  appears  in  their  conduct.  But 
they  are  after  all  productive  institutions.  They  play  useful,  almost 
indispensable,  roles  in  the  economic  order.  Their  most  important 
function  is  to  render  more  efficient  the  capital  of  the  country. 

a)  They  make  investment  easy. 

b)  They  make  withdrawal  from  an  investment  easy,  and,  in  so 
doing,  make  capitalists  more  disposed  to  invest. 

c)  They  bring  together  all  classes  of  investments,  make  clear  their 
disadvantages,  and  so  appeal  to  all  classes  of  investors,  e.g.,  those 
who  wish  above  all  security;  those  who  demand  a  chance  for  large 
returns;  those  who  can  wait  indefinitely  for  returns  of  any  sort;  etc. 

d)  They  make  the  properties  represented  in  stocks  and  bonds  per- 
fectly available  as  a  basis  for  loans.  (Banks  will  readily  accept  such 
bonds  and  stocks  as  security,  seeing  that  there  is  a  continuous  and 
unlimited  market  where  these  properties  can  be  disposed  of  at  almost 
any  moment.) 

e)  It  is  worth  noting  that  the  stock  market  furnishes  government 
with  the  best  available  clue  to  the  value  of  corporate  properties  when 
these  are  needed  for  the  purposes  of  taxation  or  social  control. 


See  also  133.     The  Functions  of  the  Stock  Exchange. 
134.    A  Favorable  View  of  Wall  Street. 

E.    The  Role  of  the  Individual 

100.  THE  ENTERPRISER2 
A  scheme  for  combined  production  must  originate  in  the  mind  of 
some  person;  and  somebody  also  is  required  to  organize  it  and  to  take 
the  risk  of  his  labor  being  wasted.  These  different  functions  are  usually 
combined  in  the  same  man.  An  idea  occurs  to  a  man,  who  is  not  well 
satisfied  with  his  present  employment,  that  there  is  money  to  be  made 
in  the  manufacture  of  some  article — it  may  be  a  new  invention,  or  it 
may  be  a  well-established  article  of  commerce  now  transported  from  a 
great  distance.  He  estimates  the  probable  demand,  in  a  neighbour- 
hood which  he  selects,  for  the  article  in  question,  at  various  prices  at 
which  it  might  be  possible  to  manufacture  it;  he  next  makes  an  esti- 

1  Taken  by  permission  from  F.  M.  Taylor,  Principles  of  Economics,  pp.  295-96. 
(University  of  Michigan,  19 16.) 

2  Taken  by  permission  from  H.  S.  Jevons,  Essays  on  Economics,  pp.  224-26. 
(Macmillan  and  Co.,  Ltd.,  1905.) 


I 


INDIVIDUAL  EXCHANGE  CO-OPERATION  .  267 

mate  of  the  probable  cost  of  production;  and,  if  the  probable  proceeds 
show  a  sufficient  margin  above  the  cost  of  production,  and  the  business 
is  likely  to  prove  profitable,  he  feels  free  to  do  his  best  to  inaugurate 
the  undertaking. 

It  will  be  well  to  designate  a  man  who  thus  ventures  on  any  new 
scheme  of  production  by  some  descriptive  term.  For  this  I  pro- 
pose the  old  English  word  enterpriser,  one  which  was  formerly  used 
to  denote  any  person  starting  upon  an  adventure  or  enterprise,  but 
has  now  fallen  into  disuse.  The  word  has  already  been  occasionally 
used  by  writers  on  Economics  in  much  the  sense  which  I  shall  here 
give  it;  but  it  has  not  yet  found  a  place  in  the  textbooks  of  the  science. 
The  only  English  word  which  has  been  used  with  the  same  meaning  is 
undertaker,  but  this  word,  though  very  expressive  of  the  economic 
meaning,  also  bears  a  somewhat  incongruous  suggestion.  The  French 
synonym,  entrepreneur,  has  been  largely  used  by  English  writers,  and 
a  German  term,  unternehmer,  occasionally. 


See  also  199.    The  Entrepreneur  as  a  Risk-Taker. 

327.  The  Functions  of  the  Entrepreneur. 

328.  Is  the  Entrepreneur  Active  or  Passive  ? 

101.    THE  INDIVIDUAL  AND  THE  GAIN  SPIRIT1 

The  present  organization  of  industry  is  sometimes  described  as 
capitalistic,  and  the  term  is  quite  properly  applied,  if  all  that  is  meant 
by  it  is  that  in  our  part  of  the  world  the  greater  part  of  industry  and 
property  is  immediately  controlled  by  persons  and  institutions,  whose 
object  is  to  make  a  profit  on  their  capital.  In  Western  Europe  and 
America  it  is  certain  that  the  majority  of  workers  work  as  they  are 
directed  to  work  by  persons  and  bodies  of  persons  who  employ  them  in 
order  to  make  a  profit  by  getting  more  than  they  pay  for  all  expenses, 
and  who  reckon  the  profit  as  a  percentage  on  their  capital.  The 
greater  part  of  the  property  is  also  in  the  hands  of  such  persons  and 
institutions.  But  we  are  not  to  conclude  from  this  that  these  persons 
and  institutions  exercise  any  really  spontaneous  control  over  man- 
kind and  the  useful  things  upon  the  face  of  the  earth.  They  are 
only  intermediaries  between  the  consumer  on  the  one  side  and  the 
persons  whose  work  and  property  are  necessary  for  production  on  the 
other.    They  can  only  get  their  profits  in  consequence  of  a  careful 

1  Taken  by  permission  from  Edwin  Cannan,  Wealth,  pp.  104-5.  03-  S.  King 
k  Son,  Ltd.,  1914.) 


I 


268  INDUSTRIAL  SOCIETY 

attention  to  value  which  compels  them  to  agree  on  the  one  side  with 
the  consumer  with  means,  and  on  the  other  with  the  workers  whom 
they  employ  and  the  owners  whose  property  they  use.  Their  profit 
is  dependent  on  the  price  the  consumer  with  means  will  give,  and  on  the 
prices  at  which  they  can  obtain  the  things  and  services  necessary  for 
the  production.  If  the  consumers  for  any  reason  choose  to  place  a 
lower,  value  on  some  commodity  or  service  which  is  being  produced 
by  "capitalistic"  methods,  the  profits  fall  off,  and  all  or  some  of  the 
persons,  firms,  or  companies  engaged  in  the  trade  are  compelled, 
or  at  the  least  find  it  better,  to  reduce  their  output.  And  the  same 
thing  happens  if,  on  the  other  hand,  the  value  of  some  of  the  necessary 
elements  of  the  production  rises;  profits  are  reduced  until  the  amount 
produced  is  cut  down,  so  that  a  rise  in  its  price  takes  place. 

Thus  everyone,  including  the  capitalist,  is  governed  by  the  desire 
of  being  able  to  produce  commodities  and  services  of  high  value. 
A  man  capable  of  several  different  kinds  of  work  of  equal  pleasantness 
will  take  up  that  which  "pays"  him  best.  If  he  is  well  disposed 
towards  his  children  and  able  to  train  them  for  several  such  different 
kinds  of  work,  he  will  train  them  for  that  kind  which  will  "pay" 
best  after  allowing  for  the  cost.  If  he  has  property,  he  will  devote 
it  to  the  purpose  which  will  "pay"  best.  Whether  he  works  for  a 
person  who  consumes  for  his  own  satisfaction  what  he  produces,  or 
for  a  person  or  firm  or  company  which  sells  what  he  makes  to  the 
final  consumer  and  wants  to  secure  a  profit,  matters  not. 

102.    COMPETITION  PLACES  THE  INDIVIDUAL1 

The  function  of  personal  competition,  considered  as  a  part  of  the 
social  system,  is  to  assign  to  each  individual  his  place  in  that  system. 
If  "all  the  world's  a  stage,"  this  is  a  process  that  distributes  the  parts 
among  the  players.  It  may  do  it  well  or  ill,  but,  after  some  fashion,  it 
does  it.  Some  may  be  cast  in  parts  unsuited  to  them;  good  actors 
may  be  discharged  altogether  and  worse  ones  retained;  but  neverth 
less  the  thing  is  arranged  in  some  way  and  the  play  goes  on. 

That  such  a  process  must  exist  can  hardly,  it  seems  to  me,  admit 
of  question:  in  fact  I  believe  that  those  who  speak  of  doing  away  wi 
competition  use  the  word  in  another  sense  than  is  here  intende 
Within  the  course  of- the  longest  human  life  there  is  necessarily  a  com- 
plete renewal  of  the  persons  whose  communication  and  co-operation 

1  Adapted  by  permission  from  C.  H.  Cooley,  "Personal  Competition," 
nomic  Studies,  IV,  78-83.     (American  Economic  Association,  1899.) 


lit 

2 


INDIVIDUAL  EXCHANGE  CO-OPERATION  269 

make  up  the  life  of  society.  The  new  members  come  into  the  world 
without  any  legible  sign  to  indicate  what  they  are  fit  for,  a  mystery 
to  others  from  the  first  and  to  themselves  as  soon  as  they  are  capable 
of  reflection;  the  young  man  does  not  know  for  what  he  is  adapted, 
and  no  one  else  can  tell  him.  The  only  possible  way  to  get  light  upon 
the  matter  is  to  adopt  the  method  of  experiment.  By  trying  one 
thing  and  another  and  by  reflecting  upon  his  experiences,  he  begins 
to  find  out  about  himself,  and  the  world  begins  to  find  out  about 
him.  His  field  of  investigation  is  of  course  restricted,  and  his  own 
judgment  and  that  of  others  liable  to  error,  but  the  tendency  of  it  all 
'can  hardly  be  other  than  to  guide  his  choice  to  that  one  of  the  avail- 
able careers  in  which  he  is  best  adapted  to  hold  his  own. 

There  is  but  one  alternative  to  competition  as  a  means  of  deter- 
mining the  place  of  the  individual  in  the  social  system,  and  that  is  some 
form  of  status,  some  fixed  mechanical  rule,  usually  a  rule  of  inheritance, 
which  decides  the  function  of  the  individual  without  reference  to  his 
personal  traits  and  thus  dispenses  with  any  process  of  comparison. 
It  is  possible  to  conceive  of  a  society  organized  entirely  upon  the 
basis  of  the  inheritance  of  functions,  and  indeed  societies  exist  which 
may  be  said  to  approach  this  condition.  In  India,  for  example,  the 
prevalent  idea  regarding  the  social  function  of  the  individual  is  that 
it  is  unalterably  determined  by  his  parentage,  and  the  village  black- 
smith, shoemaker,  accountant,  or  priest  has  his  place  assigned  by  a 
rule  of  descent  as  rigid  as  that  which  governs  the  transmission  of  the 
crowns  of  Europe.  If  all  functions  were  handed  down  in  this  way, 
if  there  were  never  any  deficiency  or  surplus  of  children  to  take  the 
place  of  their  parents,  if  there  were  no  progress  or  decay  in  the  social 
system,  making  necessary  new  activities  or  dispensing  with  old  ones, 
then  there  would  be  no  use  for  a  selective  process.  But  precisely 
in  the  measure  that  a  society  departs  from  this  condition,  that  indi- 
vidual traits  are  recognized  and  made  available,  or  social  change  of 
any  sort  comes  to  pass,  in  that  measure  must  there  be  competition. 

Status  is  not  an  active  process  as  competition  is;  it  is  simply  a 
rule  of  conservation,  a  makeshift  to  avoid  the  inconveniences  of  con- 
tinual readjustment  in  the  social  structure. 

The  chief  danger  of  status  is  that  of  suppressing  personal  develop- 
nent,  and  so  of  causing  social  enfeeblement,  rigidity,  and  ultimate 
lecay.  On  the  other  hand,  competition  develops  the  individual  and 
jives  flexibility  and  animation  to  the  social  order,  its  danger  being 


270  INDUSTRIAL  SOCIETY 

tendency  in  modern  times  has  been  toward  the  relative  increase  of  the 
free  or  competitive  principle,  owing  to  the  fact  that  the  rise  of  other 
means  of  securing  stability  has  diminished  the  need  for  status.  The 
latter  persists,  however,  even  in  the  freest  countries,  as  the  method  by 
which  wealth  is  transmitted,  and  also  in  social  classes,  which,  so  far 
as  they  exist  at  all,  are  based  chiefly  upon  inherited  wealth  and  the 
culture  and  opportunities  that  go  with  it.  The  ultimate  reason  for 
this  persistence — without  very  serious  opposition — in  the  face  of  the 
obvious  inequalities  and  limitations  upon  liberty  that  it  perpetuates,  is 
perhaps  the  fact  that  no  other  method  of  transmission  has  arisen  that 
has  shown  itself  capable  of  giving  continuity  and  order  to  the  control- 
of  wealth. 

103.    HUMAN  MOTIVES  IN  ECONOMIC  LIFE1 

Man  is  born  into  his  world  accompanied  by  a  rich  psychical  dis- 
position which  furnishes  him  ready  made  all  his  motives  for  conduct 
all  his  desires,  economic  or  wasteful,  moral  or  depraved,  crass  or 
aesthetic.  As  Macdougall  graphically  puts  it:  "Take  away  these 
instinctive  dispositions  with  their  powerful  impulses  and  the  human 
organism  would  become  incapable  of  activity  of  any  kind;  it  would 
lie  inert  and  motionless  like  a  wonderful  clockwork  whose  mainspring 
had  been  removed  or  a  steam  engine  whose  fires  had  been  drawn. 
These  impulses  are  the  mental  forces  which  maintain  and  shape  all 
the  life  of  individuals  and  societies,  and  in  them  we  are  confronted 
with  the  central  mystery  of  life  and  mind  and  will." 

Instincts  to  their  modern  possessor  seem  unreasoning  and  irra- 
tional and  often  embarrassing.  To  the  race,  however,  they  are  ai 
efficient  and  tried  guide  to  conduct,  for  they  are  the  result  of  endles 
experiments  of  how  to  fight,  to  grow,  to  procreate,  under  the  ruthless 
valuing  mechanism  of  the  competition  for  survival.  These  instinct 
have  in  the  most  complete  sense  of  the  word  survival  value.  Ii 
fact,  outside  of  some  relatively  unimportant  bodily  attributes,  tht 
instincts  are  all  that  our  species  in  its  long  evolution  have  considere( 
worth  saving. 

All  human  activity  then  is  untiringly  actuated  by  the  demand  for 
realization  of  the  instinct  wants.  If  an  artificially  limited  field  of 
endeavor  be  called  "economic  life,"  all  of  its  so-called  motives  harl 
back  to  the  human  instincts  for  their  origin.  There  are  in  truth  n< 
"economic  motives"  as  such.    The  motives  of  economic  life  are  th< 

1  Adapted  from  an  unpublished  article  by  Carleton  H.  Parker. 


INDIVIDUAL  EXCHANGE  CO-OPERATION  271 

same  as  those  of  the  life  of  art,  of  vanity  and  ostentation,  of  war,  of 
crime,  of  sex.  If  this  hypothesis  of  instinct  motivation  be  essential, 
and  it  seems  to  be  the  heart  of  modern  dynamic  psychology,  then 
nothing  is  as  vital  to  a  healthy  analysis  of  economic  expedients,  insti- 
tutions, or  legislation,  as  an  understanding  of  this  inherited  instinct 
equipment. 

A  catalogue  of  instincts  is  something  of  a  mathematical  conveni- 
ence. Any  behavior  act  is  usually  best  studied  as  a  blend  of  numer- 
ous instinct  gratifications  but  often  a  single  instinct  manifestly  gives 
the  tone  and  character  to  the  act.  Cannon  has  proven  that  a  major 
instinct  can  pre-empt  the  nervous  conduction-equipment  and  func- 
tion for  a  time  as  if  it  were  the  only  stimulus  to  activity.  But  the 
most  important  characteristic  of  the  theory  of  instinct  motivation  is, 
that  once  stimulated  the  instinct  cannot  be  ignored  or  suppressed. 
If  its  normal  method  of  gratification  be  denied,  it  has  recourse  imme- 
diately to  secret  or  often  perverted  expression.  The  methods  of 
roundabout  activity  of  the  thwarted  instinct  are  disclosed,  not  only 
in  the  symptoms  of  the  thousands  of  inmates  of  psychopathic  wards, 
sanitariums,  asylums,  and  prisons,  but  also  in  the  minor  perversions 
of  labor  inefficiency,  business  breakdowns,  dishonesty,  violence. 
The  human  instincts  are  unchangeable  and  unsuppressable.  The 
alteration  alone  possible  is  in  the  wise  "sublimation"  or  change  in 
their  methods  of  gratification. 

THE   INSTINCTS 

Gregariousness. — This  innate  tendency  can  be  exemplified  in  two 
ways.  Modern  economic  history  is  full  of  that  strong,  irrational 
phenoma,  the  "trek  to  the  city."  Even  in  thinly  settled  Australia 
half  the  population  lives  in  a  few  great  cities  on  the  coast.  In  South 
America  and  on  the  Pacific  Coast  this  same  abnormal  agglomeration 
of  folk  has  taken  place.  The  extraordinary  piling  up  of  labor  masses 
in  modern  London,  Berlin,  New  York,  Chicago  has  created  cities 
too  large  for  economic  efficiency,  recreation,  or  sanitation,  and  yet 
despite  these  inefficiencies  and  the  food  and  fire  risk  the  massing  up 
continues.  Factory  employment,  though  its  labor  is  speeded  up 
and  paid  low  wages,  grows  popular  for  it  caters  to  gregariousness,  and 
domestic  service  is  shunned  for  it  is  a  lonely  job.  Huddle  and  con- 
gestion seem  the  outstanding  characteristics  of  the  modern  city  and 
modern  work. 

The  second  exemplification  is  seen  in  man's  extreme  sensitiveness 
to  the  opinion  of  his  group,  based  on  his  innate  gregariousness.    This 


272  INDUSTRIAL  SOCIETY 

instinct  is  the  psychic  basis  for  his  proclivity  to  react  to  mob  sugges- 
tion and  hysteria.  In  a  strike  each  striker  has  a  perfectly  normal 
biological  capacity  for  violence  if  the  group  seems  to  will  it.  Because 
of  this  same  gregariousness  a  panic  can  "sweep"  Wall  Street  or  an 
anti-pacifist  murmur  turn  into  persecution  and  near-lynching.  The 
crowd  members  find  themselves  fatally  gripped  in  the  mob  drift;  they 
press  forward  willingly,  all  yell  and  all  shake  fists,  and  the  most  gentle 
spirit  will  find  himself  pulling  at  the  lynch  rope.  Royce  has  said, 
"Woe  to  the  society  which  belittles  the  power  and  menace  of  the  mob 
mind."  Praise  and  appreciation  will  release  energy  in  a  labor  group 
which  has  been  dormant  under  the  alleged  efficient  goad  of  higher 
wages.  Man  hates  to  work  unappreciated  as  he  hates  to  live  alone. 
The  lonely  sheep  herders  become  in  the  end  irrational,  and  solitary 
confinement  ends  in  insanity  or  submission. 

The  slavish  following  of  fashion  and  fads  is  rooted  in  gregarious- 
ness, and  the  most  important  marketing  problem  is  to  guess  the  vagaries 
of  desire  which  the  mob  spirit  may  select.  If  human  gregariousness 
should  weaken,  a  panic  would  seize  municipal  values,  professional 
baseball,  the  advertising  business,  and  world  fairs  and  conventions 
would  become  impossible. 

Parental  bent,  motherly  behavior,  kindliness. — In  terms  of  sacrifice 
this  is  the  most  powerful  of  all  the  instincts.  This  instinct,  whose 
main  concern  is  the  cherishing  of  the  young  through  their  helpless 
period,  is  strong  in  women  and  weak  in  men.  The  confident  presence 
in  economic  life  of  such  anti-child  influences  as  the  saloon,  licensed 
prostitution,  child  labor,  police  control  of  juvenile  delinquency  can 
be  well  explained  by  the  fact  that  political  control  has  been  an  in- 
heritance of  the  socially  indifferent  male  sex.  The  coming  of  women 
into  the  franchise  promises  many  interesting  and  profound  economic 
changes. 

The  disinterested  indignation  over  misery-provoking  acts  is  the 
basic  stimulus  to  law  and  order  and  furnishes  the  nebulous  and  efficient 
force  behind  such  social  vagaries  as  the  Anti-Saloon  League,  Society 
for  the  Prevention  of  Cruelty  to  Animals,  the  Associated  Charities, 
the  Movement  for  Juvenile  Courts,  Prison  Reform,  Belgian  Relief, 
the  Child  Labor  League. 

Curiosity,  manipulation,  workmanship. — Curiosity  and  its  attend- 
ant desire  to  draw  near  and,  if  possible, .  to  manipulate  the  curious 
object  are  almost  reflex  in  their  simplicity.  Of  more  economic  appli- 
cability is  the  innate  bent  toward  workmanship.     Veblen  has  said 


INDIVIDUAL  EXCHANGE  CO-OPERATION  273 

that  man  has  "a  taste  for  effective  work  and  a  distaste  for  futile 
effort."  This  desire  and  talent  that  man  has  to  mold  material  to  his 
fancied  ends,  be  the  material  clay  or  pawns  in  diplomacy,  explain 
much  of  human  activity  while  wages  explains  little.  Prisoners  have 
a  horror  of  prison  idleness,  clerks  drift  out  of  stereotype  office  work, 
and  the  monotony  of  modern  industrialism  has  created  the  new  type 
of  migratory  worker.  As  James  has  said,  "  constructiveness  is  as 
genuine  and  irresistible  an  instinct  in  man  as  in  the  bee  or 
beaver." 

Acquisition,  collecting,  ownership. — Man  lusts  for  land  and  goes 
eagerly  to  the  United  States,  to  South  America,  to  Africa  for  it.  It 
is  the  real  basis  of  colonial  policy  and  gives  much  of  the  interest  to 
peace  parleys.  A  landless  proletariat  is  an  uneasy,  thwarted,  militant, 
proletariot.  The  cure  for  unruly  Ireland  is  proven  to  be  peasant 
proprietorship,  and  the  social  menace  in  the  American  labor  world 
is  the  homeless  migratory  worker.  Russian  peasants  revolted  for 
land  alone,  and  this  is  the  single  consistent  note  in  the  anarchy-chaos 
in  Mexico.  Man  much  of  the  time  acquires  for  the  mere  sake  of 
acquiring.  A  business  man  is  never  rich  enough.  If,  however,  mak- 
ing more  money  uses  his  acquisitive  capacities  too  little  he  may  throw 
this  cultivated  habit-activity  into  acquiring  Van  Dykes  or  bronzes 
or  Greek  antiques;  or,  on  a  smaller  and  less  aesthetic  scale,  postage 
stamps,  autographs,  or  shaving  mugs.  Asylums  are  full  of  pitiful 
economic  persons  who,  lost  to  the  laws  of  social  life,  continue  as 
automatons  to  follow  an  unmodified  instinct  in  picking  up  and 
hoarding  pins,  leaves,  scraps  of  food,  paper.  The  savings  banks  in 
large  part  depend  on  this  instinct  for  their  right  to  exist. 

Fear,  flight. — Man  has  the  capacity  to  be  fearful  under  numerous 
conditions.    His  most  important  fear,  from  an  economic  standpoint, 
is  the  stereotype  business  man's  or  laborer's  worry  over  the  insecure 
future.    This  anxiety  or  apprehension,  which  is  so  plentiful  up  and 
down  the  scale  of  economic  life,  has  a  profound  and  distressing  influ- 
ence on  the  digestive  tract  and  in  turn  on 'the  general  health.     Much 
Df  nervous  indigestion  so  common  in  the  ruthless  business  competition 
)f  today  is  "fear  indigestion,"  is  an  instinct  reaction,  and  can  be  cured 
mly  by  removing  the  cause.    This  removal  of  the  cause  is  performed 
nany  times  by  an  equally  instinctive  act,  flight.     Flight  in  business 
nay  take  the  conventional  form  of  retirement  or  selling  out,  but 
>ften  adopts  the  unique  method  of  bankruptcy,  insanity,  suicide, 
or  violence,  -» 


I    Irink,  or  vie 


274  INDUSTRIAL  SOCIETY 

Mental  activity,  thought. — To  quote  Thorndike,  "This  potent 
mover  (workmanship)  of  men's  economic  and  recreative  activities 
has  its  taproot  in  the  instinct  of  multiform  mental  and  physical  activ- 
ity." To  be  mentally  active,  to  do  something,  is  instinctively  satis- 
fying. Much  of  invention  springs  costless  from  a  mind  thinking  for 
the  sheer  joy  of  it.  Organization  plans  in  industry,  schemes  for 
market  extension,  visions  of  ways  to  power,  all  agitate  neurones  in 
the  brain  ready  and  anxious  to  issue  in  thought.  A  duty  of  the 
environment  is  not  only  to  allow,  but  to  encourage  states  in  which 
meditation  naturally  occurs. 

The  housing  or  settling  instinct. — In  its  simplest  form  this  instinct 
is  manifested  in  the  gunny-sack  tents  of  the  tramps,  the  playhouses  of 
children,  the  camp  in  the  thicket  of  the  hunter.  The  squatter  has  a 
different  feeling  for  his  quarter  section  when  he  has  a  dugout  on  it. 
Man  wants  a  habitation  into  which  he  can  retire  to  sleep  or  to  nurse 
his  wounds,  physical  or  social.     The  Englishman's  home  is  his  castle. 

Migration. — To  every  man  the  coming  of  spring  suggests  moving 
on.  The  hobo  migrations  begin  promptly  with  the  first  sunshine  and 
the  tramp  instinct  fills  Europe  with  questing  globe  trotters.  The 
advice  "Go  west,  young  man"  was  obeyed,  not  on  account  of  the 
pecuniary  gain  alone,  but  because  the  venture  promised  satisfaction 
to  the  instinct  to  migrate  as  well. 

Hunting. — Man  survived  through  earlier  ages  by  destroying  his 
rivals  and  killing  his  game,  and  these  tendencies  bit  deep  into  his 
psychic  makeup.  Modern  man  delights  in  a  prize  fight  or  a  street 
brawl,  at  times  even  joys  at  ill  news  of  his  own  friends,  has  poorly 
concealed  pleasure  if  his  competition  wrecks  a  business  rival,  falls 
easily  into  committing  atrocities  if  conventional  policy  be  withdrawn, 
kills  off  a  trade  union,  and  is  an  always  possible  member  of  a  lynching 
party.  He  is  still  a  hunter  and  reverts  to  his  primordial  hunt-habits 
with  disconcerting  zest  and  expedition. 

Anger,  pugnacity. — In  its  bodily  preparation  for  action,  anger 
identical  with  fear  and  with  fear  constitutes  the  most  violent  and 
unreasoning  purposeful  dispositions  in  man.  Caught  up  in  anger  all 
social  modifications  to  conduct  tend  to  become  pale,  and  man  func- 
tions in  primordial  attack  and  defense.  Anger  and  its  resulting 
pugnacity  have  as  their  most  common  excitant  the  balking  or  thwar 
ing  of  some  other  instinct,  and  this  alone  explains  why  man  has 
jealously,  through  all  ages,  fought  for  liberty.  Pugnacity  is  the  ve 
prerequisite  of  individual  progress.     Employers  fight  a  hamperi: 


,. 


INDIVIDUAL  EXCHANGE  CO-OPERATION  275 

union,  unions  a  dogmatic  employer;  every  imprisoned  man  is  in 
reality  incorrigible;  students  rebel  against  an  autocratic  teacher; 
street  boys  gang  together  to  fight  a  bully;  nations  are  ever  ready, 
yes  hoping,  to  fight,  and  their  memory  of  the  cost  of  war  is  biologically 
a  short  one.  In  lighting  there  is  a  subtle  reversion  to  primitive  stand- 
ards, and  early  atrocities  become  the  trench  vogue  of  later  months. 
Patriotism  without  fighting  seems  to  western  nations  a  pallid  thing. 
Most  of  the  vigorous  elements  of  modern  civilization  remain  highly 
competitive  and  warlike.  Ethics  has  a  long  psychological  way  to  go 
in  its  vitally  necessary  task  of  sublimating  the  pugnacious  bent  in  man. 

Revolting  at  confinement. — As  above  noted,  man  revolts  violently 
at  any  oppression,  be  it  of  body  or  soul.  Being  held  physically  help- 
less produces  in  man  and  animals  such  profound  functional  agitation 
that  death  can  ensue.  Passive  resistance  would  be  possible  only  if 
nearly  all  of  man's  inherited  nature  could  be  removed.  In  primitive 
days  being  held  was  immediately  antecedent  to  being  eaten,  and  the 
inherited  distaste  to  physical  helplessness  is  accordingly  deep  seated. 
Belgium  would  rather  resist  than  live,  an  I.W.W.  would  rather  go 
to  jail  than  come  meekly  off  of  his  soap  box,  the  militant  suffragettes 
go  through  the  ordeal  of  the  English  forced  feeding  rather  than 
acknowledge  their  inequality.  Man  will  die  for  liberty  and  droops  in 
prison. 

Revulsion. — The  social  revulsion  which  society  feels  toward  dis- 
cussions of  sex,  leprosy,  certain  smells  is  not  founded  on  willfulness. 
It  is  a  non-intellectual  and  innate  revulsion  to  the  subject.  It  is 
only  in  the  last  twenty-five  years  that  the  scientific  attitude  itself 
has  been  able  to  overcome  this  instinctive  repugnance  and  attack 
these  problems,  intimate  and  perilous  to  human  society,  which  have 
languished  under  the  taboo.  The  Chicago  Vice  Commission's  Report 
is  replete  with  taboo. 

Leadership,  mastery. — It  appears  as  if  man  seeks  leadership  and 
mastery  solely  because  its  acquisition  places  him  in  a  better  position 
to  gratify  his  other  instinctive  promptings.  But  there  seems  also  a 
special  gratification  in  leading  and  mastering  for  its  own  sake. 
Modern  life  shows  prodigious  effort  paid  only  in  the  state  of  being 
the  boss  of  a  gang,  a  "leading"  college  man,  a  "prominent  citizen," 
1  secretary  or  a  vice-president,  a  militia  captain  or  a  church  elder. 
\  secret  ambition  to  some  day  lead  some  group  on  some  quest,  be  it 
jthical  or  economic,  is  planted  deep  in  our  nature.     Every  dog  longs 

have  his  day. 


276  INDUSTRIAL  SOCIETY 

Subordination,  submission. — In  contrast  to  leadership  man  longs 
at  times  to  follow  a  fit  leader.  Soldiers  joy  in  a  firm  captain,  workmen 
will  quit  a  lax  though  philanthropic  employer,  instructors  thresh 
under  an  inefficient  though  indulgent  department  head.  Eternal 
independence  and  its  necessary  strife  are  too  wearing  on  the  common 
man,  and  he  longs  for  peace  and  protection  in  the  shadow  of  a  trust- 
inspiring  leader.  To  "submit"  under  right  conditions  is  not  only 
psychically  pleasant,  but  much  of  the  time  to  be  leaderless  is  definitely 
distressing. 

Display,  vanity,  ostentation. — This  odd  disposition  gives  the  basic 
concept  for  Veblen's  remarkable  analysis  of  the  economic  activities 
of  America's  leisure  class.  The  particular  state  of  the  industrial  arts 
with  its  trust  control  and  divorce  of  producer  and  consumer  plus 
political  peace  has  taken  from  man  his  ancient  opportunity  to  show 
his  unique  gifts  in  ownership  of  economic  goods  and  in  valor,  so  he  is 
driven,  in  his  yearning  for  attention,  to  perverted  activities.  He 
lives  to  waste  conspicuously,  wantonly,  originally,  and  by  the  refined 
uselessness  of  his  wasting  show  to  the  gaping  world  what  an  extra- 
ordinary person  he  is.  The  sensitiveness  of  social  matrons  to  men- 
tion in  the  society  columns,  the  hysteria  to  be  identified  with  the 
changing  vagaries  of  the  style,  the  fear  of  identification  with  drab 
and  useful  livelihoods  offer  in  their  infinite  varieties  a  multitude  of 
important  economic  phenomena. 

Sex. — Of  the  subjects  vital  to  an  analysis  of  life,  be  it  aesthetic  or 
economic,  sex  has  suffered  most  from  revulsion  taboos.  Manifestly 
an  instinct  which  molds  behavior  and  purposeful  planning  profoundly, 
sex  as  a  motive  concept  is  barred  from  the  economic  door.  Despite 
the  proven  moral  and  efficiency  problems  which  arise  with  the  post- 
ponement of  marriage  due  to  modern  economic  conditions,  conven 
tional  morality  meets  the  situation  literally  by  denying  the  s 
instinct. 

A  consideration  of  such  factors  as  suggested  in  the  foregoing  li 
will  make  possible  a  healthful  revamping  of  theories  of  value,  of  effi 
ency,  of  labor  peace.  Things  will  have  value  to  man  according  a 
they  contribute  to  his  full  psychological  life,  as  they  promote  the 
expression  of  his  instinct  potentialities.  Price  will  with  justice,  be 
relegated  to  its  place  as  the  football  of  market  vagaries,  of  changing 
fads,  of  folkway  convenience.  Pecuniary  civilization  will  rank  with, 
and  as  no  more  important  than,  the  cruder  civilizations  which  dot  the 
paleolithic  and  neolithic  human  eras.    The  evolutionary  concep 


' 


INDIVIDUAL  EXCHANGE  CO-OPERATlON  277 

will  replace  the  odd  faith  in  the  permanency  of  the  capitalistic  order 
which  radiates  from  modern  conventional  economics. 


104.     SOME  SHORTCOMINGS  OF  SELF-INTEREST1 

Assuming  as  universal  an  intelligent  and  alert  pursuit  of  the 
interest  of  self  and  family,  it  is  argued  that  wealth  and  other  pur- 
chasable commodities  will  be  produced  in  the  most  economic  way 
if  every  member  of  society  is  left  free  to  produce  and  transfer  to 
others  whatever  utilities  he  can,  on  any  terms  that  may  be  freely 
arranged.  For  the  regard  for  self-interest  on  the  part  of  consumers 
will  lead  always  to  the  effectual  demand  of  things  that  are  most 
useful;  and  regard  for  self-interest  on  the  part  of  producers  will  lead 
to  their  production  at  the  least  cost.  That  is,  the  production  of  each 
commodity  will  stop  at  the  point  at  which  an  extra  quantum  would  be 
socially  estimated  as  less  useful  than  something  else  that  could  be 
produced  at  the  same  cost. 

This  conception  of  the  single  force  of  self-interest,  creating  and 
keeping  in  true  economic  order  the  vast  and  complete  fabric  of  social 
industry,  is  very  fascinating;  and  it  is  not  surprising  that,  in  the  first 
glow  of  the  enthusiasm  excited  by  its  revelation,  it  should  have  been 
unhesitatingly  accepted  as  presenting  the  ideal  condition  of  social 
relations,  and  final  goal  of  political  progress.  And  I  believe  that  the 
conception  contains  a  very  large  element  of  truth;  the  motive  of 
self-interest  does  work  powerfully  and  continually  in  the  manner 
above  indicated;  and  the  difficulty  of  finding  any  adequate  substitute 
for  it,  either  as  an  impulsive  or  as  a  regulating  force,  is  an  almost 
invincible  obstacle  in  the  way  of  reconstructing  society  on  any  but  its 
present  individualistic  bases. 

We  have  still  to  observe  that  men  may  prefer  repose,  leisure, 
reputation,  etc.,  to  any  utilities  whatever  that  they  could  obtain  by 
labouring.  Thus  the  freeing  of  a  servile  population  may  cause  a  large 
diminution  of  production  (in  the  widest  sense  of  the  term),  because 
the  freedmen  are  content  with  what  they  can  get  by  a  much  smaller 
amount  of  labour  than  their  masters  forced  them  to  perform.  In 
short,  "natural  liberty"  can  only  tend  to  the  production  of  maximum 
wealth,  so  far  as  this  gives  more  satisfaction  on  the  whole  than  any 
)ther  employment  of  time. 

1  Adapted  by  permission  from  Henry  Sidgwick,  Principles  of  Political  Economy, 
>p.  401-13.     (Macmillan  &  Co.,  Ltd.,  1887.) 


I 


27S  INDUSTRIAL  SOCIETY 

The  importance  of  this  qualification  becomes  more  clear  when  it  is 
viewed  in  connection  with  another.  In  the  abstract  argument,  by 
which  the  system  of  natural  liberty  is  shown  to  lead  to  the  most 
economic  production,  it  has  to  be  implicitly  assumed  that  all  the 
different  parts  of  produce  are  to  be  measured,  at  any  one  time  and 
place,  by  their  exchange  value.  There  is  no  reason  why,  even  in  a 
community  of  most  perfectly  economic  men,  a  few  wealthy  land- 
owners, fond  of  solitude,  scenery,  or  sport,  should  not  find  an  interest 
in  keeping  from  cultivation  large  tracts  of  land  naturally  fit  for  the 
plough  or  for  pasture;  or  why  large  capitalists  generally  should  not 
prefer  to  live  on  the  interest  of  their  capital,  without  producing  person- 
ally any  utilities  whatsoever. 

The  waste  of  social  resources  that  might  result  in  this  way  is 
likely  to  be  greater  the  nearer  a  man  approaches  the  close  of  life,  so 
far  as  we  suppose  self-interest  to  be  his  governing  principle  of  action. 
Unless  he  is  sympathetic  enough  to  find  his  greatest  happiness  in 
beneficence,  it  may  clearly  be  his  interest,  as  his  end  draws  near,  to 
spend  larger  and  larger  sums  on  smaller  and  smaller  enjoyments. 
So  far,  indeed,  as  a  man  has  any  descendants  to  inherit  from  him,  it 
is  perhaps  legitimate  to  assume,  as  political  economists  generally  do, 
that  he  will  generally  wish  to  keep  at  least  his  capital  intact  for  the 
sake  of  his  heirs;  but  it  is  difficult  to  see  what  ground  there  is  for 
making  any  such  assumption  in  the  case  of  persons  unmarried  or 
childless. 

On  similar  grounds  it  may  not  be  A's  interest  to  expend  wealth 
or  labour  in  increasing  the  efficiency  of  B,  even  when  such  outlay 
would  be  socially  most  remunerative,  if  it  is  either  impossible,  or  at 
any  rate  a  difficult  and  hazardous  business,  for  A  to  appropriate 
adequate  share  of  the  resulting  increment  of  utility. 

There  is  a  large  and  varied  class  of  cases  in  which  private  intere 
cannot  be  relied  upon  as  a  sufficient  stimulus  to  the  performance  of 
the  most  socially  useful  services,  because  such  services  are  incapable 
of  being  appropriated  by  those  who  produce  them  or  who  would 
otherwise  be  willing  to  purchase  them.  For  instance,  it  may  easily 
happen  that  the  benefits  of  a  well-placed  lighthouse  must  be  largely 
enjoyed  by  ships  on  which  no  toll  could  be  conveniently  imposed. 
So,  again,  if  it  is  economically  advantageous  to  a  nation  to  keep  up 
forests,  on  account  of  their  beneficial  effects  in  moderating  and 
equalizing  rainfall,  the  advantage  is  one  which  private  enterpri: 


at 

: 


INDIVIDUAL  EXCHANGE  CO-OPERATION  279 

has  no  tendency  to  provide,  since  no  one  could  appropriate  and  sell 
improvements  in  climate.  Scientific  discoveries,  again,  however 
ultimately  profitable  to  industry,  have  not,  generally  speaking,  a 
market  value  on  the  same  ground;  the  inventions  in  which  the  dis- 
covery is  applied  can  be  protected  by  patents;  but  the  extent  to 
which  any  given  discovery  will  aid  invention  is  mostly  so  uncertain 
that,  even  if  the  secret  of  a  law  of  nature  could  be  conveniently  kept 
it  would  not  be  worth  an  inventor's  while  to  buy  it  in  the  hope  of 
being  able  to  make  something  of  it. 

There  are  other  cases,  again,  in  which  there  would  be  no  difficulty 
in  appropriating  and  selling  a  commodity,  but  in  which  the  waste 
of  time,  trouble,  and  expense  involved  in  such  sale  would  render  it  on 
the  whole  a  less  economical  arrangement  for  the  community  than  the 
alternative  of  providing  the  commodity  out  of  public  funds.  For 
instance,  this  is  likely  to  be  the  case  with  much-frequented  roads, 
such  as  streets  and  bridges  in  a  town.  , 

On  the  other  hand,  private  enterprise  may  sometimes  be  socially 
uneconomical  because  the  undertaker  is  able  to  appropriate,  not 
less,  but  more,  than  the  whole  net  gain  of  his  enterprise  to  the  com- 
munity; for  he  may  be  able  to  appropriate  the  main  part  of  the  gain 
of  a  change  causing  both  gain  and  loss,  while  the  concomitant  loss 
falls  entirely  upon  others. 

But,  again,  the  importance  to  each  individual  of  finding  pur- 
chasers for  his  commodity  also  leads  to  a  further  waste,  socially 
speaking,  in  the  expenditure  incurred  for  the  sole  purpose  of 
attaining  this  result.  A  large  part  of  the  cost  of  advertisements,  of 
agents  and  "travellers,"  of  attractive  shop  fronts,  etc.,  comes  under 
this  head. 

Hitherto  we  have  not  made  any  distinction  between  the  interests 
)f  living  men  and  those  of  remote  generations.  But  if  we  are  examin- 
ng  the  merits  and  demerits  of  the  purely  individualistic  or  competitive 
>rganization  of  society  from  the  point  of  view  of  universal  humanity 
t  should  be  observed  that  it  does  not  necessarily  provide  to  an  ade- 
quate extent  for  utilities  distant  in  time. 

So  far  I  have  left  unquestioned  the  assumption — fundamental 
1  the  system  of  natural  liberty — that  individuals  are  the  best 
jdges  of  the  commodities  that  they  require,  and  of  the  sources 
•om  which  they  should  be  obtained,  provided  that  no  wilful  decep- 
on  is  practiced. 


28o 


INDUSTRIAL  SOCIETY 


[Note. — The  discussion  of  the  role  of  the  individual  in  our 
economic  activities  should  not  blind  us  to  the  importance  of  association 
both  as  an  agency  of  control  and  as  an  agency  of  direct  activity.] 


See  138.  Classes  of  Corporations. 

290.  Trade    Associations. 

293.  Forces  Making  for  Combination. 

325.  Some  Responsible  Agents  (especially  section  4). 

400.  What  Government  Is  Now  Doing. 


F.     The  Apportionment  of  Productive  Energy 

105.    PRODUCTIVE  ENERGY  AND  ITS  APPORTIONMENT 

Let  us  use  the  long-established  terms,  land,  labor,  capital,  and 
organization,  to  express  in  a  generalized  way  the  elements  of  pro- 
ductive energy.  Beyond  stating  that  they  are  the  results  of  genera- 
tions of  development,  let  us  not  consider  how  the  present  amounts  of 
these  elements  came  into  existence  or  why  they  happen  to  have  their 
present  proportions  to  each  other.  In  any  given  year,  say  191 7,  the 
total  product  of  the  community  will  be  the  result  of  land,,  labor,  and 
capital  organized  in  industrial  and  commercial  processes. 


Land 


Product 
1917 

Labor 

Organization 

Capital 


. 


So  much  for  191 7.  But  what  of  1918,  19 19,  and  all  the  folio  win 
years?  Will  the  product  of  19 18  be  equal  to  that  of  191 7?  Will 
it  be  smaller  ?  Will  it  be  greater  ?  There  can  be  no  doubt  that  the 
issue  is  one  of  physical  fact  and  not  of  good  intentions  or  of  legerde- 
main. If  the  productive  agents,  land,  labor,  and  capital,  are  in  better 
condition  and  are  better  organized,  the  product  will  be  greater;  if  no 
the  product  will  be  less. 

Will  land  be  more  efficient  as  a  productive  force  in  19 18  than  in 
191 7?    The  answer  will  depend  upon  many  factors.     Has  new  a: 


" 


INDIVIDUAL  EXCHANGE  CO-OPERATION  281 

better  land  been  discovered?    Has  new  and  better  land — better, 


considering  both  fertility  and  location — been  made  accessible  by  the 
development  of  a  new  transportation  system  ?  Has  new  and  better 
land  been  made  available  through  some  change  of  governmental 
policy  ?  Was  the  old  land  "butchered"  in  the  process  of  securing  the 
191 7  product  ?  Has  the  old  land  been  improved  by  turning  back  into 
it  some  of  the  191 7  product  ?  Has  there  been  a  change  with  respect 
to  "organization"  either  with  reference  to  the  management  function 
or  with  reference  to  the  arts  and  sciences  ?  The  issues  are  issues  of 
fact — mainly  of  physical  fact — and  would  not  be  essentially  different 
in  any  other  organization  of  society. 

Will  labor  be  more  efficient  as  a  productive  force  in  1918  than  in 
191 7  ?  That  answer  also  will  depend  upon  many  (and  similar)  factors. 
Has  there  been  a  (net)  gain  in  population,  and  has  that  gain  been  in 
the  portion  of  the  population  which  is  available  for  labor  ?  Was  the 
original  element  of  the  labor  force  "butchered"  in  the  process  of  secur- 
ing the  19 1 7  product?  Was  a  sufficient  proportion  of  the  19 17 
product  turned  back  into  maintaining  and  developing  the  labor  force 
with  respect  to  both  its  mental  and  its  physical  equipment?  Has 
improvement  or  deterioration  occurred  in  methods  of  organization  ? 
The  issues  are  again  mainly  issues  of  physical  fact. 

Will  capital  be  more  efficient  as  a  productive  force  in  1918  than 

in  191 7  ?    The  same  considerations  apply.     Some  of  the  191 7  capital 

was  destroyed  in  the  process  of  utilization.     This  was  the  fate  of 

:' circulating  capital,"  such  as  raw  materials.     Most  of  the  remainder 

deteriorated  to  a  greater  or  less  extent.     How  has  this  situation  been 

net  ?    Has  new  (possibly  better)  capital  been  made  available  ?    Was 

1  sufficient  portion  of  the  191 7  product  turned  back  into  capital 

enewal,  replacement,  and  betterment  to  enable  the  community  to 

ecure  a  larger  product  for  the  coming  years  ?    As  far  as  capital  is 

oncerned  it  can  be  done  in  no  other  way. 

It  becomes  clear  that  much  depends  upon  the  use  which  is  made 
f  the  191 7  product.  Speaking  in  general  terms,  that  product  may 
e  and  is  utilized  in  two  ways.  Part  of  it  goes  to  maintaining, 
^placing,  renewing,  or  increasing  the  productive  energy  of  the  com- 
mnity  as  manifested  in  land,  labor,  and  capital.  The  product  so 
sed  is  "consumed  productively,"  using  that  term  in  the  broadest 
mse.  Not  so  for  the  other  part  of  the  product.  It  is  utilized  in  such 
way  as  not  to  increase — it  may  even  be  so  used  as  to  diminish — 
uctive  energy,  and  this  is  unproductive  consumption. 


- 


282 


INDUSTRIAL  SOCIETY 


Let  us  now  revise  our  diagram  so  as  to  show  the  influence  of  the 
1917  product  upon  that  of  1918.  The  19*7  land,  labor,  capital,  and 
organization  forces,  each  individually  increased  or  decreased  (as  the 
facts  may  have  been  in  that  case)  by  utilization  of  the  191 7  product, 
become  now  the  191 8  productive  forces,  and  Upon  these  forces  depend 
the  size  of  the  1918  product.  Similar  reasoning  applies  for  the  later 
years. 


Land 


\T3 

Product 
1918 

N 

a 

Product 
1917 

=fc    "\ 

Labor 

a 

.,--'#■ 

.-O 

Capital 

There  remain  two  matters  which  deserve  more  detailed  considera- 
tion. (1)  What  determines  how  much  of  the  191 7  product  shall  be 
" turned  back"  into  any  one  of  the  productive  factors — capital,  let  us 
say  ?  Why  not  more  ?  Why  not  less  ?  Why  not  into  land  or  labor 
instead  of  into  capital?  Why  was  not  more  of  the  191 7  produce 
"turned  back,"  via  productive  consumption,  into  the  productive 
factors  taken  collectively  ?  The  issue  is  an  important  one.  Upon  its 
satisfactory  solution  depends  the  correct  balance  of  the  productive 
forces  of  the  community  and  thus  the  size  of  the  product  available  for 
application  to  human  needs.  No  organization  of  society  can  afford 
to  be  indifferent  to  such  a  problem. 

(2)  Assuming  that  we  have  found  the  answer  to  (1),  and  that 
we  now  have  a  certain  total  in  each  of  the  factors,  how  is  it  settled 
how  each  of  these  factors  of  production  shall  be  apportioned  among 
the  various  industries  of  the  community  ?  Take  capital,  for  example. 
How  is  it  determined  what  portion  of  the  available  total  shall  be  turned 
into  industry  x  as  over  against  industry  y,  z,  etc.  ?  This  issue  also  has 
weight.  If  it  is  not  properly  met  we  shall  have  "too  much"  of  some 
commodities  or  services  and  "too  little"  of  others,  with  consequences 
more  or  less  disastrous,  according  to  the  magnitude  of  the  error  made. 

As  a  method  of  approach  to  the  solution  of  these  problems,  lei 
us  picture  the  case  as  it  might  be  in  a  society  ruled  by  an  omnisci( 


INDIVIDUAL  EXCHANGE  CO-OPERATION  283 

benevolent  despot.  The  physical  facts  and  issues  would  be  similar 
to  those  stated  above.  Caring  as  he  would  for  the  welfare  of  his 
people,  this  benevolent  despot  would  be  interested  in  seeing  that  "the 
product"  was  consumed  productively;  that  the  productive  agents 
were  kept  intact  or  even  increased;  that  the  product  was  "turned 
back"  into  the  productive  agents  in  the  proper  proportion;  that 
each  agent  was  apportioned  properly  among  the  various  industries 
of  the  community.  Being  omniscient — and  nothing  short  of  omnis- 
cience would  suffice — he  would  know  and  judge  sanely  and  well  the 
needs  of  his  people  and  he  would  know  the  proper  mechanical  combina- 
tion of  the  factors.  Knowing  these  things,  he  would  order — using 
authority — social  energy  and  products  to  be  applied  in  the  proper 
way,  and,  being  a  despot,  he  could  have  his  orders  carried  out. 

But  this  assumes  omniscience.  Suppose  we  were  to  have  a 
thoroughgoing  socialistic  society.  What  then?  The  same  physical 
facts  would  be  present  and  the  same  problems.  How  are  they  to 
know  the  needs  of  the  people  ?  Knowing  these  needs,  how  are  they 
to  control  and  apportion  productive  energy  and  products?  With 
reference  to  learning  the  needs,  various  answers  may  be  given.  It  may 
be  by  a  statistical  bureau.  If  so,  it  is  worth  keeping  in  mind  that 
this  would  have  to  be  extensive  and  expensive.  It  may  be  by  retain- 
ing the  money  economy  and  the  use  of  price  levels  as  an  index  of  needs. 
That  is  the  device  of  our  present  society.  It  may  be  by  arbitrary 
luthority — by  control  of  desires.  A  drab  life  of  that  kind  is  advocated 
)y  but  few. 

Assume  that  the  needs  are  known,  how  is  the  socialistic  society 

0  determine  what  part  of  its  "product"  is  to  be"  turned  back  into 
uture  productive  agents;  what  proportion  of  each  agent  is  to  go  to 
ach  given  industry,  and  to  what  extent  one  productive  factor  is  to  be 
ubstituted  for  another  ?  The  omniscient  despot  could — by  assump- 
ion — know  the  answer  to  these  questions.  The  collectivist  community 
innot.  There  are  no  laws  of  mechanical  engineering — at  least  not 
et — which  will  point  out  the  way,  and  it  cannot  be  done  on  the  basis 

1  cost  accounting — at  least  of  the  present  kind — for  there  would  be 
d  market  and  hence  no  price  for  producers'  goods. 

Let  us  turn  to  our  present  society.  The  answer— none  too 
-tisfactory — to  the  questions  propounded  is  immediately  forth- 
>ming.  These  things  are  worked  out  through  price.  The  changing 
;eds  of  the  people  are  reflected  in  changing  price  levels  and  the  result- 
shifts  in  profit  margins  tempt — not  order — owners  and  controllers 


g  snilts 

II 


284  INDUSTRIAL  SOCIETY 

of  productive  energy  to  direct  this  energy  into  the  appropriate  chan- 
nels. What  proportion  of  the  "product"  is  to  be  turned  back  to 
further  production  is  determined  by  price;  note,  for  example,  the 
function  of  interest  in  relation  to  the  increase  of  capital.  Whether 
it  is  worth  while  to  turn  more  of  this  product  back  into  capital  and  less 
into  land  or  labor  is  also  worked  out  through  the  price  scheme.  Price 
levels  and  profit  margins  send  productive  forces  into  industry  x  rather 
than  into  industry  y,  z,  etc.  Price  further  determines  whether  one 
factor  of  production  shall  be  substituted  for  another,  and  here  in 
the  more  highly  organized  businesses  cost  accounting  comes  to  the 
rescue  with  methods  of  measurement. 

Price  may  or  may  not  be  the  best  means  that  man  will  ever 
develop  to  solve  the  problems  raised  in  the  apportionment  of  pro- 
ductive energy.    It  is  the  chief  means  used  today. 


See  also  6.    A  View  of  Industrial  Society  in  a  State  of  Equilibrium. 

106.    THE  FORMATION,  MAINTENANCE,  AND  APPORTION- 
MENT OF  CAPITAL  GOODS 

Let  us  for  the  moment  think  of  capital  in  terms  of  tools,  machinery, 
raw  materials,  and  other  instruments  of  production.  Any  organiza- 
tion of  society  would  be  interested  in  utilizing  capital  as  thus  defined, 
for  this  would  mean  the  harnessing  of  nature's  forces  to  the  use  of 
man.  Any  society  must  accordingly  face  the  problems  involved  in 
the  formation  of  capital,  in  its  maintenance  after  being  formed, 
and  in  its  apportionment  among  the  various  enterprises  of.  the 
community. 

In  a  society  ruled  by  an  omniscient  benevolent  despot,  the  situa- 
tion would  be,  by  assumption,  artificially  much  simplified.  This 
despot,  being  omniscient,  would  know  that  it  was  desirable  to  have 
capital,  for  thus  he  could  better  gratify  the  wants  of  his  people.  He 
would  also  know  that  this  capital  would  not  rain  down  from  heaven, 
that  its  formation  would  be  a  physical,  mechanical  process.  It  would 
be  clear  to  him  that  the  only  procedure  open  to  him  would  be  to  direct 
the  present  productive  energy  of  his  community  into  the  making  of 
capital  goods.  Of  course,  a  nice  problem  would  exist  with  reference 
to  how  much  productive  energy  should  be  devoted  to  the  making 
of  capital  goods  as  opposed  to  the  amount  that  should  be  devoted  tc 
betterment  of  land,  betterment  of  labor,  etc.    But,  being  omnisciei 


INDIVIDUAL  EXCHANGE  CO-OPERATION  285 

our  despot  would  understand  the  mechanical  situation  involved  and 
would  take  steps  to  make  the  proper  apportionment. 

After  his  capital  had  been  formed,  suppose  that  it  became  desir- 
able for  the  despot  to  shift  a  part  of  this  capital  from  one  industry  to 
another,  presumably  because  of  changing  desires  on  the  part  of  his 
people.  Here  again  he  would  realize  that  the  process  is  a  physical  one. 
Part  of  his  capital — that  which  we  call  free  capital — could  undoubt- 
edly be  physically  transferred  from  the  one  industry  to  the  other  with- 
out appreciable  sacrifice  or  loss.  Another  part  could  be  so  transferred 
with  some  slight  amount  of  remodeling.  This  remodeling  would,  of 
course,  mean  directing  of  some  productive  energy  of  the  community 
into  that  channel.  Still  another  part  of  his  capital  would  be  so  highly 
specialized  that  even  remodeling  would  be  out  of  the  question.  Here 
he  must  take  his  choice.  If  he  so  desires,  he  may  scrap  that  capital, 
and  if  he  does,  that  amount  of  social  energy  has  been  lost.  Unfor- 
tunate as  that  procedure  would  be,  in  case  of  rapid  shifting  of  desires 
it  might  be  the  only  course  of  action  open  to  him.  If,  however,  the 
desires  should  change  more  slowly,  he  might  find  another  course  avail- 
able. He  could  continue  working  his  old  capital  in  the  old  industry, 
but  instead  of  directing  productive  energy  to  be  applied  to  the  main- 
tenance of  this  old  capital,  he  could  allow  the  capital  to  deteriorate 
in  use — depreciate — have  the  community  consume  its  product — a 
steadily  dwindling  product — and  direct  his  productive  energy,  not 
to  the  maintenance  of  this  old  capital,  but  to  the  creation  of  new 
capital  for  the  new  industry. 

In  a  socialistic  community  the  same  issues  would  have  to  be 

!aced,  but  it  is  probably  fair  to  assume  that  omniscience  would  be 

acking.     For  any  conceivable  reason,  let  our  socialistic  community 

lecide  that  it  needs  more  capital.     Of  course,  the  sensible  reason  to 

issign  is  that  this  community  has  been  testing  the  needs  of  its  people 

md  decides  to  create  more  capital  in  order  more  fully  to  gratify  these 

Leeds.    The  decision  to  obtain  more  capital  having  been  reached, 

;rim  physical  facts  face  this  community  also.    The  capital  will  not 

ome  by  magic.    It  will  come  only  provided  this  community  directs  its 

resent  agents  of  production  to  the  making  of  capital  goods.    And  it 

lso  will  have  nice  problems  to  adjust  with  reference  to  whether  these 

gents  should  be  devoted  to  the  making  of  capital  goods  or  should 

e  devoted  to  the  improvement  of  land,  to  the  gratification  of  the 

assing  wants  of  its  people,  or  to  other  purposes. 


286  INDUSTRIAL  SOCIETY 

Capital  once  having  been  formed,  suppose  that  it  becomes  neces- 
sary to  shift  capital  from  one  industry  to  another  under  socialism.  It 
will  be  clear,  without  the  necessity  of  any  argument,  that  the  processes 
to  be  gone  through  with  are  identical  with  those  pictured  in  the  society 
of  the  omniscient  benevolent  despot. 

And  what  happens  in  our  own  society?  The  same  physical 
facts,  with  the  motive  forces  operating  through  the  medium  of  price 
and  gain.  Instead  of  social  energy  being  directed  by  the  authority 
either  of  a  despot  or  of  a  collectivist  community,  the  social  energy 
is  now  directed  into  definite  channels  by  the  actions  of  individuals 
who  own  or  control  that  energy.  And  why  do  they  so  direct  it? 
Not  because  they  love  their  fellow-man,  but  because  they  anticipate 
gain.  And  they  anticipate  gain,  presumably,  because  the  price  situa- 
tion leads  them  to  believe  that  the  desires  of  the  people  are  turning 
to  this  particular  field.  The  process  might  be  called  hard  names.  It 
might  be  said  that  it  is  a  system  of  bribery.  Hard  names  do  not 
change  the  essential  facts. 

Under  our  present  organization  why  and  how  is  capital  shifted 
from  one  industry  to  another?  The  why  is  clear  enough.  It  is 
done  in  the  hope  of  gain.  The  how  follows  the  line  of  reasoning  given 
in  the  case  of  the  society  ruled  by  the  omniscient  benevolent  despot. 
Part  of  the  capital  may  be  physically  shifted.  Part  may  be  remodeled 
and  shifted.  Another  part  may  be  allowed  to  wear  out  in  its  old 
service,  disappear  as  capital  goods  and  reappear  as  product,  the  same 
to  be  sold  and  the  proceeds  devoted  to  the  creation  of  new  capital 
goods — a  sort  of  transmigration-of-souls  effect. 

It  is  not  at  once  evident  that  this  is  really  the  process.  At  first 
glance  it  would  seem  that  what  happens  is  that  someone  saves 
money — perhaps  through  the  medium  of  a  savings  bank — and  that  in 
this  way  capital  is  created.  The  thing  to  notice  is  that  this  is  not  the 
creation  of  capital  goods.  This  is  merely  accumulating  a  command 
of  money,  and  money  is  merely  an  agent  for  bribing  the  various 
productive  factors  of  the  community  to  go  to  work  in  any  channel 
desired  by  the  person  who  holds  the  price.  In  other  words,  the  owner 
of  money  or  of  other  forms  of  property  is  able  to  command  social 
energy.  True,  he  does  not  command  it  as  would  the  despot  or  as 
would  the  collectivist  society.  He  commands  by  price,  by  rewarding, 
but  he  commands  none  the  less.  And  by  no  other  process  than  by  the 
commanding  and  directing  of  productive  energy  can  capital  goods 
formed  or  can  they  be  shifted  from  one  industry  to  another. 


INDIVIDUAL  EXCHANGE  CO-OPERATION  287 

107.    COSTS  OF  PROGRESS1 

We  are  now  in  a  position  to  make  a  preliminary  reckoning  of  the 
payments  or  provisions  to  be  made  out  of  the  annual  product  for 
maintenance  and  growth  of  the  industrial  system.  First,  there  are 
the  costs  of  maintenance,  or  wear  and  tear  fund,  for  the  different 
factors  of  production.  Secondly,  there  are  the  costs  of  growth, 
operating  in  two  ways:  (1)  by  evoking  a  better  or  intenser  use  of 
the  labour,  land,  capital,  or  ability  already  in  use,  (2)  by  calling  into 
use  new  supplies  of  these  factors. 

If  the  whole  product  were  compelled  by  some  necessary  law  of 
Nature  to  apportion  itself  among  these  several  uses  so  accurately  that 
it  was  wholly  absorbed  in  these  costs  of  maintenance  and  growth,  we 
should  have  a  completely  rational  and  socially  satisfactory  system 
of  production  and  distribution  of  wealth. 

So  far  as  mere  maintenance  and  its  " costs  of  production"  are 

concerned,  powerful  laws  of  necessity  do  compel  a  fairly  full  and 

accurate  provision.     For  though  workers  in  a  trade  may  be    sweated," 

in  the  sense  that  they  are  not  paid  a  true  subsistence  wage,  this  can 

occur  only  where  either  these  workers  are  subsidized  from  some  other 

source,  or  where  this  worn-out  labour  power  can  be  replaced  out  of  a 

reserve  of  "waiting"  or  unemployed  labour  kept  alive  out  of  some 

public  or  private  charity.    Apart  from  these  abnormal  circumstances 

'sweating"  does  not  pay,  and  a  trade  habitually  practicing  it  cannot 

ive.    The  case  is  even  clearer  as  regards  the  costs  of  maintenance  of 

apital  and  land.    A  failure  to  make  regular  and  adequate  provision 

gainst  wear  and  tear  means  nothing  else  than  the  starvation  of  the 

'usiness.    Individual  unsuccessful  businesses  suffer  this  starvation, 

ut  trades  do  not  thus  perish,  unless  some  change  in  the  needs  or 

istes  of  consumers  renders  them  no  longer  useful.    A  provision  which 

lay  be  regarded  as  almost  automatic  is  thus  made  for  the  mainte- 

ance  of  the  industrial  fabric. 

But  as  regards  costs  of  growth  there  is  no  such  security  for  ade- 
iate  provision.  The  surplus  of  wealth  remaining  after  costs  of 
aintenance  are  defrayed  does  not  automatically  distribute  itself 
nong  the  owners  of  the  several  factors  of  production  in  such  pro- 
>rtions  as  to  stimulate  the  new  productive  energies  required  to  pro- 
ote  the  maximum  growth  of  production.  Instead  of  disposing  itself 
these  proper  proportions,  the  surplus  may  be  so  divided  as  to  furnish 

Adapted  by  permission  from  J.  A.  Hobson,  The  Science  of  Wealth,  pp.  76-86. 
Holt  &  Co.,  191 1.) 


288  INDUSTRIAL  SOCIETY 

excessive  stimuli  to  some  factors  and  defective  stimuli  to  others, 
thus  retarding  that  full  progress  of  industry  which  requires  a  pro- 
portionate growth  of  all  the  factors. 

In  other  words,  portions  of  the  "surplus"  may  be  wasted,  or, 
what  is  the  same  thing,  employed  "unproductively."  Whenever  any 
owner  of  a  factor  of  production  receives  a  payment  for  its  use  in  excess 
of  what  is  needed  to  evoke  its  full  use,  he  receives  "unproductive 
surplus." 

Any  payment  to  a  factor  of  production  in  excess  of  the  costs  of 
maintenance  and  progress  thus  ranks  as  unproductive  surplus.  It  is 
a  source  of  industrial  waste  and  damage  in  three  ways.  First,  it 
furnishes  no  stimulus  to  production.  Secondly,  it  takes  away  a  por- 
tion of  the  income,  or  annual  wealth,  which  might  have  been  pro- 
ductively applied,  if  it  had  passed  to  some  other  factor.  Excessive 
payments  to  some  factors  involve  deficient  payment  to  others,  and 
since  industrial  progress  depends  upon  proportionate  growth  of  all 
the  factors,  the  receipt  of  unproductive  surplus  must  be  considered 
an  obstacle  to  industrial  progress.  Finally,  in  its  effect  upon  the 
factor  to  which  it  provides  excessive  payment,  it  not  merely  does 
not  promote  activity,  it  depresses  it. 

So  far  as  the  work  of  the  State  contributes  to  the  security  and 
progress  of  industry,  it  is  rightly  regarded  as  a  factor  of  produc- 
tion, co-operating  with  the  labour,  land,  capital,  and  ability  of  the 
individuals  who  engage  in  industry.  Although  the  State  is  not 
recognized  as  standing  at  each  stage  in  the  processes  of  industry, 
demanding  its  payment  for  work  done,  like  the  owners  of  the 
factors,  it  is  none  the  less  true  that  the  State  must  have  its  share. 
It  also  needs  its  costs  of  maintenance,  and  of  progress,  to  be  paid 
out  of  the  only  ultimate  source  of  all  payments,  the  product 
industry. 

Taking  account,  then,  of  the  claims  of  the  various  factors  of  pro- 
duction, public  as  well  as  private,  and  of  the  scheme  of  distribution 
by  which  the  industrial  product  is  apportioned  among  the  owners  of 
these  factors,  we  may  thus  summarize  the  result: 


' 


L- 


Maintenance  (cost  of  subsistence) 


Productive  surplus  (cost  of  growth)  B 


Unproductive  surplus  (waste) 


INDIVIDUAL  EXCHANGE*  CO-OPERATION  289 

A.  Maintenance  includes  (1)  minimum  wages  necessary  to  support 
the  various  sorts  of  labour  and  ability  required  for  the  regular  work- 
ing of  the  industries  in  their  present  size  and  efficiency;  (2)  deprecia- 
tion for  wear  and  tear  of  plant  and  other  fixed  capital;  (3)  a  wear  and 
tear  provision  for  land;  (4)  a  provision  for  the  upkeep  of  the  public 
services  which  the  State  renders  to  industry. 

B.  The  Productive  Surplus  includes  (1)  minimum  wages  of  pro- 
gressive efficiency  to  evoke  a  larger  quantity  and  better  quality  of 
labour  and  ability  for  the  enlargement  and  improvement  of  the 
industrial  system;  (2)  such  a  minimum  of  interest  as  suffices  to  evoke 
the  supply  of  new  capital  needed  to  co-operate  with  the  enlarged 
and  improved  supply  of  labour;  (3)  a  provision  for  the  improved 
size  and  efficiency  of  the  public  services  rendered  by  the  State  to 
industry. 

C.  The  Unproductive  Surplus  consists  of  (1)  economic  rents  of 
land  and  of  other  natural  resources;  (2)  all  interest  in  excess  of  the 
rate  laid  down  in  B;  (3)  all  profits,  salaries,  and  other  payments  for 
ability  or  labour  in  excess  of  what  would,  under  equal  terms  of  com- 
petition, suffice  to  evoke  the  sufficient  use  of  these  factors. 

108.    CONDITIONS  OF  PROGRESS1 

A  whole  group  of  considerations  affect  the  proportionate  increase 
)f  each  requisite  of  production  required  by  each  increase  in  the  aggre- 
gate production.    Among  them  the  following  are  most  prominent: 

1.  Improvements  in  the  industrial  arts,  and  application  of  labor- 
aving  machinery,  (a)  enabling  the  same  quantity  of  capital  to  suffice 
0  turn  out  an  increased  product,  (b)  enabling  capital  to  take  the  place 
f  labor,  so  that  what  might  seem  to  be  an  equal  demand  for  more 
ipital  and  for  more  labor  will  act  as  a  demand  for  a  large  quantity 
f  new  capital  and  a  small  quantity  of  new  labor. 

2.  Social  and  industrial  reforms,  improving  the  organization  of 
>r  or  inducing  greater  care  and  economy  in  the  use  of  material 

of  machinery,  will,  by  adding  to  the  average  effectiveness  of 
capital  and  labor,  enable  an  increase  in  the  aggregate  product 
achieved  by  a  less  than  corresponding  increase  of  capital  and 
>r. 

3.  Every  improvement  of  physique,  morale,  intelligence,  and 
deal  skill  among  the  workers  will  enable  a  demand  for  more  labor- 

1  Adapted  by  permission  from  J.  A.  Hobson,  "The  Law  of  the  Three  Rents," 
terly  Journal  of  Economics,  V  (1890-91),  284-86. 


2QO  INDUSTRIAL  SOCIETY 

power  to  be  satisfied  by  a  less  than  corresponding  increase  in  the 
•  number  of  workers. 

4.  Improvement  in  agricultural  arts  may  enable  a  larger  product 
to  be  obtained  without  a  corresponding  fall  in  the  margin  of  culti- 
vation, i.e.,  without  a  correspondingly  increased  employment  of  land. 

These  are  some  of  the  determining  forces  which  would  require 
study.  Another  set  of  forces  and  circumstances  affect  the  ease  or 
difficulty  of  procuring  increased  supplies  of  the  respective  requisite 
of  production.     Such  are  the  following: 

1.  The  effect  of  growing  improvements  in  communication,  and  the 
breaking  down  of  international  barriers  for  trading  purposes,  in  their 
respective  bearing  upon  (a)  the  increase  of  the  effective  land  supply 
for  a  given  community,  (b)  the  increased  "fluidity"  of  capital,  (c)  the 
easier  migration  of  labor. 

2.  The  effect  of  war,  political  insecurity,  national  commercial 
restrictions,  and  the  like,  as  affecting  (a)  the  available  quantity  of  each 
requisite  of  production,  (b)  the  relative  fluidity  of  each  requisite  of 
production. 

3.  Effects  of  the  growth  of  prudential  motives,  increased  sense 
of  security,  and  fluidity  of  capital,  as  affecting  the  ease  with  which 
an  increased  demand  for  capital  may  be  supplied. 

4.  Complicated  effects  of  rising  standard  of  comfort,  education, 
artificial  checks  on  population,  and  the  like,  in  determining  the  in- 
creased supply  of  labor  at  different  degrees  of  availability. 

109.    SOME  TECHNOLOGICAL  ASPECTS  OF  APPORTIONMENT1 

It  is  a  fact  too  evident  to  need  argument  that  substantially  all 
productive  processes  are  joint  processes — processes  wherein  two  or 
more  factors  co-operate  in  accomplishing  the  result.  Land  by  itself 
can  produce  no  considerable  quantity  of  potatoes;  labor  by  itself 
can  produce  none;  a  furnace  cannot  give  out  heat  without  coal; 
feeding  the  coal  to  the  furnace  needs  labor;  and  so  on. 

Again,  it  is  too  evident  to  need  argument  that  the  productivity 
of  any  joint  or  co-operative  process  varies  more  or  less  with  changes 
in  the  combining  proportion.  Thus,  increasing  the  quantity  of  labor 
used  in  cultivating  a  certain  piece  of  land  would  probably  make  the 
total  product  greater,  though  it  might  make  that  product  smaller. 
Further,  in  case  it  made  the  product  greater,  the  increase  might  be 

1  Taken  by  permission  from  F.  M.  Taylor,  Principles  of  Economics,  pp. 
102.     (University  of  Michigan,  1916.) 


INDIVIDUAL  EXCHANGE  CO-OPERATION  291, 

in  exact  proportion  to  the  increase  in  labor  or  it  might  be  in  a  larger 
or  smaller  proportion.  Similar  statements  could  be  made  of  other 
combinations  of  factors,  say  a  locomotive  and  the  coal  used  in  firing 
it.  If  we  had  just  started  the  fire,  a  certain  increase  in  the  coal  fed 
might  increase  the  water  evaporated  much  more  rapidly  than  the 
increase  in  water  evaporation,  but  one  which  was  less  than  propor- 
tional to  the  increase  in  fuel  consumption.  Still  later  the  increase 
in' fuel  consumption  might  bring  no  increase  in  evaporation;  and, 
finally,  might  even  diminish  it. 

Now,  in  the  main,  this  question  of  combining  proportions  is  a 
matter  of  industrial  technique  rather  than  of  economic  science. 
But  several  problems  which  it  suggests  are  of  the  utmost  importance 
in  strictly  economic  connections.  Thus,  the  ultimate  basis  of  a 
community's  economic  capacity,  its  store  of  natural  resources — the 
land  it  controls — is  definitely  limited  in  amount,  while  population  and 
capital  can,  and  do,  increase;  in  thus  increasing,  they  alter  the 
proportion  in  which  the  several  factors  of  production  are  combined; 
and  the  effect  of  this  in  changing  the  rate  of  output  is  obviously  a 
matter  of  great  moment.  Will  the  additions  to  capital  and  labor 
increase  product  at  all  ?  If  so,  will  the  increase  be  just  proportional 
or  more  than  proportional  or  less  than  proportional  ?  These  are  all 
questions  which  obviously  have  a  marked  bearing  on  human  welfare. 
Et  is,  therefore,  very  important  that  we  get  a  clear  knowledge  of  the 
nore  fundamental  principles  with  respect  to  the  effect  upon  product 
)f  changes  in  combining  proportions. 

The  effects  produced  by  changes  in  combining  proportions  may 
>e  looked  at  either  (1)  on  the  merely  physical  side,  or  (2)  economically 
—meaning  by  "  economically "  in  such  a  way  as  to  include  those 
onsequences  which  involve  value  questions.  We  begin  with  the 
•urely  physical  side. 

ti.  Imaginary  experiments  with  imaginary  combinations  containing 
divisible  factors. — In  order  to  give  precision  and  definiteness  to 
ur  ideas,  we  will  deal  with  the  imaginary  results  of  a  series  of  imagin- 
ry  experiments  with  two  imaginary  factors  which  we  will  designate 
's  and  B's  respectively. 

a)  Factor  A  constant,   Factor  B   increasing:    In  making  our 
laginary  experiments,  we  suppose  ourselves  to  use  each  time  20  A's 
d  combine  with  these,  first  2  B's,  then  3  B's,  then  4  B's,  and  so  on. 
actual  combinations  and  the  results  which  we  suppose  to  appear 
represented  in  the  accompanying  table.    As  already  indicated, 


292 


INDUSTRIAL  SOCIETY 


the  factors,  the  combinations,  and  the  results  are  purely  imaginary. 
No  series  of  combinations  used  in  the  real  world  would  correspond  to 
this.  But  the  careful  study  of  the  figures  of  some  such  table  as  this 
is  after  all  pretty  nearly  essential  to  a  full  and  clear  comprehension 
of  the  real  cases. 

In  this  table  the  first  column  shows  the  number  of  the  combina- 
tion; the  second,  the  amount  of  A's  in  the  combination;  the  third, 
the  amount  of  B's;   the  fourth  gives  the  output  or  product  for  each 


TABLE  I 

I 

II 

III 

IV 

V 

VI 

No.  of. 
Combination 

Amount 

A's 

Amount 
B's 

Output 

Proportional 
Increase 

Actual 
Increase 

I 

20 
20 
20 
20 
20 
20 
2Q 
20 

2 

3 
4 
5 
6 

7 
8 

9 

2 

6 

16 

35 

84 

126 

156 

179 

1 

2 

4 

7 
14 
18 

19-5 

2 

4 
IO 

■z 

4 

19 

49 
42 
30 
23 

c 

6 

7 .  . 

8 

0 

20 

10 

200 

19.8 

21 

10 

20 
20 
20 
20 
20 
20 
20 
20 
20 

12 

14 

16 

18 

20 

22.2 

25 

28. s 

33-3 

236 
266 
290 
312 

330 
346 
362 
380 
393 

40 
39 
38 
36 
34 
36 
43 
50 
63 

36 
30 
24 
22 
18 
16 
16 
18 
13 

11 

12 

14 

ic. 

16 

17 

18. . 

20 

40 

400 

78 

7 

20 

20 
20 
20 
20 
20 
20 
20 
20 

44-4 
So 
57-i 
66.6 
80 
100 

133-3 
200 

398 

393 

360 

280 

140 

80 

40 

20 

44 
50 
56 
60 
56 
35 

20 

-  2 

-  5 

-  33 

-  80 

-  140 

-  60 

-  40 

-  20 

2X. 

24 

2<? 

26 

27 

combination;  the  fifth  shows  what  the  increase  in  output  woul 
be  if  it  were  proportional  to  the  increase  in  B's;  while  the  sixth  shoA 
the  actual  increase.  Comparing  columns  V  and  VI,  we  see 
increases  in  output  are  more  than  proportional  up  to  combination 


INDIVIDUAL  EXCHANGE  CO-OPERATION  293 

less  than  proportional  from  9  to  19;  and  turn  into  decreases  from  19 
on.  That  is,  looked  at  from  one  point  of  view  anyhow,  the  different 
combinations  naturally  break  into  three  stages  or  groups,  which 
stages  may  be  characterized  as  follows:  (1)  output  increasing  more 
than  proportionately  or  at  an  increasing  rate,  (2)  output  increasing 
less  than  proportionately  or  at  a  diminishing  rate,  (3)  output  diminish- 
ing. 

Note. — The  third  of  the  three  stages  through  which  our  com- 
binations pass  is  usually  ignored,  since  no  one  would  intentionally 
work  an  instrument  of  production  in  this  stage.  The  first  and  second 
are  commonly  designated  the  Stage  of  Increasing  Returns  and  Stage 
of  Diminishing  Returns.  Much  is  to  be  said  in  favor  of  substituting 
"output"  for  "returns"  in  these  phrases,  in  order  to  avoid  an  ambigu- 
ity present  in  the  word  "  returns."  For  "  returns  "  may  mean  profits, 
the  money  gain  of  the  entrepreneur;  and  with  this  our  principle  has 
nothing  to  do.  We  are  asking  about  the  effect  of  changing  combining 
proportions  on  the  output  of  goods,  not  on  the  gains  of  the  entre- 
preneur. Our  present  problem  is  one  of  industrial  technique,  not 
business  finance.  It  is  doubtless  true  that  changes  in  the  technical 
results  influence  financial  results,  profits;  but  they  are  not  alone  in 
determining  such  financial  results,  what  we  say  about  the  one  does 
not  without  qualification  apply  to  the  other. 

b)  Factor  B  Constant,  Factor  A  Changing:    In  the  preceding 

series  of  experiments,  A- was  supposed  to  remain  constant  while  B 

increased.     If,  now,  we  were  to  reverse  the  hypothesis,  keeping  B 

:onstant  and  increasing  A,  what  results  should  we  have  ?    Precisely 

similar  ones  to  those  already  brought  out,  with  the  places  of  A  and  B 

•eversed.    That  is,  for  a  time  output  would  increase,  more  than 

>roportionately  to  the  increase  in  A,  then  would  increase  less  than 

woportionately,  and  finally  would  diminish.    And  this  is  not  a  new 

>rinciple  based  upon  a  new  induction.     On  the  contrary,  a  table 

eversing  the  relations  of  A  and  B  as  to  both  conditions  and  results 

>  directly  deducible  from  the  table  already  given.     From  this  fact  it 

)llows  that,  if  the  principles  already  hypothetically  brought  out 

rove  to  be  true  in  fact  for  a  combination  in  which  one  factor,  say 

ipital,  is  constant,  while  the  other,  say  labor,  is  increasing,  then 

milar  principles  must  be  true  of  combinations  in  which  the  second 

xtor,  labor,  is  constant  and  the  first  factor,  capital,  is  increasing. 

2.  Actual   combinations   show   similar   phenomena.    The   points 

ght  out  above  with  respect  to  the  effects  on  output  caused  by 


294  INDUSTRIAL  SOCIETY 

changes  in  combining  proportions  were  based  on  the  imaginary  results 
of  imaginary  experiments.  Do  they  represent  in  general  what  we 
meet  in  actual  life  ?    The  answer  is,  of  course,  affirmative. 

Principle. — Supposing  that  the  attempt  be  made  in  successive 
production  periods  to  increase  the  output  (product)  from  an  instru- 
ment of  production  by  increasing  the  expenditure  of  assisting  factors 
in  connection  with  said  instrument  from  zero  upward,  then,  as  respects 
the  ratio  "of  output  (product)  to  expenditure  for  assisting  factors,  said 
instrument  will  sooner  or  later  be  found  in  each  of  the  following  stages, 
viz.:  (i)  output  increasing  more  than  proportionately  (at  increasing 
rate) ;  (2)  output  increasing  less  than  proportionately  (at  diminishing 
rate);   (3)  output  decreasing. 

To  bring  our  discussion  into  closer  accord  with  conventional 
methods  of  treating  the  matter  before  us,  I  will  formally  set  forth 
what  is  an  obvious  corollary  from  the  general  principle  just  laid  down, 
viz.,  the  point  that,  if  we  try  to  increase  indefinitely  the  product  from 
any  given  instrument  of  production,  said  instrument  will  some  time 
or  other  get  into  the  stage  of  diminishing  returns  or  diminishing 
efficiency.    The  following  will  answer  as  a  formal  statement: 

Principle:  The  instrumental  law  of  diminishing  returns. — In  the 
process  of  attempting  to  utilize  more  completely  any  productive 
instrument  by  increasing  the  amount  of  the  assisting  factors  combined 
with  it — in  other  words,  by  expending  more  upon  it — there  comes  a 
stage  during  which  output,  though  continuing  to  increase,  does  so 
more  slowly  than  the  assisting  factors  are  increased — it  being  assumed 
that  all  other  conditions  are  unchanged,  there  being  no  improve- 
ment in  technical  methods,  no  deterioration  in  the  instrument 
and  so  on. 


MOBILITY  AND  THE  APPORTIONMENT 
OF  PRODUCTIVE  ENERGY1 


LIU, 


The  soundness  of  the  argument  for  the  natural  and  automa 
justice  resulting  from  the  competitive  system  depends  altogether  upon 
the  truth  of  the  underlying  assumptions,  namely,  those  of  fair  com- 
petition and  an  open  and  free  market.  With  reference  to  the  open 
market  it  assumes  a  free  flux  and  change  of  all  the  factors  of  industry. 
If  the  laborer  is  engaged  in  an  industry  in  which  there  is  an  over- 
production, he  is  free  either  to  withdraw  or  to  change  to  an  industr 

1  Taken  by  permission  from  H.  B.  Reed,  "The  Combination  versus  the  O 
sumer,"  International  Journal  of  Ethics,  XXIII  (19 12-13),  I59~69- 


INDIVIDUAL  EXCHANGE  CO-OPERATION  295 

in  which  there  is  a  scarcity  of  production.  Similarly,  the  capitalist 
can  either  shut  down  his  plant  or  take  up  another  line  of  manufactur- 
ing, and  the  landowner  can  either  withdraw  his  land  or  begin  growing 
crops  in  which  production  is  scarce.  That  is  to  say,  a  laborer  is 
free  to  stop  coal-mining  and  promptly  begin  work  either  as  a  baker 
or  as  an  engineer  or  as  a  skilled  mechanic  in  a  steel  plant.  The 
rolling  mills  in  steel  could  stop  turning  out  steel  rails  *and  begin  the 
manufacture  of  shoes  or  lumber. 

Not  only  is  such  a  perfect  flux  required  to  make  the  system  always 
yield  natural  prices;  there  must  be  also  a  pre-knowledge  of  the  con- 
ditions and  factors  that  bring  about  changes  in  the  market  price. 
For  example,  if,  during  the  next  year,  there  were  going  to  be  a  dry 
season  in  Western  Canada  and  a  favorable  season  in  Southern  Russia, 
the  Russians,  in  order  to  avoid  scarcity  in  the  wheat  market,  would 
have  to  know  this  fact  and  bring  a  greater  number  of  fields  under 
cultivation,  and  the  Canadians  would  have  to  know  it  so  as  to  avoid 
an  oversupply  of  labor  and  a  useless  putting  out  of  crops.  The  over- 
supply  of  labor  in  Canada  would  either  have  to  move  to  Russia  or 
find  employment  in  other  industries  in  which  there  would  be  a  scarcity 
of  production.  In  fact,  nothing  short  of  an  absolute  knowledge  of  the 
world  would  satisfy  the  necessary  conditions. 

It  is  well  known  that  this  mobility  with  respect  to  industry  does 

lot  exist.    There  is  an  element  of  permanency  to  be  considered.     In 

he  laborer  it  is  habit;  in  the  capitalist,  the  fixity  of  machinery;  and 

n  land,  the  nature  of  the  soil  in  the  relation  to  the  seasons  of  the  year. 

?he  laborer  cannot  change  and  train  his  habits  for  a  new  trade 

nd  in  the  meantime  support  his  family;  nor  is  he  free  to  withdraw 

is  labor,  for  he  usually  has  no  surplus.    The  capitalist  cannot  shut 

own  his  plant  for  a  very  long  time  without  infringing  upon  hL 

ividends  and  credit.    Nor  can  the  landowner  usually  forego  his 

mt  without  some  injury  or  failure  in  his  business  relations.     So  far, 

len,  as  there  is  permanency  in  any  of  the  factors  of  industry,  the 

atural  or  fair  price  in  an  open  competitive  market  will  not  be 

stained. 

In  this  view,  then,  the  assumption  of  the  free  mobility  of  the 

ors  of  industry  is  taken  with  too  much  extravagance  and  in  so 

invalidates  the  natural  and  automatic  justice  of  the  competitive 

em.     There  is  an  equal  extravagance  with  regard  to  the  assump- 

of  fair  competition.     For  competitors,  fair  competition  obtains 

the  rules  and  opportunities  under  which  they  operate  apply 


296  INDUSTRIAL  SOCIETY 

equally  to  all.  It  is  not  so  important  what  the  rules  are  as  it  is  to 
have  them  affect  all  alike.  There  are  many  ways  in  which  this  con- 
dition is  violated. 


in.     THE  MOBILITY  OF  CAPITAL  AND  LABOR1 

In  the  case  of  capital,  it  is  clear  that  under  no  exigency  could  the 
plant  of  a  flour-mill  be  converted  into  machinery  for  making  bicycles. 
It  may  be  granted  also  that  the  complexity  of  industry  and  the 
hugeness  of  the  tasks  it  undertakes  lead  to  more  and  more  of  the 
country's  wealth  being  invested  in  fixed  and  specialized  capital  and 
so  made  incapable  of  adaptation. 

But  capital  itself  as  a  whole  is  much  more  mobile  than  labour  as 
a  whole. 

1.,  Though  millstones  will  not  make  bicycles,  many  of  the  largest 
categories  of  capital  may,  within  tolerably  wide  limits,  be  converted 
from  one  purpose  to  another;  for  instance,  buildings,  steam-engines, 
horses,  etc. 

2.  The  mobility  of  capital  is  secured  from  the  side  of  the  new 
supply,  and  here,  again,  we  have  a  suggestive  comparison  between  it 
and  labour. 

a)  Wealth  is  increasing  very  much  faster  than  population,  and 
the  form  which  this  wealth  will  take  as  it  comes  into  the  world  is  in 
the  hands  of  people  who  have  every  motive  to  give  it  the  shape  which 
will  find  the  most  profitable  investment.  And,  again,  there  is  always 
a  fund  of  inchoate  capital  which  can  be  materialised  in  any  form 
wanted.  The  forges  and  machine  shops  of  the  country,  for  example, 
are  full  of  stock — steel  bars,  plates,  tubes,  etc. — which  may  be  directed, 
at  a  week's  notice,  to  the  making  of  any  kind  of  machinery.  But 
while  capital  can  take  any  shape,  labour  can  take  only  one.  A  man 
rises  up,  works,  and  lies  down  in  his  own  skin.  Labour,  as  was  said,  is 
always  prisoned  in  the  body  of  the  labourer. 

b)  As  fixed  capital  wears  out,  its  replacements  need  not  take  the 
old  form.  The  progress  of  invention  and  improvement  seldom  allow 
that  old  machinery  is  replaced  by  machinery  exactly  the  same.  The 
worst  that  can  happen  to  it  is  that  it  stops  and  is  sold  for  what  it  will 
bring,  and  no  more  of  that  kind  of  capital  is  produced.  But  the 
labourer's  children  are  made  in  his  own  image. '  Though  his  sons 

1  Adapted  by  permission  from  William  Smart,  The  Distribution  of  Income, 
pp.  174-85.     (Macmillan  &  Co.,  Ltd.,  1899.) . 


INDIVIDUAL  EXCHANGE  CO-OPERATION  297 

may  be  superfluous,  he  does  not  stop  producing  the  same  kind  of 
man  as  he  himself  was. 

But  probably  the  mobility  of  labour — the  power  of  free  movement 
from  trade  to  trade — is  greater  than  any  empirical  observation  would 
suggest.  No  agricultural  depression,  of  course,  will  ever  drive  farm- 
labourers  into  watchmaking.  But  agricultural  labourers  take  to  the 
coalpits  when  inducement  is  offered.  And,  by  the  nature  of  their 
work,  watchmakers  might  pass  freely  enough  into  the  other  occupa- 
tions requiring  fine  fingering  and  the  use  of  delicate  tools. 

It  is  generally  argued  that  the  evident  tendency  of  modern  indus- 
try, as  of  modern  scholarship,  is  toward  specialization,  and  that 
specialization  is  an  almost  insuperable  obstacle  to  mobility.     But  the 
modern  development  of  machine  tools  has  brought  an  escape  from 
this  dreary  outlook  in  the  fact  that  very  much  the  same  kind  of  skill 
is  required  for  tending  one  kind  of  machine  tool  as  for  tending  another. 
The  fact  seems  to  be  that  the  universal  spread  of  machinery  requiring 
only  skill  in  machine-minding  tends  to  make  labour  more  mobile,  at 
the  same  time  as  it  makes  mobility  more  necessary.    If  one  looks  over 
the  field  of  labour  and  sees  the  desperate  efforts  that  are  being  made 
n  most  of  the  crafts  to  prevent  the  intrusion  of  outsiders  who  have 
lever  passed  the  recognised  gate  of  apprenticeship,  but  yet  are  found 
mite  capable  of  doing  the  work  to  which  the  Trade  Union  protests 
,  "right" — even  if  we  consider  only  one  part  of  the  same  movement, 
he  pressing  of  women  workers  into  trades  hitherto  held  sacred  to 
len — it  is  difficult  to  resist  the  conclusion  that  in  the  near  future  the 
ompetition  which  will  attract  notice  is  not  the  competition  between 
apital  and  labour,  but  the  inter-competition  of  the  various  grades 
f  labour. 

If,  however,  we  looked  for  mobility  only  in  the  movement  of 
iult  labour,  we  should  be  disappointed.  But  there  are  two  other 
msiderations  which  must  be  taken  into  account. 

1.  Where  there  is  cheap  and  rapid  transit,  and  where  newspapers 
id  other  agencies  keep  people  informed  of  the  conditions  of  work 
id  wages,  there  need  not  be  actual  movement  to  secure  its  levelling 

|:ects.  After  all,  the  meaning  of  mobility  is  power  to  move,  and  the 
reat  of  movement  is  sometimes  enough  to  secure  the  worker  against 
"  "trary  payment. 

2.  Where  there  is  no  mobility  of  the  labourer  there  may  be  and  is 
ility  of  labour.  Perhaps  it  is  not  sufficiently  realised  that  the 
ly  of  labour  must  be  a  continuous  stream.    To  maintain  its 


298  INDUSTRIAL  SOCIETY 

numbers  every  trade  requires  to  be  constantly  recruited,  and  to  meet 
the  demands  of  growing  population  and  growing  wealth  most  trades 
require  a  constant  addition  to  their  numbers.  Remembering  this 
constant  need  of  accessions,  it  is  clear  that  the  direction  of  young 
workers  to  one  group  of  occupations  means  actual  decrease  of  numbers 
in  the  other  groups,  and  the  growing  competition  in  one  group  has 
its  counterparts  in  the  slackening  of  competition  in  the  others.  At 
any  moment  the  population  under  ten  years  of  age  is  nearly  a  quarter 
of  the  whole.  In  times  when  riveters  are  "past  their  best"  at  the  age 
of  forty,  and  there  are  "  no  men  available  "  in  the  shipbuilding  industry 
after  forty-five,  the  effect  of  this  stream  of  recruits  constantly  coming 
forward  goes  far  to  redress  the  immobility  of  the  adult  workers. 

112.    WHAT  MOBILITY  REALLY  INVOLVES 


In  the  first  place,  it  may  be  remarked  that,  in  order  to  secure  an 
effective  industrial  competition — such  a  competition  as  shall  bring 
rewards  into  correspondence  with  sacrifices — it  is  not  necessary  that 
every  portion  of  capital,  or  that  every  laborer,  should  be  at  all  times 
capable  of  being  turned  to  any  selected  occupation.  It  is  enough 
that  a  certain  quantity  of  each  agent — varying  according  to  circum- 
stances— should  be  thus  flourishing,  and  to  be  realizing  exceptional 
gains  there  is  no  need  that  the  whole  industry  of  the  country  should 
be  disturbed  to  correct  the  inequality.  A  small  diversion  of  capital 
and  labor — small,  I  mean,  in  comparison  with  the  aggregate  embarked 
in  any  important  industry — will  in  general  suffice  for  the  purpose. 
Even  on  extraordinary  occasions,  when  unlooked-for  events  in  the 
political  or  commercial  world  disturb  ordinary  calculations  and  give 
an  enormous  advantage  to  particular  industries — such  occasions, 
for  example,  as  occurred  in  the  early  years  of  railway  enterprise,  or, 
again,  in  the  linen  trade  on  the  breaking  out  of  the  American  Civil 
War — even  on  such  occasions  the  equilibrium  of  remuneration  and 
cost  can  always  be  restored,  not,  indeed,  in  a  moment,  but  after  no 
long  delay,  through  the  action  of  labor  and  capital  still  uncommitted 
to  actual  industrial  employment,  and  without  any  sensible  encroach- 
ment on  the  stock  already  actively  employed.  All  that  is  necessary, 
therefore,  with  a  view  to  an  effective  industrial  competition,  is  the 

1  Taken  by  permission  from  J.  E.  Cairnes,  Political  Economy,  pp.  61-63. 
(Harper  &  Bros.,  1878.) 


INDIVIDUAL  EXCHANGE  CO-OPERATION  299 

presence  in  a  community  of  a  certain  quantity  of  those  instruments 
of  production  existing  in  disposable  form,  ready  to  be  turned  toward 
the  more  lucrative  pursuits,  and  sufficiently  large  to  correct  inequali- 
ties as  they  rise.  Now,  it  will  not  be  difficult  to  show  that  this  con- 
dition is  fulfilled  in  many  industrial  communities,  completely  in 
the  case  of  capital,  and  less  perfectly,  but  still  within  certain  limits 
really  and  effectually,  in  the  case  of  labor  also. 

B1 

"What  are  the  equal  opportunities  which  every  Englishman 
requires  today  in  order  to  secure  real  liberty  of  self  -development  ?  " 

It  is,  I  think,  plain  that  in  the  front  of  his  charter  of  individual 
liberty  comes  the  right  of  every  man  to  an  equal  share  with  every 
other  in  the  use  of  the  land  and  of  the  other  natural  resources  of  his 
native  country.  This  right,  if  it  has  been  alienated  or  compromised, 
must  be  restored. 

Now,  what  does  equality  of  opportunity  demand  in  relation  to  the 
land?  Evidently  not  that  every  man  shall  have  an  equal-sized 
•parcel  of  land  assigned  to  his  exclusive  use,  for  that  would  be  imprac- 
ticable. What  is  required  is  that  any  man  who  wants  the  use  of  a 
bit  of  land  which  he  is  fit  to  work  shall  have  an  equal  chance  with 
every  other  man  of  getting  and  of  keeping  it,  on  terms  regulated  by 
a  public  authority  and  not  a  private  owner ;  and  that  every  man  can  on 
similar  terms  get  a  fixed  home  to  live  in  without  the  liability  of  being 
turned  out  at  the  will  of  another. 

Let  us  take  one  form  of  modern  liberty  which  is  in  part  a  land 
question.  The  right  to  move  unhindered  from  one  place  to  another 
is  as  much  an  element  of  freedom  as  the  right  to  stay  where  you  are. 
If  a  man  is  to  make  the  best  use  of  his  faculties,  he  must  be  free  to  take 
himself  and  his  belongings  from  where  he  is  to  where  he  wants  to  be. 
Mobility  is  more  and  more  essential  to  freedom  in  our  modern  indus- 
trial system  where  local  industrial  conditions  are  continually  chang- 
ing, and  where  everyone  must  be  able  to  follow  his  trade  and  to  open 
up  new  markets  for  his  personal  skill  or  his  products. 

That  this  mobility  belongs  to  individual  liberty  is  indeed  embodied 
in  the  most  hallowed  maxim  of  the  individualist  philosopher,  laissez- 
faire,  laissez-aller.    But  to  tell  a  man  he  has  this  right,  this  liberty  to  go, 

1  Adapted  by  permission  from  J.  A.  Hobson,  The  Crisis  of  Liberalism, 
pp.  97-109.     (P.  S.  King  &  Son,  Ltd.,  1909.) 


3°° 


INDUSTRIAL  SOCIETY 


is  not  to  give  it  to  him.  The  freedom  to  walk  along  the  highroad  is  not 
the  real  mobility  required  for  modern  life.  Effective  liberty  to  travel 
involves  the  use  of  railroads,  which  in  substance  are  our  national 
highways.  Now,  an  ordinary  labourer,  obliged  to  bargain  with  a 
private  company  for  carriage,  and  disabled  by  his  narrow  means  from 
moving  easily,  quickly,  or  far  at  a  time,  is  in  fact  deprived  of  an 
opportunity  essential  to  his  full  liberty  of  choice  in  life  and  work,  and 
society  is  also  the  loser  by  this  limitation  of  his  power.  Absolutely 
free  transit  may  not  be  attainable  or  advisable,  but  a  national  rail- 
way system,  which,  by  its  cheap  rates  and  quick,  frequent  service, 
enables  every  man  to  move  to  and  from  his  work  without  waste 
of  time  or  money,  and  to  follow  his  economic  opportunities  wherever 
they  may  lead  him,  is  necessary  today  to  "free"  men  in  a  "free" 
country.  And  what  holds  of  persons  holds  of  the  produce  of  their 
labour. 

Then  comes  another  issue  of  modern  liberty  which  also  has  its 
roots  in  Nature  and  man's  equal  access  to  natural  powers.  For 
most  purposes  of  organized  industry  the  use  of  some  non-human 
energy  is  necessary:  civilization  more  and  more  implies  the  liberation 
of  the  muscular  and  nervous  powers  of  man  from  heavy  routine  work 
and  the  substitution  of  mechanical  energy.  In  large  provinces  of 
industry  the  time  has  come  when  the  success  or  failure  of  a  man  to 
establish  himself  in  business,  and  to  make  a  living  wage  or  profit, 
depends  upon  the  terms  upon  which  he  can  get  cheap  and  reliable 
access  to  this  energy.  Liberty  of  trade  demands  the  public  ownership 
and  operation  of  industrial  power  for  sale  on  equal  terms  to  all  who 
want  it. 

The  use  of  capital  on  fair  and  equal  terms  is  in  this  country 
essential  to  every  man  who  wishes  to  live,  not  as  a  wage-  or  salary- 
earner,  but  as  an  independent  producer  or  trader.  For  such  purpose 
credit  is  capital,  and  no  man  is  "free"  to  use  his  business  skill  unless 
he  can  get  a  reasonable  amount  of  credit  upon  easy  terms.  There 
are  two  purposes  for  which  a  worker  or  a  small  business  man  wants 
an  occasional  advance  of  money.  One  is  to  meet  some  unforeseen 
emergency  in  his  business  or  his  private  life  against  which  adequate 
insurance  is  impossible.  The  other  need  of  credit  is,  not  to  meet  an 
emergency,  but  to  seize  an  opportunity.  It  is  sometimes  supposed 
that  only  a  big  man  with  large  resources  can  set  up  in  business  today 
with  any  reasonable  prospect  of  success.  But '  this  general  sup- 
position is  unwarranted.     Even  in  some  of  the  staple  manufactures  it 


INDIVIDUAL  EXCHANGE  CO-OPERATION  301 

is  often  possible  for  a  workman  who  has  got  a  practical  understanding 
of  some  branch  of  a  trade  to  set  up  for  himself  with  a  good  prospect  of 
doing  well  if  he  can  get  a  little  business  capital  on  reasonable  terms. 
At  present,  as  a  rule,  he  must  either  forego  the  chance  or  else  put 
himself  entirely  in  the  hands  of  some  "trade-furnisher"  or  machine- 
making  firm  which  can  squeeze  him  as  it  likes.* 

The  machinery  of  credit  and  finance  is  the  dominant  factor  in  our 
modern  capitalist  system:  more  and  more  of  the  practical  control  over 
industry,  as  well  as  of  the  profits,  belongs,  not  to  the  manufacturer, 
the  merchant,  or  other  trade-capitalist,  but  to  the  financier.  I  am 
convinced  that  if  a  close  scrutiny  into  the  distribution  of  wealth  were 
made,  it  would  be  found  that  in  every  advanced  country  a  rapidly 
growing  proportion  of  the  wealth  was  passing  into  the  possession  or 
control  of  that  small  class,  the  manipulators  of  fluid  capital.  Whether 
private  co-operation  is  competent  to  solve  the  problem  in  this  country, 
or  whether  a  public  system  of  loan  banks  is  required,  is  a  question  too 
intricate  to  be  discussed  with  profit  here. 

If  a  man  has  his  fair  use  of  the  land  and  other  natural  resources 
of  his  country,  and  of  the  national  highways,  and  can  get  industrial 
power  and  financial  power  upon  equal  terms  with  any  other  man, 
he  has  made  large  strides  along  the  road  of  liberty.  But  he  is  not 
really  free — because  he  is  not  secure,  and  the  sense  and  the  substance 
of  security  belong  to  a  free  man.  A  working  man,  a  clerk,  a  small 
shopkeeper  or  his  assistant,  in  fact,  the  great  majority  of  the  popula- 
tion in  our  rich  and  civilized  country,  are  conscious  always  of  standing 
in  a  precarious  condition.  They  and  their  families  may  be  plunged 
into  poverty  and  its  attendant  degradation  and  disease  at  any  time 
by  the  ill-health  or  other  disablement  of  the  bread-winner,  by  the 
failure  of  an  employer,  by  some  change  of  public  taste,  some  shift  of 
market,  some  introduction  of  improved  machinery,  or  some  trade 
depression.  Few  of  these  emergencies  can  be  foreseen;  against  the 
graver  ones  no  adequate  provision  can  be  made,  even  by  the  best  paid 
grades  of  workers.  Among  the  middle  classes,  especially  among  the 
professional  and  commercial  classes  of  our  towns,  the  competitive 
struggle  is  fraught  with  growing  hazard;  it  is  rarely  possible  to  see 
far  ahead,  and  the  complexity  of  markets  and  of  price  changes  baffles 
the  keenest  foresight.  Though  such  men  may  make  some  fair 
provision  against  destitution,  they  cannot  ensure  a  standard  of  comfort 
for  themselves  and  their  families,  and  the  wear  and  tear  of  anxiety 
is  an  increasing  cost  of  production  in  modern  industry.     The  business 


302  INDUSTRIAL  SOCIETY 

of  insurance  has  sprung  up  to  deal  with  these  conditions  and  is  grap- 
pling manfully  with  some  of  them.  But  then  insurance  itself  so  often 
is  not  sure,  and  this  applies  particularly  to  the  societies  to  which  the 
working  classes  have  recourse.  An  enormous  proportion  of  the 
savings  of  the  workers,  made  often  at  the  expense  of  some  element  in 
their  personal  efficiency,  goes  in  competitive  expenses  of  management, 
contributing  nothing  toward  insurance,  while  the  system  of  weekly 
retail  collection  involves  the  maximum  trouble  of  collection.  It  is 
quite  evident  that  if  there  is  one  form  of  enterprise  where  the  State 
has  an  advantage  over  private  profit-making  companies,  it  is  insur- 
ance. The  intelligence  of  civilized  nations  in  all  parts  of  the  world 
is  coming  to  a  clear  recognition  of  this  truth,  and  governments  are 
everywhere  assuming  the  new  responsibility.  Organized  society 
must  do  for  its  members  what  they  are  unable,  either  as  individuals 
or  as  loose  co-operative  groups,  to  do  for  themselves,  viz.,  to  obtain 
such  security  of  employment  and  of  livelihoods  as  is  necessary  to 
give  them  confidence  and  freedom  in  their  outlook  upon  life.  No 
man,  whose  standard  of  life  lies  at  the  mercy  of  a  personal  accident  or  a 
trade  crisis,  has  the  true  freedom  which  it  is  the  first  duty  of  the 
civilized  state  to  furnish. 

Freedom  and  equality  of  access  to  public  justice  do  not  exist  in 
this  country.  Neither  in  a  criminal  nor  in  a  civil  suit  does  a  poor 
man  stand  upon  a  level  with  a  rich  man.  So  long  as  the  preparation 
of  a  case,  the  feeing  of  counsel,  the  expenses  of  witnesses,  court  fees', 
and  other  costs  of  public  justice  are  charged  against  private  litigants^ 
the  owner  of  the  long  purse  has  an  evident  advantage,  and  can  beat 
down,  choke  off,  or  wear  out  his  poorer  adversary. 

A  man  might  have  all  the  equal  liberties  which  I  have  named, 
access  to  land,  facility  of  travel,  industrial  energy,  credit,  economic 
security,  and  justice,  all  these  things  might  be  freely  distributed 
throughout  the  community,  and  yet  true  equality  of  opportunity 
might  be  lacking;  a  society  where  all  these  liberties  were  won  might 
be  sunk  in  the  stagnation  of  conservatism,  or  might  even  breed  new 
forms  of  inequality  and  tyranny. 

For  there  is  one  opportunity  upon  which  the  efficacy  of  all  the 
others,  as  instruments  of  self-development  and  of  social  benefit, 
depends:  equality  of  access  to  knowledge  and  culture.  Without  this 
every  other  opportunity  is  barren  for  the  purposes  of  personal  or  social 
progress.     Education    is    the    opportunity    of    opportunities.     We, 


INDIVIDUAL  EXCHANGE  CO-OPERATION  303 

therefore,  who  are  concerned,  not  with  liberty  to  stagnate,  but  with 
liberty  to  grow,  must  set  the  nationalization  of  knowledge  and  culture 
in  the  front  of  our  charter  of  popular  freedom. 

For  consider  what  equal  opportunity  of  knowledge  and  of  culture 
implies.  It  implies  that  neither  poverty,  nor  ignorance  of  parents, 
nor  premature  wage-earning,  nor  defects  of  teaching  apparatus, 
shall  keep  any  person  from  any  sort  of  learning  which  will  improve 
his  understanding,  elevate  his  character,  and  increase  his  efficiency 
as  a  worker  and  a  citizen. 


CHAPTER  V 

MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION 
A.    Problems  at  Issue 

Our  individual  exchange  co-operation  with  its  indirect  methods  of 
gratifying  wants  and  its  unconscious  apportionment  of  social  energy 
is  worked  out  in  a  regime  of  money  (and  credit)  economy  and  is  con- 
ditioned by  that  economy.  Sometimes  we  phrase  this  another  way 
by  saying  that  there  is  a  pecuniary  organization  of  society. 

Some  economists  classify  the  stages  of  industrial  development 
from  this  point  of  view  in  terms  of  barter  economy,  money  economy, 
and  credit  economy.  The  primitive  stage,  known  as  barter  economy, 
was  attended  by  such  difficulties  as  to  render  any  considerable  devel- 
opment of  industrial  life  improbable  if  not  impossible.  .  Under  barter, 
it  was  not  possible  that  the  market  should  have  any  considerable  area, 
either  of  time  or  of  space.  A  restricted  market  meant  lack  of  the 
possibility  of  specialization  in  its  fullest  sense,  lack  of  large-scale 
production — lack  indeed  of  most  of  those  features  of  our  modern 
industrialism  which  we  have  come  to  consider  the  significant  and 
characteristic  ones.  These  features  could  come  in  only  after  the  rise 
of  mediated  exchange — after  the  rise  of  money  economy  and  its  later 
development,  credit  economy. 

Money  economy  has  been  described  as  "that  organization  of 
society  in  which  exchange  is  carried  on  by  money,  by  mediated 
exchange,  rather  than  by  barter."  The  statement  is  a  true  one,  and 
it  implies  much  more  than  appears  at  first  reading.  It  is  easy  to  see 
that  in  a  regime  of  money  economy,  exchange  takes  place  through  the 
use  of  money  and  credit.  It  is  not  so  readily  seen  that  this  money, 
this  price  system,  is  a  device  or  agency  through  which  the  organiza- 
tion of  a  very  considerable  portion  of  our  economic  life  is  accomplished. 

The  logic  of  the  case  runs  in  this  way:  Once  it  is  granted  (i)  that 
a  "satisfactory  money  good"  has,  among  other  attributes, •  the 
quality  of  universal  or  general  acceptability,  (2)  that  value  means 
"power  in  exchange,"  or  power  to  command  other  goods  in  exchange, 
and  (3)  that  exchange  is  an  exceedingly  broad  term,  covering,  not 
only  the  usual  buying  and  selling  transactions  of  a  market,  but  also 

304 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        305 

such  transactions  as  paying  for  the  services  of  land,  labor,  and  capital 
— once  these  things  have  been  granted,  it  readily  follows  that  the 
individual  in  possession  of  that  which  we  call  money  (or  credit  or  even 
property  which  is  capable  of  translation  into  money  terms)  is  in  a 
position  to  command  social  energy.  True,  he  does  not  command  as 
does  the  despot;  he  merely  commands  in  exchange,  but  this  is  quite 
enough.  He  becomes  a  responsible — 'sometimes  irresponsible— agent 
in  the  guidance  of  economic  activity. 

It  is  inevitable  that  there  should  develop,  in  a  pecuniarily  organ- 
ized society,  a  host  of  institutions  and  agents  through  whose  services 
this  organization  is  carried  out.  The  list  of  such  institutions  includes 
not  only  banks,  insurance  companies,  bond  houses,  the  stock  exchange, 
and  others,  popularly  termed  "  financial  institutions,"  but  also  the 
various  institutional  forms  of  business  organization,  such  as  the 
individual  firm,  the  agency,  the  partnership,  the  joint-stock  company, 
and  the  corporation.  Business  is  organized  on  the  pecuniary  basis. 
The  forms  it  takes  are,  properly  understood,  types  of  financial  insti- 
tutions. 

The  money  economy  furnishes  not  only  the  means  by  which  the 
individual  guides  social  energy;  it  provides  also  the  standards  for  that 
guidance.  This  is  what  we  mean  when  we  say  that  our  exchange 
co-operation  is  regulated  by  price  levels  and  margins  of  profits — 
that  we  produce  for  gain  and  not  necessarily  or  primarily  for  service. 
Of  course  the  gain  standard  may  be  and  is  tempered  and  controlled  by 
other  standards.  Over  all  and  above  all  rules  social  control — some- 
times ruling  wisely /  sometimes  unwisely;  sometimes  adequately, 
sometimes  inadequately. 

To  many  minds  the  expression  "pecuniary  organization"  carries 
a  snarling  connotation.  This  is  unfortunate.  It  cannot  be  success- 
fully denied  that  there  are  evils  connected  with  this  method  of 
organization.  He  who  runs  may  read.  It  should  be  remembered, 
however,  that  this  pecuniary  organization  is  responsible  for  many 
benefits — among  others,  facility  of  capital  formation,  specialization, 
and  large-scale  production.  Then,  too,  there  is  at  least  hope  that,  as 
time  goes  on,  the  evils  may  be  reduced.  Certain  it  is  that  we  are 
working  at  the  problem  with  considerable  diligence:,  witness  our 
corporation  laws,  our  blue-sky  laws,  our  federal  reserve  and  rural 
credit  act,  our  development  of  codes  of  ethics  in  the  banking  pro- 
fession, and  the  growing  sense  of  trusteeship  among  our  owners  of 
property,    This  pecuniary  society  of  ours  is,  after  all,  a  very  recent 


306  INDUSTRIAL  SOCIETY 

matter,  and  it  is  not,  we  hope,  as  fully  under  wise  control  as  it  will  be 
later. 

The  following  statement  of  an  ingenious  writer  will  aid  in  develop- 
ing a  sense  of  relativity  in  human  affairs: 

In  order  to  understand  the  light  which  the  discovery  of  the  vast  age 
of  mankind  casts  on  our  present  position,  our  relation  to  the  past,  our  hopes 
for  the  future  ....  let  us  imagine  the  whole  history  of  mankind  were 
crowded  into  twelve  hours  and  we  are  living  at  noon  of  the  long  human 

day For  over  eleven  and  one-half  hours  there  is  nothing  to  record. 

We  know  of  no  persons  or  events:  we  only  infer  that  man  was  on  the  earth, 
for  we  find  his  stone  tools,  bits  of  his  pottery,  and  some  of  his  pictures  of 
mammoth  and  bison.  At  twenty  minutes  before  twelve  the  earliest 
vestiges  of  Egyptian  and  Babylonian  civilization  begin  to  appear.  The 
Greek  literature  and  philosophy  to  which  we  owe  so  much  are  not  seven 
minutes  old.  At  one  minute  before  twelve  Lord  Bacon  wrote  his  advance- 
ment of  learning  and  not  one-half  a  minute  has  elapsed  since  man  first  began 
to  use  the  steam  engine  to  do  his  work  for  him. 

Questions 

i  .  Precisely  what  is  meant  by  money  economy  ?  Wherein  does  it  differ 
from  barter  economy  ?  from  credit  economy  ?  It  has  been  said  that  the 
difference  between  money  economy  and  credit  economy  is  merely  a 
difference  of  degree,  whereas  the  difference  between  money  economy  and 
barter  economy  is  a  difference  of  kind.    Is  this  true  ? 

2.  Can  you  cite  any  cases  of  barter  being  used  today  ?  What  difficulties 
of  a  system  of  barter  are  overcome  by  the  use  of  money?  Does 
"money"  necessarily  mean  the  use  of  gold  and  silver?  Have  other 
things  been  used  as  money  ? 

3.  It  has  been  said  that  the  exchange  functions  of  money  are  to  serve  as 
(a)  a  medium  of  exchange;  (b)  a  standard  (common  denominator)  of 
value;  (c)  a  standard  for  deferred  payments.  Explain  why  each  of 
these  functions  is  useful,  and  cite  cases  where  money  performs  each 
of  these  functions. 

4.  A  buys  1,000  bushels  of  wheat  from  B  at  $1  a  bushel.  B  accepts  in  pay- 
ment a  note  for  $1 ,000  payable  with  interest  two  years  from  date.  Two 
years  later  A  pays  B  the  $1 ,000  with  interest  agreed.  Which  of  the  three 
money  functions  does  money  perform  in  the  course  of  these  transactions  ? 

5.  To  what  extent  would  contemporary  industrial  methods  be  possible  if 
the  device  of  money  had  never  been  adopted  as  a  means  of  facilitating 
exchange?  Could  the  exchange  system  be  as  complex  as  it  is  today 
if  we  depended  upon  barter  alone?  Would  the  productive  process 
be  as  efficient  ?  Would  we  have  large-scale  production  ?  railroads  ? 
specialization  ?  machine  industry  ? 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        307 

6.  Make  a  list  of  the  qualities  of  a  satisfactory  money  metal.  In  terms  of 
the  functions  of  money,  show  the  significance  of  each  quality  you  have 
listed. 

7.  What  reasons  can  you  assign  for  having  subsidiary  coin  ?  For  having 
paper  money  ? 

8.  Some  persons  have  argued  for  having  a  coin  called  a  half -cent.  Is 
there  anything  to  be  said  for  the  project?  Why  do  we  have  $1,000 
bills? 

9.  What  is  standard  money  in  the  United  States  ?  What  is  the  monetary 
unit  ?    Is  the  unit  actually  current  as  coin,  or  is  it  a  mere  definition  ? 

10.  In  the  days  of  the  California  gold  discoveries  different  individuals 
and  firms  coined  their  own  gold  pieces.  Is  there  any  reason  for  pro- 
hibiting such  a  practice  and  reserving  the  right  of  coinage  to  the  govern- 
ment ? 

n.  Why  stamp  a  device  on  coins  ?    Why  mill  the  edges  of  coins  ? 

12.  Much  is  said  of  the  desirability  of  a  stable  money.  What  does  this 
mean  ?    Why  is  it  desirable  ? 

13.  Explain  these  phrases: 

"Money  is  condensed  property." 

"Money  permits  the  organization  of  consumption  and  production." 

"Money  facilitates  capital  accumulation." 

"Production  for  sale,  not  for  use." 

14.  Define  credit.  What  is  the  basis  of  credit?  Distinguish  between 
credit  and  credit  instruments. 

15.  What  is  meant  by  book  credits?  checks?  promissory  notes?  drafts? 
bills  of  exchange  ?  the  bank  note  ?  bonds  ?  stocks  ?  mortgages  ?  public 

'     credit  ?  personal  credit  ?  mercantile  credit  ?  industrial  credit  ? 

16.  Show  how  each  of  these  credit  devices  may  perform  money  functions. 
What  is  meant  by  the  statement  that  we  are  now  in  the  stage  of  credit 
economy  ? 

17.  "The  full  development  of  credit  depends  upon  (1)  the  stability  of  social 
conditions;   (2)  the  existence  of  a  sound  money."     Why? 

18.  Some  of  the  alleged  advantages  of  credit  are  that: 

a)  It  utilizes  small  savings. 

b)  It  furnishes  a  strong  motive  for  saving. 

c)  It  transfers  capital  to  more  productive  uses. 

d)  It  offers  to  persons  of  recognized  capacity,  but  without  adequate 
means  of  their  own,  an  opportunity  to  engage  in  work  for  which 
they  are  fitted. 

e)  It  makes  possible  great  enterprises. 

/)  It  saves  social  energy  by  providing  a  cheap  medium  of  exchange. 
Some  of  the  alleged  disadvantages  are  that: 

a)  It  may  promote  extravagance. 

b)  It  may  transfer  wealth  to  less  productive  hands. 


308  INDUSTRIAL  SOCIETY 

c)  It  may  overstimulate  prices. 

d)  It  may  make  unsound  speculation  easier  to  accomplish  and  may 
result  in  crises. 

Explain  how  credit  may  produce  each  of  these  alleged  effects. 

19.  Is  credit  capital  ?  Does  it  add  to  the  sum  total  of  productive  instru- 
ments or  does  it  merely  make  possible  a  better  utilization  of  instruments 
already  existing?    Does  it  quicken  the  productive  process? 

20.  Henry  T.  Crouch  of  Erie  buys  $1,275  worth  of  wheat  from  T.  C.  Craig 
of  Detroit. 

a)  Suppose  settlement  to  be  effected  with  a  wheat  bill  of  exchange 
(also  called  a  sight  draft)  and  write  out  the  substance  of  the 
bill  which  would  be  used. 

b)  Suppose  settlement  to  be  made  with  a  check.  Write  out  a 
fascimile  (in  substance). 

c)  Suppose  settlement  to  be  made  with  a  bank  draft.  Write  out  a 
facsimile  (in  substance). 

21.  "However  great  the  volume  of  credit  exchanges,  however  extensive 
the  use  of  credit  may  become  in  a  community,  sales  for  direct  money 
payment  can  never  be  fully  displaced."    Why  not? 

22.  "It  is  crop-moving  time.  Since  farmers  do  not  use  checks,  more  money 
will  be  needed  for  a  time."    Why  ?    Why  "for  a  time"  ? 

23.  Would  you  rather  have  a  stock  certificate  or  a  bond?  Common  stock 
or  preferred  stock  ?    A  registered  bond  or  a  coupon  bond  ? 

24.  "Stock  certificates  are  evidences  of  ownership;  bonds  are  evidences  of 
indebtedness."  What  does  this  mean?  What  does  it  imply  with 
respect  to  the  management  of  a  corporation  ? 

25.  "Credit,  to  attain  its  usefulness,  must  be  capable  of  generalization. 
One  of  the  functions  of  the  commercial  bank  is  that  of  generalizing 
credit."    What  does  this  mean  ?    Is  it  true  ? 

26.  Enumerate  the  services  performed  by  the  commercial  bank. 

27.  "Commercial  banks,  through  the  use  of  their  own  credit,  can  make 
loans  and  create  deposits  to  many  times  the  amount  of  their  cash 
resources."    Explain.    Is  any  service  rendered  society? 

28.  "The  savings  bank  and  the  bond  house  are  mere  financial  middlemen; 
the  commercial  bank  is  something  more ;  it  creates  through  the  use  of  its 
credit  new  resources."    Is  this  true? 

29.  "The  corporation,  the  bond  house,  the  stock  exchange,  savings  banks, 
and  insurance  companies  unite  in  assembling  capital  for  modern 
business  enterprise . ' '     How  ? 

30.  Show  in  what  ways  each  of  our  financial  institutions  contributes 
to  making  available  a  greater  quantity  of  goods  to  apply  to  human 
wants. 

31.  "The  savings  bank  and  the  insurance  company  develop  thrift."  What 
does  this  mean  ?    If  true,  what  is  its  significance  ? 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        309 

32.  Does  the  pawnbroker  conduct  a  financial  institution?  Does  the 
government  maintain  any  financial  institutions  ? 

S^ .  "The  trust  company  has  been  called  the  omnibus  of  financial  institu- 
tions."    Why? 

34.  ''The  stock  exchange  contributes  to  a  closer  adjustment  of  production 
to  consumption,  of  the  world's  work  to  the  world's  need."  Explain  in 
detail  how  it  contributes  to  this  end. 

35.  "Wall  Street  earns  a  reward  for  an  indispensable  service."  What 
does  "  Wall  Street "  mean  as  here  used  ?  Does  it  render  a  real  service  ? 
Are  its  rewards  in  exact  proportion  to  its  service  ? 

36.  What  are  the  chief  points  of  difference  between  a  corporation  and  a 
partnership  ? 

37.  Why  was  it  that  the  corporation  did  not  become  a  common  form  of 
business  organization  until  the  nineteenth  century?  What  were  the 
usual  forms  of  organization  before  that  time  ? 

38.  What  advantages  has  a  corporation  as  compared  with  a  partnership  ? 
Are  there  any  respects  in  which  a  partnership  has  advantages  not  pos- 
sessed by  a  corporation  ? 

39.  A  corporation  has  outstanding  $1,000,000  of  5  per  cent  mortgage  bonds, 
$10,000,000  of  7  per  cent  preferred  stock,  and  $10,000,000  of  common 
stock.  Gross  annual  earnings  are  $11,950,000;  total  expenses  for  the 
year  are  $9,900,000,  and  depreciation  of  the  plant  amounts  to  10  per  cent 
on  a  valuation  of  $11,000,000.  What  is  the  amount  available  for  dis- 
tribution among  the  security-holders,  and  how  will  this  amount  be 
distributed  among  the  holders  of  the  different  securities  ? 

40.  In  the  case  of  the  corporation  described  in  the  preceding  question  what 
would  be  the  effect  upon  the  dividends  on  the  common  stock  if  all  the 
preferred  stock  were  converted  into  5  per  cent  mortgage  bonds? 
Would  this  be  a  wise  move  if  the  business  were  likely  to  fluctuate  so 
that  the  amount  available  for  distribution  among  the  security-holders 
of  the  corporation  would  be  cut  in  half  ? 

41.  In  1896  the  following  situation  existed: 


Company 

Common  Stock 

Dividends 

A 

$3,000,000 

10  per  cent 

B 

2,000,000 

8  per  cent 

C 

1,000,000 

10  per  cent 

On  January  1,  1897,  a  holding  company,  D,  absorbs  all  their  stock, 
and  in  1897  D  gets,  in  addition  to  the  former  earnings,  $500,000 
monopoly  profits  and  $100,000  by  saving  the  wastes  of  competi- 
tion. What  dividends  could  D  pay  if  its  capital  stock  were 
$6,000,000  ? 
42.  What  is  the  relation  between  par  value  and  market  value  of  a  stock? 
between  par  value  and  face  value  ? 


310  INDUSTRIAL  SOCIETY 

43.  If  a  benevolent  despot  ruled  industrial  society  and  he  decided  that 
society  ought  to  have  more  capital,  i.e.,  tools,  machines,  etc.,  how  would 
he  go  about  getting  this  new  capital  ?  How  would  a  socialistic  society 
solve  such  a  problem  ?  Under  a  money  economy  what  is  the  mecha- 
nism by  which  new  capital  is  saved  or  brought  into  existence  ? 

44.  If  a  benevolent  despot  ruled  society  and  he  decided  that  capital  ought  to 
be  shifted  from  industry  x  to  industry  y,  how  would  he  go  about  making 
that  shift  ?  How  would  it  be  done  in  a  socialistic  society  ?  How  is  it 
done  today  ?  In  answering  this  last  question  make  clear  the  use  of  the 
money  economy  in  the  transaction. 

45.  In  practice  and  within  certain  limits  land,  labor,  and  capital  may  be 
substituted,  one  for  another.  On  what  basis  does  a  business  man  of 
today  decide  whether  to  use  more  or  less  of  one  or  the  other  when  he 
engages  in  productive  enterprise  ?  How  would  a  society  which  did  not 
use  a  money  economy  decide  such  a  question?  Is  it  important  to 
society  that  such  a  question  be  decided  ? 

46.  Some  persons  believe  that  we  should  develop  a  society  which  used  no 
money.  Would  there  be  any  items  of  loss  to  society  in  the  abandon- 
ment of  mediated  exchange  ? 

47.  Is  money  an  adequate  measure  of  effort  ?  of  utility  ?  of  welfare  ? 

48.  "In  an  economic  system  based  on  exchange  the  immediate  advantage  of 
a  bargain  is  more  likely  to  occupy  men's  minds  and  to  determine  their 
actions  than  is  concern  for  the  ultimate  good  which  may  result  to 
society.  It  follows  that  individual  advantage  is  always  antagonistic 
to  social  advantage."     Why  or  why  not  ? 

49.  "Production  for  profit  results  in  adulterated  goods,  shoddy,  polluted 
justice,  child  labor,  wars,  hungry  children,  etc."  Does  production  for 
profit,  standing  by  itself,  really  result  in  those  things  ?  Is  there  any- 
thing to  be  said  in  favor  of  production  for  profit  ? 

50.  "Even  from  the  point  of  view  of  business,  prospective  profit  is  an 
uncertain,  flickering  light."     Why? 

51.  "We  are  in  a  competitive  society,  most  of  the  serious  problems  of  which 
sum  up  into  one  great  and  inclusive  problem — how  to  limit  the  receipt  of 
private  income  to  the  rendering  of  social  service."  Do  you  agree? 
What,  if  anything,  are  we  doing  about  the  matter?  How  would  the 
socialist  attempt  to  solve  the  problem  ? 

52.  "The  relation  between  the  usefulness  of  the  work  and  the  remuneration 
of  it  is  remote  and  uncertain  to  such  a  degree  that  no  attempt  at  formu- 
lating such  a  relation  is  worth  while."  As  a  means  of  seeing  whether 
such  an  attempt  is  "worth  while,"  make  it. 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION         311 

B.     Money  Economy 
113.     A  PECUNIARY  SOCIETY1 

Modern  society  is,  then,  distinctly  a  pecuniary  society,  a  society 
of  business.  Despite  the  fact  that  society  was  not  always  pecuniary 
— has,  indeed,  been  so  only  for  the  narrowest  margin  of  years  out 
of  a  long  human  history,  and  may  remain  so  only  for  the  next  short 
swing  of  the  pendulum  in  the  life  of  man — the  political  economy 
that  we  must  study  today  is  the  political  economy  of  today. 
Mainly,  under  present  conditions,  we  produce  for  the  market,  for 
exchange,  despite  the  fact  that  a  few  generations  ago  the  contrary 
was  the  truth.  And  at  present  we  produce  in  the  larger  part  for 
a  competitive,  impersonal  world-market.  This  is  the  era  of  free 
individual  initiative  under  private  property  for  private  gain.  So 
far,  indeed,  is  this  the  truth  that  even  combination  and  monopoly 
may  be  regarded  as  merely  secondary  aspects  of  competition  and 
of  individual  initiative.  Strike  this  fact  of  competition  at  its  very 
center  of  tone,  and  we  discover  that  we  are  in  a  regime  of  price. 
Money  is  the  focusing  point  of  modern  business  affairs.  It  is  the 
standard  of  values  simply  because  in  a  society  producing  for 
exchange  it  is  the  one  established  intermediate  commodity.  There- 
fore, as  medium  of  exchange,  it  is  the  standard  of  immediate  and  of 
deferred  payments.  Through  credit,  the  money  economy  lays  hold 
upon  even  the  distant  future.  Thus  to  object  that  more  and  more, 
as  society  has  advanced  from  'a  society  of  isolated  production 
through  a  barter  economy  to  a  money  economy,  it  is  now  moving 
over  into  a  credit  economy,  is  really  to  assert  merely  that  in  new 
and  marvelous  ways  money  is  taking  on  a  still  greater  emphasis. 
More  and  more,'  and  more  and  more  exclusively,  and  over  an  ever- 
widening  field  of  human  effort,  human  interests  and  desires  and 
ambitions  fall  under  the  common  denominator  of  money.  Doubt- 
less many  of  the  best  things  in  life  do  not  get  bought  and  sold. 
Some  of  them  are  not  exchangeable;  and  not  all  things  that  could 
be  transferred. are  men  weak  enough  to  sell  or  other  men  strong 
enough  to  buy.  Not  every  man  has  his  money  price.  But  most 
good  things  do,  in  greater  or  less  degree,  submit  to  the  money 
appraisal.  Health  is  easier  for  him  who  can  take  his  ease  and  who 
has  the  wherewithal  to  pay  for  good  foods  and  medicines,  to  travel, 

1  Taken  by  permission  from  H.  J.  Davenport,  Economics  of  Enterprise, 
pp.  21-28.     (The  Macmillan  Co.,  1913.) 


312 


INDUSTRIAL  SOCIETY 


to  employ  good  nursing,  and  to  command  capable  physicians  and 
efficient  surgeons.  And,  in  their  degree,  also,  love  and  pity  and 
respect  and  place  are  bought  and  sold  upon  the  market.  ,  It  takes 
a  goodly  number  of  dollars  to  get  a  child  safely  born,  and  even 
more  dollars  to  achieve  for  one's  self  a  respectable  burial.  Much 
money  is  power  over  many  things.  Money  is  the  standard  of  value 
in  the  sense  that  all  values  of  all  exchangeable  things  are  expressed 
in  terms  of  it.  And  this  holds,  not  only  of  all  commodities  and 
services,  but  of  all  incomes  and  of  all  capitals.  The  capital  of  a 
banking  house,  or  a  factory,  or  a  railroad  company  is  not  a  congeries 
of  tangible  things,  but  a  pecuniary  magnitude — so  many  dollars. 
All  economic  comparisons  are  made  in  money  terms,  not  in  terms 
of  subsistence  or  of  beauty  or  of  artistic  merit  or  of  moral  deserving. 
This  same  standard  tends  to  become  also  the  test  and  measure  of 
human  achievement.  Men  engage  in  business,  not  solely  to  earn 
a  livelihood,  but  to  win  a  fortune  in  a  pecuniary  sense.  To  win  by 
this  money  test  is  to  certify  one's  self  tangibly  and  demonstrably  as 
having  scored  in  the  most  widespread  and  absorbing  of  competitions. 
Is  one  a  great  artist — what  do  his  pictures  sell  for  ?  Or  what  is  the 
income  of  this  leading  advocate  ?  or  of  that  famous  singer  ?  How 
great  are  the  author's  royalties?  The  pecuniary  standard  tends 
to  be  carried  over  into  non-pecuniary  fields. 

It  is  almost  past  belief  how  far  both  in  degree  and  in  direction 
money  valuations  pervade  all  our  thinking.  Cheapness  is  prone  to 
be  synonymous  with  ugliness,  richness  with  beauty,  elegance  with 
expensiveness.  No  one  can  tell  for  himself  where  the  really 
aesthetic  begins  and  the  sheer  pecuniary  ends,  In  the  field  of 
morals,  also,  the  so-called  cash-register  conscience  is  an  actual 
thing.  And  one  might  go  still  further  and  note  that  almost  all 
great  political  issues,  and  almost  all  absorbing  social  problems,  and 
almost  all  international  complications  rest  upon  a  pecuniary  basis. 
Our  national  problems  are  tariff,  labor  unions,  strikes,  money, 
trusts,  banking,  currency,  railroads,  conservation  of  resources, 
shipping,  taxation.  Success  in  elections,  in  the  selection  of  senators, 
in  the  making  of  laws,  and  in  the  selection  of  judges  is  prone  to  be 
desired  for  financial  ends  and  to  be  decided  by  pecuniary  means. 
Diplomatic  complications  hinge  upon  trade  connections,  the  open 
door,  fisheries  and  sealeries,  colonies  for  markets,  and  spheres  of 
influence  for  trade.  Navies  are  trade  guardians  and  trade  auxili- 
aries.    Eliminate  from  local  politics  the  influence  of  the  public- 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        313 

service  corporation,  of  the  contractor,  and  of  the  seekers  for  special 
pecuniary  privileges,  and  what  is  left  of  the  municipal  problem  will 
be  mostly  the  pecuniary  nexus  of  the  slum  with  the  ballot  box,  of 
the  saloon  with  the  police  system,  and  of  saloon  and  slum  and 
brothel  with  the  city  hall. 

It  is,  in  fact,  the  value  problem — or  more  specifically  and  more 
accurately  for  present  society  the  problem  of  market  price — that  is 
the  central  and  unifying  problem  of  present-day  economics.  Price, 
then,  must  attend  and  characterize  all  things  that  are  economic; 
and  all  things  so  attended  are  so  far  economic  in  character^  And 
more  things  than  those  which  accurately  are  material  must  fall 
within  the  scope  of  price.  Price  extends  its  sway  to  the  utmost 
limits  of  whatever  is  property,  tangible  or  intangible — whether 
material  or  immaterial.  Property  covers — and  therefore  price 
covers — debts,  good  will,  franchises — everything  that  is  bought  or 
sold.  Price  includes  also  many  non-property  facts — human  serv- 
ices, such  as  the  goods  for  which  payment  is  made  to  the  actor, 
preacher,  teacher,  or  singer.  In  the  fact  that  anything  sells  at  all 
in  the  present  economic  order  is  implied  its  sale  in  terms  of  price. 
Wages,  for  example,  are  the  price  of  the  services  of  employed  labor; 
profit,  the  price-reward  of  the  independent,  self-employed  laborer 
(the  entrepreneur,  enterpriser,  Unternehmer,  or  imprenditor);  rent, 
the  price  commanded  by  property  lent  in  time  for  hire;  interest,  the 
per  cent  which  the  time-use  of  wealth,  in  terms  of  price,  bears  to  the 
total  price.  Each  of  these  is  a  price  quantity  or  item,  and  each 
presents  itself  specifically  as  a  problem  of  price  adjustment. 


See  also  88.     The  Meaning  of  Exchange. 

114.    THE  SHORTCOMINGS  OF  BARTER1 

The  first  difficulty  in  barter  is  to  find  two  persons  whose  disposable 
possessions  mutually  suit  each  other's  wants.  There  may  be  many 
people  wanting,  and  many  possessing  those  things  wanted;  but  to 
allow  of  an  act  of  barter,  there  must  be  double  coincidence,  which 
will  rarely  happen.  A  hunter  having  returned  from  a  successful 
chase  has  plenty  of  game,  and  may  want  arms  and  ammunition  to 
renew  the  chase.  But  those  who  have  arms  may  happen  to  be  well 
supplied  with  game,  so  that  no  direct  exchange  is  possible.     Sellers 

1  Adapted  by  permission  from  W.  S.  Jevons,  Money  and  the  Mechanism  of 
Exchange,  pp.  3-6.     (D.  Appleton  &  Co.,  1898.) 


3 14  INDUSTRIAL  SOCIETY 

and  purchasers  can  only  be  made  to  fit  by  the  use  of  some  commod- 
ity which  all  are  willing  to  receive  for  a  time,  so  that  what  is  obtained 
by  sale  in  one  case,  may  be  used  in  purchase  in  another.  This  com- 
mon commodity  is  called  a  medium  of  exchange,  because  it  forms  a 
third  or  intermediate  term  in  all  acts  of  commerce. 

A  second  difficulty  arises  in  barter.  At  what  rate  is  any  exchange 
to  be  made?  If  a  certain  quantity  of  beef  be  given  for  a  certain 
quantity  of  corn,  and  in  like  manner  corn  be  exchanged  for  cheese,  and 
cheese  for  eggs,  and  eggs  for  flax,  and  so  on,  still  the  question  will 
arise— How  much  beef  for  how  much  flax,  or  how  much  of  any  one 
commodity  for  a  given  quantity  of  another  ?  In  a  state  of  barter  the 
price-current  list  would  be  a  most  complicated  document,  for  each  com- 
modity would  have  to  be  quoted  in  terms  of  every  other  commodity 
or  else  complicated  rule-of-three  sums  would  become  necessary. 
Between  one  hundred  articles  there  must  exist  no  less  than  4,950 
possible  ratios  of  exchange,  and  all  these  ratios  must  be  carefully 
adjusted  so  as  to  be  consistent  with  each  other,  else  the  acute  trader 
will  be  able  to  profit  by  buying  from  some  and  selling  to  others. 

All  such  trouble  is  avoided  if  any  one  commodity  be  chosen  and 
its  ratio  of  exchange  with  each  other  commodity  be  quoted.  Know- 
ing how  much  corn  is  to  be  bought  for  a  pound  of  silver,  and  also  how 
much  flax  for  the  same  quantity  of  silver,  we  learn  without  further 
trouble  how  much  corn  exchanges  for  so  much  flax.  The  chosen 
commodity  becomes  a  common  denominator  or  common  measure  of 
value,  in  terms  of  which  we  estimate  the  values  of  all  other  goods,  so 
that  their  values  become  capable  of  the  most  easy  comparison. 

A  third,  but  it  may  be  a  minor,  inconvenience  of  barter  arises  from 
the  impossibility  of  dividing  many  kinds  of  goods.  A  store  of  corn, 
a  bag  of  gold  dust,  a  carcass  of  meat,  may  be  portioned  out,  and  more 
or  less  may  be  given  in  exchange  for  what  is  wanted.  But  the  tailor, 
as  we  are  reminded  in  several  treatises  on  political  economy,  may  have 
a  coat  ready  to  exchange,  but  it  much  exceeds  in  value  the  bread 
which  he  wishes  to  get  from  the  baker  or  the  meat  from  the  butcher. 
He  cannot  cut  the  coat  up  without  destroying  the  value  of  his  handi- 
work. It  is  obvious  that  he  needs  some  medium  of  exchange  into 
which  he  can  temporarily  convert  the  coat,  so  that  he  may  give  a  part 
of  its  value  for  bread,  and  other  parts  for  meat,  fuel,  and  daily  neces- 
saries, retaining  perhaps  a  portion  for  future  use.  Further  illustra- 
tion is  needless;  for  it  is  obvious  that  we  need  a  means  of  dividing  and 
distributing  value  according  to  our  varying  requirements. 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        315 

115.    THE  EXCHANGE  FUNCTIONS  OF  MONEY1 

Money  performs  two  distinct  functions  of  high  importance,  acting 
as  (1)  a  medium  of  exchange,  (2)  a  common  measure  of  value. 

In  its  first  form  money  is  simply  any  commodity  esteemed  by  all 
persons — any  article  of  food,  clothing,  or  ornament  which  any  person 
will  readily  receive,  and  which,  therefore,  every  person  desires  to  have 
by  him  in  greater  or  less  quantity,  in  order  that  he  may  have  the 
means  of  procuring  necessaries  of  life  at  any  time.  Although  many 
commodities  may  be  capable  of  performing  this  function  of  a  medium 
more  or  less  perfectly,  some  one  article  will  usually  be  selected,  as 
money  par  excellence,  by  custom  or  the  force  of  circumstances.  This 
article  will  then  begin  to  be  used  as  a  measure  of  value.  Being 
accustomed  to  exchange  things  frequently  for  sums  of  money,  people 
learn  the  value  of  other  articles  in  terms  of  money,  so  that  all 
exchanges  will  most  readily  be  calculated  and  adjusted  by  comparison 
of  the  money  values  of  the  things  exchanged. 

A  third  function  of  money  soon  develops  itself.  Commerce  cannot 
advance  far  before  people  begin  to  borrow  and  lend,  and  debts  of 
various  origin  are  contracted.  It  is  in  some  cases  usual,  indeed,  to 
restore  the  very  same  article  which  was  borrowed,  and  in  almost  every 
case  it  would  be  possible  to  pay  back  in  the  same  kind  of  commodity. 
If  corn  be  borrowed,  corn  might  be  pard  back,  with  interest  in  corn; 
but  the  lender  will  often  not  wish  to  have  things  returned  to  him  at  an 
uncertain  time,  when  he  does  not  much  need  them,  or  when  their 
value  is  unusually  low.  A  borrower,  too,  may  need  several  different 
kinds  of  articles,  which  he  is  not  likely  to  obtain  from  one  person; 
hence  arises  the  convenience  of  borrowing  and  lending  in  one  generally 
recognized  commodity,  of  which  the  value  varies  little.  Every  person 
making  a  contract  by  which  he  will  receive  something  at  a  future  day 
will  prefer  to  secure  the  receipt  of  a  commodity  likely  to  be  as  valu- 
able then  as  now.  This  commodity  will  usually  be  the  current  money, 
and  it  will  thus  come  to  perform  the  function  of  a  standard  of  value. 
We  must  not  suppose  that  the  substance  serving  as  a  standard  of 
value  is  really  invariable  in  value,  but  merely  that  it  is  chosen  as  that 
measure  by  which  the  value  of  future  payments  is  to  be  regulated. 

It  is  worthy  of  inquiry  whether  money  does  not  also  serve  a  fourth 
distinct  purpose — that  of  embodying  value  in  a  convenient  form  for 
conveyance  to  distant  places. 

1  Adapted  by  permission  from  W.  S.  Jevons,  Money  and  the  Mechanism  of 
Exchange,  pp.  13-17.     (D.  Appleton  &  Co.,  1898.) 


3i6  INDUSTRIAL  SOCIETY 

It  is  in  the  highest  degree  important  that  the  reader  should  dis- 
criminate carefully  and  constantly  between  the  four  functions  which 
money  fulfils,  at  least  in  modern  societies.  We  are  so  accustomed  to 
use  the  one  same  substance  in  all  the  four  different  ways  that  they 
tend  to  become  confused  together  in  thought.  There  is  evident  con- 
venience in  selecting,  if  possible,  one  single  substance  which  can  serve 
all  the  functions  of  money.  It  will  save  trouble  if  we  can  pay  in 
the  same  money  in  which  the  prices  of  things  are  calculated. 

116.    THE  ROLE  OF  MONEY  IN  ECONOMIC  ORGANIZATION1 

The  institution  of  money  is  inseparably  linked  with  the  whole  com- 
plex of  our  social  arrangements.  Its  part  in  facilitating  market 
operations  is  so  direct  and  evident  that  it  is  generally  conceived 
of  as  a  mere  medium  of  established  exchanges  or  a  mere  measure 
of  predetermined  values.  Yet  a  little  reflection  shows  that  it 
permeates  every  aspect  of  economic  life,  conditions  all  economic 
activity,  and  brings  to  all  things  economic  mutual  commensur- 
ability. 

i.  It  facilitates  economic  calculation. — In  an  isolated  agrarian 
community,  composed  of  people  possessing  limited  resources  and 
loving  the  "simple  life,"  few  commodities  will  be  produced.  Crudely 
measuring  costs  against  returns,  and  goods  against  goods,  the  people 
will  not  formulate  with  any  exactness  a  unit  in  terms  of  which  values 
can  be  gauged.  Such  crudeness  in  calculation  will  find  its  counter- 
part in  an  economic  order  wherein  the  family  is  the  economic  unit, 
where  there  is  little  division  of  labor,  where  natural  resources  and 
personal  talents1  are  little  developed,  and  where  production  and  con- 
sumption are  interdependent.  But  if  resources  and  talents  are  to 
be  developed,  if  goods  are  to  be  produced  to  satisfy  a  larger  range  of 
wants,  if  tasks  are  to  be  distributed  between  individuals  and  com- 
munities, and  if  these  are  to  be  organized  into  a  larger  and  more 
complex  whole,  a  rather  precise  instrument  for  the  calculation  of 
values  must  be  found.  And,  as  the  economic  entity  becomes  larger, 
its  uses  of  resources  more  intensive,  its  products  more  varied,  and  its 
agencies  more  interdependent,  values  must  be  calculated  with  more 
and  more  precision. 

Adapted  by  permission  from  W.  H.  Hamilton,  "The  Role  of  Money  in 
Economic  Organization,"  in  Moulton's  Money  and  Banking,  Part  I,  pp.  39-44. 
(The  University  of  Chicago  Press,  1916.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        317 

2.  It  encourages  rational  economic  judgment. — If  one's  economic 
world  contains  but  a  handful  of  tasks  and  goods,  he  can,  quite  ration- 
ally and  without  complex  calculations,  choose  this  rather  than  that. 
But  in  a  world  in  which  his  judgment  is  confronted  at  every  point  by  a 
number  of  alternatives,  and  every  activity  has  pecuniary  connections 
with  a  large  number  of  others,  a  decision  is  fraught  with  difficulties. 
To  be  rationally  compared  the  alternatives  must  be  reduced  to  quanti- 
tative terms.  Since  their  differences  are  likely  to  be  small,  the 
determination  of  their  values  requires  precision.  Salvation  is  to  be 
found  in  the  "magic  ritual  of  calculation"  based  upon  the  "pecuniary 
unit."  The  presence  of  such  a  unit,  further,  encourages  the  develop- 
ing of  the  "calculating  mind,"  which  the  mediaeval  man  would  have 
regarded  as  an  intellectual  curiosity  but  which  the  modern  business 
man  esteems  a  priceless  treasure.  It  also  stimulates  the  develop- 
ment and  use  of  more  exact  accounting  systems  and  the  exclusion  from 
economic  judgments  of  non-pecuniary  considerations. 

3 .  77  permits  the  organization  of  consumption. — Where  an  individual 
or  a  group  consumes  its  own  products,  it  is  a  slave  to  its  limited 
resources  and  its  technical  limitations.  But  under  an  organized 
pecuniary  system  this  thraldom  is  broken.  Individual  or  group, 
no  longer  compelled  to  satisfy  all  its  wants,  can  choose  the  tasks  which 
resources  or  technical  efficiency  suggest  as  most  advantageous.  For 
his  labor  the  individual  receives,  not  the  wheat  or  the  pig  iron  or  the 
shoes  which  he  has  produced,  but  "generalized  purchasing  power." 
For  his  consumption  he  chooses  freely,  spending  his  purchasing 
power  upon  a  large  number  of  goods,  quite  oblivious  to  his  lack 
of  technical  versatility.  For  him  consumption  is  thus  differentiated 
from  production  and  organized  upon  the  basis  of  a  rational  calculus. 
Since  other  individuals  are  acting  likewise,  the  consumption  of  wealth 
by  society  is  elaborated  into  a  highly  complex  system. 

4.  It  permits  the  organization  of  production. — In  an  economic  order 
without  the  division  of  labor,  the  "pecuniary  unit"  is  unnecessary 
to  the  organization  of  production;  but  where  specialization  appears  it 
is  far  otherwise.  The  single  establishment  uses  divers  kinds  of 
laborers,  a  medley  of  raw  materials,  and  quite  varied  industrial 
equipment.  The  costs  of  these  and  their  proportions  must  be 
accurately  gauged.  Likewise  the  "production  system"  is  a  co- 
ordinated collection  of  specialized  establishments  that  defies  diagram- 
matic presentation.  The  individual  establishment  receives  its  "raw 
materials"  from  many  sources;  its  finished  products  become  the  raw 


318  INDUSTRIAL  SOCIETY 

materials  of  many  goods.  The  correlation  of  business  with  business 
is  so  close  that  "margins,"  which  represent  allowances  for  "friction," 
are  very  small.  The  organization  and  maintenance  of  the  single 
establishment,  and  the  integration  of  these  into  a  properly  co-ordinated 
"productive  system,"  are  alike  dependent  upon  careful  calculation 
and  accurate  pecuniary  judgment,  the  basis  of  which  is  the  "pecuniary 
unit." 

5.  //  articulates  productive  and  consumptive  activities  into  an 
organic  system. — The  pecuniary  unit  enables  adjustment  to  be  made 
with  sufficient  precision.  It  enables  each  good  and  the  satisfaction 
of  each  want  to  have  placed  upon  it  a  "price"  or  a  quantitative 
expression  of  its  value  in  terms  of  the  pecuniary  unit.  Price  is  a 
flexible  medium  through  which  demand  and  supply  are  adjusted  to 
each  other.  As  we  have  learned  elsewhere,  an  increase  in  demand 
raises  the  price  and  stimulates  increased  production,  and  an  increase 
in  supply  lowers  price  and  discourages  production;  while  decreases  in 
demand  and  supply  have  antithetical  effects.  Thus  the  pecuniary 
unit,  through  "price,"  brings  the  demand  and  supply  of  a  particular 
article  into  harmony.  But  as,  impelled  by  its  price,  the  demand  or 
supply  of  an  article  is  changed,  it  becomes  more  or  less  advantageous 
economically  to  produce  or  consume  other  articles.  Accordingly, 
through  price-changes,  the  demand  and  supply  of  other  articles  are 
affected.  They,  likewise,  in  the  end,  will  harmonize,  though  likely  at 
new  prices  and  in  changed  amounts.  Thus  the  demand  for  and 
supply  of  each  article  are  intimately  associated  through  price  with 
those  of  a  large  number  of  other  articles.  Hence  a  larger  view  reveals 
an  extremely  complex  and  intricately  organized  system  for  the  "pro- 
duction and  consumption  of  wealth,"  supported  by  a  vast  and  har- 
monious complex  of  pecuniary  values.  At  the  basis  of  this  intricate 
and  gigantic,  yet  orderly,  "price-structure"  lies  the  pecuniary  unit. 

6.  //  gives  stability  to  the  economic  order. — If  the  economic  order 
were  a  gigantic  mechanism,  composed  of  unchangeable  elements,  a 
static  price-structure  would  preserve  it.  But  the  elements  of  our 
system  are  quite  variable;  population  may  increase,  the  technical 
system  may  change,  industrial  equipment  may  be  augmented,  the 
nature  of  institutions  may  vary,  or  popular  caprice  may  affect  new 
wants.  Confronted  by  one  of  these  contingencies,  a  static  scheme 
of  prices  would  introduce  elements  of  disintegration  into  the  system. 
But  the  pecuniary  unit,  stable  itself,  allows  prices  to  change  in 
response  to  changed  circumstances.    Thus  it  induces  the  necessary 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        319 

adjustments  between  production  and  consumption  and  leaves  the 
price-structure  capable  of  sustaining  a  society  as  highly  integrated 
as  before.  ^ 

The  organizing  function  of  the  pecuniary  unit  is  not  confined  to  the 
present  economic  order.  The  pecuniary  unit  is  a  fit  companion  for 
such  institutions  as  private  property,  free  contract,  pecuniary  compe- 
tition, and  individual  initiative.  But  its  service  would  be  equally 
indispensable  in  a  society  quite  unlike  ours.  Under  socialism,  for 
instance,  even  though  the  state  took  the  initiative  in  production,  to 
guide  its  economic  judgment  it  would  require  a  means  for  determining 
the  quantities  in  which  its  varied  goods  were  to  be  produced.  This 
would  require  a  means  for  exact  valuation,  such  as  could  be  found 
only  in  a  proper  accounting  system,  for  which  the  pecuniary  unit 
must  furnish  the  basis.  Accordingly  we  may  conclude  that  the 
pecuniary  unit,  the  principal  manifestation  of  money,  is  an  agency 
of  prime  importance  in  establishing  and  maintaining  a  complex  eco- 
nomic order. 

117.    MONEY  AND  CAPITAL  ACCUMULATION1 

First,  calculations  on  the  basis  of  the  "pecuniary  unit"  are  neces- 
sary to  an  appreciation  of  future  values.  In  a  non-calculating  society 
few  future  values  will  stand  out.  There  is  no  way  of  measuring  values 
of  varying  degrees  of  futurity.  But  the  pecuniary  calculus  easily 
resolves  these.  Not  only  does  it  place  definite  values  upon  future 
goods,  but  it  estimates  with  considerable  accuracy  their  cost.  Because 
of  their  association  with  the  " roundabout"  method  of  production, 
the  latter  are  varied  and  numerous.  The  determination  of  their 
values  is  further  complicated  by  such  technical  facts  as  replacement, 
depreciation,  and  obsolescence.  Consequently  an  accurate  accounting 
system,  based  upon  a  precise  unit,  is  necessary  to  an  appraisal  of  the 
costs  and  values  of  future  goods. 

Second,  a  pecuniary  calculus  is  necessary  to  a  rational  comparison 

of  present  and  future  values.     Such  an  instrument  enables  future,  as 

well  as  present,  needs  to  be  translated  into  "prices,"  in  which  form 

both  can,  in  competition,  make  their  appeals  to  the  economic  motives 

of  man.    The  whole  aggregate  of  uses,  present  and  future,  to  which 

goods  can  be  put  is  reduced  to  an  intelligible  scheme.     Thus  rational 

thought  can  be  taken  both  for  today  and  for  tomorrow. 

1  Taken  by  permission  from  W.  H.  Hamilton,  "Money  and  Capital  Accu- 
mulation," in  Moulton's  Money  and  Banking,  Part  I,  pp.  32-34.  (The  University 
of  Chicago  Press,  19 16.) 


3*0 


INDUSTRIAL  SOCIETY 


Third,  accumulation  and  production  of  capital  goods  are  organ- 
ized, as  aggregates,  into  a  comprehensive  system.  Under  a  non- 
exchange  system  many,  lacking  means,  will  wish  to  invest;  others, 
having  means,  will  lack  opportunity  for  investment.  But  the  system 
provides  no  instrument  for  bringing  accumulations  and  opportunities 
together.  But  under  the  pecuniary  system  the  processes  of  saving  and 
technical  investment  are  separated.  The  uses  to  which  capital  can 
be  put  are  gathered  together  into  a  nicely  arranged  scheme.  Likewise, 
potential  savings  are  aggregated  into  a  similar  scheme.  Through 
competition  the  two  aggregates  are  brought  into  harmony  at  a  "price" 
or  a  "rate  of  interest." 

Fourth,  the  pecuniary  calculus  makes  possible  an  intricate  mecha- 
nism, which  brings  savings  and  investments  into  a  nicer  adjustment. 
There  is  created  a  complex  structure  of  savings  and  investment  banks, 
trust  and  mortgage  companies,  insurance  associations,  investment 
companies,  and  underwriting  syndicates,  which  together  bridge  the 
gulf  separating  the  two. 

In  these  several  ways  an  organization  of  society,  based  upon  the 
"pecuniary  unit,"  furnishes  both  the  incentives  and  the  means  for 
capital  formation. 

118.    QUALITIES  OF  A  SATISFACTORY  MONEY-METAL1 

To  decide  upon  the  best  material  for  money  is  a  problem  of  great 
complexity  because  we  must  take  into  account  at  once  the  relative 
importance  of  the  several  functions  of  money,  the  degree  in  which 
money  is  employed  for  each  function,  and  the  importance  of  each  of 
the  physical  cfuali ties  of  the  substance  with  respect  to  each  function. 
In  a  simple  state  of  industry  money  is  chiefly  required  to  pass  about 
between  buyers  and  sellers.  It  should,  then,  be  conveniently  port- 
able, divisible  into  pieces  of  various  sizes,  so  that  any  sum  may  readily 
be  made  up,  and  easily  distinguishable  by  its  appearance  or  by  the 
design  impressed  upon  it.  When  money,  however,  comes  to  serve, 
as  it  will  at  some  future  time,  almost  exclusively  as  a  measure  and 
standard  of  value,  the  system  of  exchange  being  one  of  perfected 
barter,  such  properties  become  a  matter  of  comparative  indifference, 
and  stability  of  value,  j.oined  perhaps  to  portability,  is  the  most 
important  quality. 

1  Adapted  by  permission  from  W.  S.  Jevons,  Money  and  the  Mechanism  of 
Exchange,  pp.  30-39.     (D.  Appleton  &  Co.,  1898.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        321 

1.  Utility  and  value. — Since  money  has  to  be  exchanged  for  valu- 
able goods,  it  should  itself  possess  value,  and  it  must  therefore  have 
utility  as  the  basis  of  value. 

In  order  that  money  may  perform  some  of  its  functions  efficiently, 
especially  those  of  a  medium  of  exchange  and  a  store  of  value  to  be 
carried  about,  it  is  important  that  it  should  be  made  of  a  substance 
valued  highly  in  all  parts  of  the  world,  and,  if  possible,  almost  equally 
esteemed  by  all  peoples. 

2.  Portability. — The  material  of  money  must  not  only  be  valu- 
able, but  the  value  must  be  so  related  to  the  weight  and  bulk  of  the 
material  that  the  money  shall  not  be  inconveniently  heavy  on  the 
one  hand,  nor  inconveniently  minute  on  the  other.  The  portability 
of  money  is  an  important  quality,  not  merely  because  it  enables  the 
owner  to  carry  small  sums  in  the  pocket  without  trouble,  but  because 
large  sums  can  be  transferred  from  place  to  place,  or  from  continent 
to  continent,  at  little  cost.  The  result  is  to  secure  an  approximate 
uniformity  in  the  value  of  money  in  all  parts  of  the  world.  A  sub- 
stance which  is  very  heavy  and  bulky  in  proportion  to  value,  like 
corn  or  coal,  may  be  very  scarce  in  one  place  and  overabundant  in 
another;  yet  the  supply  and  demand  cannot  be  equalized  without 
great  expense  in  carriage.  Substances  may  be  too  valuable  as  well 
as  too  cheap,  so  that  for  ordinary  transactions  it  would  be  necessary 
to  call  in  the  aid  of  the  microscope  and  the  chemical  balance.  Dia- 
monds, apart  from  other  objections,  would  be  far  too  valuable  for 
small  transactions. 

3.  Indestructibility. — If  it  is  to  be  passed  about  in  trade,  and 
kept  in  reserve,  money  must  not  be  subject  to  easy  deterioration  or 
loss.  It  must  not  evaporate  like  alcohol,  not  putrefy  like  animal 
substances,  nor  decay  like  wood,  nor  rust  like  iron.  Destructible 
articles,  such  as  eggs,  dried  codfish,  cattle,  or  oil,  have  certainly  been 
used  as  currency;  but  what  is  treated  as  money  one  day  must  soon 
afterward  be  eaten  up.  Thus  a  large  stock  of  such  perishable  com- 
modities cannot  be  kept  on  hand,  and  their  value  must  be  very 
variable.  The  several  kinds  of  corn  are  less  subject  to  this  objection, 
since,  when  well  dried  at  first,  they  suffer  no  appreciable  deterioration 
for  several  years. 

4.  Homogeneity. — All  portions  of  specimens  of  the  substance 
used  as  money  should  be  homogeneous,  that  is,  of  the  same  quality, 
so  that  equal  weights  will  have  exactly  the  same  value.  In  order 
that  we  may  correctly  count  in  terms  of  any  unit,  the  units  must  be 


322 


INDUSTRIAL  SOCIETY 


equal  and  similar,  so  that  twice  two  will  always  make  four.  If  we 
were  to  count  in  precious  stones,  it  would  seldom  happen  that  four 
stones  would  be  just  twice  as  valuable  as  two  stones.  Even  the 
precious  metals,  as  found  in  the  native  state,  are  not  perfectly  homo- 
geneous, being  mixed  together  in  almost  all  proportions;  but  this 
produces  little  inconvenience,  because  the  assayer  readily  determines 
the  quantity  of  each  pure  metal  present  in  any  ingot.  In  the  pro- 
cesses of  refining  and  coining,  the  metals  are  afterward  reduced  to 
almost  exactly  uniform  degrees  of  fineness,  so  that  equal  weights  are 
then  of  exactly  equal  value. 

5.  Divisibility. — Closely  connected  with  the  last  property  is  that 
of  divisibility.  Every  material  is,  indeed,  mechanically  divisible, 
almost  without  limit.  The  hardest  gems  can  be  broken,  and  steel 
can  be  cut  by  harder  steel.  But  the  material  of  money  should  be 
not  merely  capable  of  division,  but  the  aggregate  value  of  the  mass 
after  division  should  be  almost  exactly  the  same  as  before  division. 
If  we  cut  up  a  skin  or  fur  the  pieces  will,  as  a  general  rule,  be  far 
less  valuable  than  the  whole  skin  or  fur,  except  for  a  special  intended 
purpose;  and  the  same  is  the  case  with  timber,  stone,  and  most  other 
materials  in  which  reunion  is  impossible. 

6.  Stability  of  value.— -It  is  evidently  desirable  that  the  currency 
should  not  be  subject  to  fluctuations  of  value.  The  ratios  in  which 
money  exchanges  for  other  commodities  should  be  maintained  as 
nearly  as  possible  invariable  on  the  average.  This  would  be  a 
matter  of  comparatively  minor  importance  were  money  used  only 
as  a  measure  of  values  at  any  one  moment,  and  as  a  medium  of 
exchange.  If  all  prices  were  altered  in  like  proportion  as  soon  as 
money  varied  in  value,  no  one  would  lose  or  gain,  except  as  regards 
the  coin  which  he  happened  to  have  in  his  pocket,  safe,  or  bank 
balance.  But,  practically '  speaking,  as  we  have  seen,  people  do 
employ  money  as  a  standard  of  values  for  long  contracts:  and  they 
often  maintain  payments  at  the  same  invariable  rate,  by  custom  or 
law,  even  when  the  real  value  of  the  payment  is  much  altered. 
Hence  every  change  in  the  value  of  money  does  some  injury  to 
society. 

7.  Cognizability. — By  this  name  we  may  denote  the  capability 
of  a  substance  for  being  easily  recognized  and  distinguished  from  all 
other  substances.  As  a  medium  of  exchange,  money  has  to  be  con- 
tinually handed  about,  and  it  will  occasion  great  trouble  if  every 
person  receiving  currency  has  to  scrutinize,   weigh,  and   test  it. 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        323 

Under  cognizability  we  may  properly  include  what  has  been  aptly 
called  impressibility,  namely,  the  capability  of  a  substance  to  receive 
such  an  impression,  seal,  or  design  as  shall  establish  its  character 
as  current  money  of  certain  value.  We  might  more  simply  say  that 
the  material  of  money  should  be  coinable,  so  that  a  portion,  being  once 
issued  according  to  proper  regulations  with  the  impress  of  the  state, 
may  be  known  to  all  as  good  and  legal  currency,  equal  in  weight, 
size,  and  value  to  all  similarly  marked  currency. 

119.    A  TYPICAL  MONETARY  SYSTEM1 

In  the  beginnings  of  money-exchange,  the  money  used  was  little 
more  than  official  ingots  of  one  or  more  precious  metals.  But  with 
the  evolution  of  an  elaborate  commercial  order,  the  primitive  money 
has  developed  into  a  complicated  system  consisting  of  several  differ- 
ent kinds  of  money  each  adapted  to  a  special  sort  of  work,  but  all 
embodying  a  common  unit  and  based  upon  a  common  standard. 

The  first  thing  to  be  noted  in  such  a  monetary  system  is  the 
unit  or  principal  denomination  and  the  subordinate  denominations 
related  to  the  unit  as  multiples -or  fractional  parts  thereof.  In  our 
system,  the  unit  is  a  dollar;  subordinate  denominations  are  the  cent, 
dime,  half-eagle,  eagle,  and  double  eagle.  In  Great  Britain,  the  unit 
is  a  pound  or  sovereign;  in  France,  a  franc;  in  Germany,  a  mark; 
in  Russia,  a  rouble;  and  so  on. 

Next  after  the  different  denominations  of  a  monetary  system 
comes  the  standard,  which  is  properly  defined  as  that  which  fixes  the 
value  of  the  unit.  In  the  United  States,  the  ultimate  standard  is  a 
lump  of  gold  weighing  23 .  22  grains  pure  or  25 . 8  grains  when  alloyed. 
Whatever  value  such  a  lump  of  gold  has,  the  dollar  also  has.  If  the 
value  of  the  lump  goes  up,  so  also  does  that  of  the  dollar.  The  rela- 
tion of  the  monetary  standard  to  the  system  is  closely  analogous  to 
that  of  the  standard  of  liquid  measure  to  that  system.  That  is,  just 
as  8.33  pounds  of  pure  water  determines  what  shall  be  the  volume 
of  a  gallon  measure,  so  25.8  grains  of  gold  determines  what  shall 
be  the  value  of  a  dollar. 

The  monetary  stock — the  actual  money — consists  of  standard 
money  and  several  subordinate  moneys.  Standard  money  is  the  kind 
which  immediately  fixes  the  value  of  the  unit,  and  in  terms  of  which 
other  moneys  are  reckoned.     In  a  typical  modern  system,  its  most 

1  Taken  by  permission  from  F.  M.  Taylor,  Principles  of  Economics,  pp.  131-32. 
University  of  Michigan,  1916. 


324  INDUSTRIAL  SOCIETY 

distinctive  marks  are  the  legal  prerogatives  of  free  coinage  and  full 
tender  for  debts.  The  chief  subordinate  moneys  are,  in  our  system, 
legal-tender  treasury  notes,  bank  notes,  silver  dollars  and  their  cer- 
tificates, and  subsidiary  coin — fractional  silver,  nickels,  and  coppers. 

The  legal-tender  treasury  notes  are  a  quasi-standard  money,  i.e., 
they  do  more  or  less  fully  the  work  of  standard  money.  Without 
them  all  institutions  needing  to  keep  reserves  of  money  to  pay 
demand  obligations  would  have  to  keep  standard  money  for  this 
purpose.  As  it  is,  such  reserves  largely  consist  of  these  treasury 
notes  (in  England,  Bank  of  England  notes). 

Bank  notes,  silver  dollars,  silver  certificates,  and  subsidiary  coin 
constitute  the  major  part  of  the  ordinary  circulating  money,  the 
money  actually  directly  used  in  the  conduct  of  business.  Sub- 
sidiary coin  has  the  following  characteristics:  (i)  being  made  of 
metal  different  from  that  which  is  the  standard,  (2)  being  short  in 
weight,  (3)  having  its  coinage  limited,  (4)  having  its  legal  tender 
limited,  and  (5)  being  redeemable.  The  first  characteristic  is  neces- 
sary to  secure  convenience  in  size;  the  second,  to  keep  this  kind  "of 
coin  from  being  melted;  the  third,  to  keep  it  at  par;  the  fourth,  to 
hinder  it  from  displacing  the  standard  and  to  shut  out  forcing  excessive 
quantities  of  it  on  creditors;  and  the  fifth,  to  relieve  the  public  of  any 
excess,  as  also  still  further  to  insure  the  parity  of  this  kind  of  money. 

The  silver  dollar  is  more  or  less  of  an  anomaly  in  our  system, 
having  full  legal  tender  but  not  being  freely  coined.  In  effect,  it 
acts  as  a  subsidiary  coin  of  large  denomination. 

C.     Credit  and  Credit  Instruments 

120.    CREDIT  AND  ITS  FUNCTIONS 
A* 

1  It  is  often  stated  that  modern  industrial  society  is  a  credit  society, 
the  -implication  being  that  credit  is  the  most  significant  factor  in  the 
present-day  organization  of  industry  and  commerce.  "  Credit  is  the 
life-blood  of  commerce,"  "Credit  is  the  heart  and  core  of  the  modern 
business  structure,"  are  other  common  statements  emphasizing  the 
tremendous  importance  of  this  phenomenon  that  is  called  credit. 

While  credit  may  be  readily  enough  defined,  an  understanding  of 
its  real  nature  and  significance  is  not  so  easily  gained.     It  is  a  concept 

1  Adapted  by  permission  from  H.  G.  Moulton,  Principles  of  Banking,  pp.  12-13. 
(The  University  of  Chicago  Press,  19 17.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        325 

rather  than  a  visible  something;  or  perhaps  one  might  better  say  that 
it  is  incorporeal  rather  than  tangible.  It  is  therefore  an  elusive  phe- 
nomenon: "Now  you  see  it  and  now  you  don't  see  it."  At  any  rate, 
the  student  usually  has  at  first  no  little  difficulty  in  grasping  its  essen- 
tial nature.  In  particular,  credit  is  very  often  confused  with  the 
instruments  of  credit.  One  can  see  a  check  or  a  promissory  note,  and 
such  instruments  are  therefore  likely  to  appear  as  the  very  essence 
of  credit.  They  are,  however,  merely  evidences  of  the  antecedent 
credit  process  or  transaction  and  as  such  are  quite  irrelevant  to  credit 
itself. 

The  subject  may  best  be  understood  through  a  study  of  the  reasons 
for  giving  and  receiving  credit  and  an  analysis  of  the  many  ways  in 
which  it  manifests  itself  in  our  everyday  business  activities.  It  will 
be  found  that,  whatever  the  particular  classification,  all  credit  opera- 
tions involve  at  bottom  a  common  principle;  though  there  has  been 
much  discussion  as  to  just  what  this  basis  of  credit  is — a  discussion, 
however,  which  appears  to  have  been  largely  due  to  a  loose  or  differ- 
ing use  of  words. 

But  while  the  granting  of  credit  always  involves  a  similar  sort 
of  analysis,  there  emerges,  in  the  use  of  the  funds  or  goods  borrowed 
on  credit,  a  sharp  differentiation,  one  that  is  fundamental  to  the  entire 
study  of  banking:  namely,  the  distinction  between  commercial  and 
investment  credit.  The  one  is  related  to  the  process  of  manufactur- 
ing and  marketing  consumers'  goods,  converting  raw  materials  into 
finished  products  in  the  hands  of  their  final  consumers;  the  other,  to 
the  creation  of  capital  goods,  machinery,  tools  and  equipment,  stores, 
factories,  railroads,  etc.  The  former  usually  gives  rise,  because  of 
the  very  nature  of  the  operations,  to  short-time  credit  instruments, 
notes,  drafts,  checks,  etc.;  the  latter  as  a  rule  to  long-time  credit 
instruments,  stocks,  bonds,  mortgages,  etc. 

B1 

The  fundamental  notion  in  credit,  as  the  name  implies,  is  trust 
or  confidence,  but  this  characteristic  obviously  needs  limitation;  for 
the  buyer  of  an  article  must  always  repose  some  confidence  in  the 
dealer  even  when  the  transaction  is  for  cash,  and  the  practical  rule 
is  caveat  emptor.  There  emerges  then  as  the  second  principal  charac- 
teristic the  idea  of  deferred  payment,  taking  payment  in  the  widest 

1  Adapted  by  permission  from  J.  S.  Nicholson,  "Credit,"  in  Palgrave's  Dic- 
tionary of  Political  Economy,  I,  451-52.     (The  Macmillan  Co.,  1910.) 


326  INDUSTRIAL  SOCIETY 

sense  of  the  term.  A  credit  transaction  involves  time  before  it  is 
completed;  that  is  to  say,  a  commodity,  or  the  use  of  a  commodity  for 
a  time,  or  some  kind  of  service  is  rendered  now,  whilst  the  reciprocal 
service  or  commodity  is  given  after  a  specified  interval. 

Much  controversy  has  taken  place  as  to  the  distinction  between 
capital,  in  the  sense  of  production  capital,  and  credit.  The  indi- 
vidual merchant  or  manufacturer  regards  his  credit  as  one  of  the 
principal  requisites  in  carrying  on  his  business.  A  manufacturer 
with  good  credit  can  at  once  expand  his  business  to  meet  a  growing 
demand,  whilst  his  inferior  in  mercantile  standing  must  proceed  more 
slowly.  It  thus  appears  that,  from  the  individual  point  of  view,  it 
is  naturally  regarded  as  giving  increased  productive  power,  .Then, 
as  so  often  happens  in  economics,  a  simple  summation  is  made  of  the 
advantages  of  individuals,  and  credit  comes  to  be  regarded  as  part 
of  the  national  (production)  capital  just  in  the  same  way  as  a  national 
protectionist  policy  is  fallaciously  constructed  from  considering  the 
gains  to  particular  protected  industries.  It  is  evident,  however,  that 
in  its  simplest  form,  so  far  as  production  is  concerned,  credit  cannot 
directly  increase  the  actual  means  of  production  which  are  poten- 
tially at  the  service  of  a  nation,  but  can  only  transfer  the  right  to 
use  these  means  from  one  member  of  the  community  to  another. 

But,  although  a  sharp  distinction  may  be  drawn  logically  between 
exchange  and  production,  it  is  obvious  that  in  a  modern  industrial 
society  exchange  is  practically  a  necessary  part  of  production.  For 
without  exchange,  division  of  labor,  which  is  fundamental  in  pro- 
duction, could  not  be  carried  out,  and  without  credit,  exchange  itself, 
in  the  present  state  of  society,  could  not  be  effected  sufficiently  for 
division  of  labor.  Accordingly,  so  far,  a  well-organized  system  of 
credit  may  be  regarded  as  one  of  the  productive  forces  of  industry. 

At  the  same  time,  hqwever,  it  seems  useful  to  retain  the  old  dis- 
tinction so  sharply  emphasized  by  Ricardo,  M'Culloch,  Mill,  etc., 
between  the  actual  material  (production)  capital  and  the  mere  trans- 
ference of  the  right  to  use  'that  capital.  If  this  is  done,  it  will  still 
be  open  to  the  economist  to  point  out  the  different  methods  by  which 
indirectly  credit  tends  to  increase  production  and  also  the  accumula- 
tion of  capital  (in  the  narrower  sense),  (i)  By  means  of  credit  capi- 
tal finds  its  way  into  the  hands  of  those  who  can  use  it  to  most 
advantage,  as  is  shown  in  the  increased  discount  of  bills  when  a 
trade  begins  to  flourish.  (2)  By  means  of  credit  also  the  amount  of 
national  capital  available  for  production  is  increased.    Those  whose 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        327 

savings  would  be  too  small  (e.g.,  the  working  classes)  if  used  alone, 
and  those  (e.g.,  the  professional  classes)  who  cannot  use  their  wealth 
in  material  production,  are  enabled  by  credit  institutions  and  all 
kinds  of  joint-stock  associations  to  add  to  the  means  of  production. 
Credit  is  evidently  essential  to  the  full  development  of  compe- 
tition, and  the  growth  of  credit  is  historically  one  of  the  most  marked 
characteristics  of  the  progress  of  society  from  status  to  contract. 
In  nearly  all  contracts  there  is  a  deferred  element  on  one  side  at 
least;  in  other  words  nearly  all  contracts  involve  credit,  and  thus 
again,  indirectly  at  least,  credit,  by  giving  play  to  freedom  of  con- 
tract and  competition,  increases  production. 

121.    THE  BASIS  OF  CREDIT1 

There  has  been  a  long-continued  discussion  over  the  basis  of 
credit  operations,  that  is,  the  reasons  why  credit  is  extended  by  one 
person  to  another.  One  party  to  the  controversy  has  stoutly  insisted 
that  confidence  is  the  basis  of  all  grants  of  credit;  that  if  one  did  not 
have  confidence  that  a  borrower  would  repay  a  loan  he  would  never 
think  of  making  the  loan,  unless  perchance  for  personal  or  philan- 
thropic reasons.  Others  have  held  that  property,  rather  than  con- 
fidence, is  the  basis  of  all  genuine  credit  transactions.  Without 
attempting  to  analyze  the  causes  for  this  apparent  difference  in  view, 
a  tabular  exhibit  of  the  points  usually  investigated  before  credit  is 
extended  by  up-to-date  business  concerns  will  show  that  while  con- 
fidence must  exist  before  a  loan  will  be  granted,  such  confidence  is 
based  in  part  on  the  borrower's  property  and  in  part  on  his  personal 
characteristics. 

The  customary  matters  investigated  may  be  grouped  in  two 
general  classes  as  follows: 

Pertaining  to  Character  of  Borrower 

a)  Record  for  honest  dealing  c)  Reputation  for  ability 

b)  Personal  habits  1.  Common  sense  and  shrewdness 

1.  Church  affiliations  2.  Age  and  general  experience 

2.  Gambling  and  drinking  tend-  3.  Success  in  this  line  of  business 
encies  4.  Success  in  other  lines  of  busi- 

3.  Political  ambitions  ness 

4.  Style  of  living;    wife's  social 
ambitions 

1  Taken  by  permission  from  H.  G.  Moulton,  Principles  of  Banking,  pp.  15-16. 
(The  University  of  Chicago  Press,  191 7.) 


328  INDUSTRIAL  SOCIETY 

Pertaining  to  Character  of  Business 

a)  Ratio  of  quick  assets  to  current  d)  Rate  of  turnover  of  stock 
liabilities  e)   Location  of  business,  and  char- 

b)  Amount  of  capital  invested  and  acter  of  competition 
proportion  owned  /)   Insurance  carried 

c)  Character  of  stock  of  goods 

It  will  be  apparent  that  these  points  are  not  entirely  unrelated. 
A  man  of  excellent  business  ability,  for  instance,  would  have  his 
business  properly  organized,  and  on  the  other  hand,  if  it  were  found 
that  a  business  was  poorly  equipped  and  managed,  it  would  be  cer- 
tain that  the  man's  business  experience  or  business  capacity  was 
strictly  limited.  Investigation  of  these  two  kinds,  however,  usually 
serves  to  furnish  a  more  adequate  basis  for  a  sound  judgment  of  the 
risks  involved.  Perhaps  one  may  conclude  from  this  analysis  that 
before  deciding  to  extend  credit  one  should  at  any  rate  have  confi- 
dence in  two  points:  (i)  in  the  ability  of  the  borrower  to  pay  as 
promised;  and  (2)  in  his  willingness  or  intention  to  pay.  One  is  a 
matter  of  property  and  business  ability;  the  other  a  question  of 
honesty  and  business  reliability. 

122.    THE  DEVELOPMENT  OF  FORMAL  CREDIT1 

From  the  point  of  view  of  credit,  industrial  development  may  be 
divided  into  five  stages.  Wheat-growing  may  be  taken  as  rudely 
typical  of  the  development: 

I.  In  the  first  stage  the  wheat-grower  is  practically  isolated  from 
the  rest  of  the  world,  thrown  entirely  on  his  own  resources.  Wheat 
does  not  satisfy  all  his  wants.  He  must,  therefore,  after  producing  a 
certain  amount  of  wheat,  shift  his  labor  to  the  production  of  other 
things.     Credit  has  no  place  in  such  an  economy. 

II.  In  the  second  stage  our  farmer  has  a  few  neighbors — a  black- 
smith, a  shoemaker,  a  tailor,  a  storekeeper,  a  school-teacher,  a  parson, 
and  the  editor  of  a  country  newspaper.  The  farmer  has  learned 
that  he  gets  a  greater  surplus  utility  by  producing  more  wheat  than 
he  needs  for  personal  uses,  and  bartering  this  excess  with  his 
various  neighbors  in  return  for  their  goods  and  services.  The  wheat- 
grower  has  now  taken  the  first  and  most  difficult  step  in  industrial 
civilization. 

1  Adapted  by  permission  from  Sidney  Sherwood,  "The  Nature  and  Mechanism 
of  Credit,"  Quarterly  Journal  of  Economics,  VIII  (1893-94),  156-67. 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        329 

III.  In  the  third  stage  regular  markets  for  wheat  and  other  goods 
have  become  established,  and  money  is  in  common  use.  Our  farmer 
sells  his  surplus  wheat  for  money,  and  afterwards  buys  the  desired 
goods  with  money.  There  is  no  essential  difference  between  this  case 
and  the  last.  Physically,  gold  coin  is  imperishable;  wheat  is  not. 
This  is  an  advantage.  Psychically,  gold  coin  is  a  claim  upon  all  men. 
No  one  in  the  market  will  refuse  it.  Money  is  generic,  not  specific. 
This  is  another  advantage.  The  bullion,  as  collateral,  is  much  better 
than  wheat.     This  is  still  another  advantage. 

IV.  In  the  fourth  stage  our  farmer  believes  that,  if  he  had  more 
capital,  so  as  to  enlarge  his  operations  yet  farther,  he  would  still 
gain.  His  neighbor,  also  a  wheat-grower,  now  getting  old  and  wish- 
ing to  retire  partially  from  active  business,  lends  him  $1,000  worth 
of  capital  in  return  for  our  farmer's  note,  payable  in  a  year.  There  is, 
furthermore,  at  the  nearest  village  a  grain-dealer  who  also  deals  in 
agricultural  supplies.  Our  farmer,  from  time  to  time,  buys  from  him 
various  articles  needed  "on  credit"  and  brings  him  wheat  from  time 
to  time,  for  which  he  receives  credit.  He  has  now  become  a  formal 
debtor  as  well  as  a  formal  creditor.  He  has  given  express,  definite, 
legally  enforceable  promises  to  other  men  to  pay  them  at  a  future  time 
certain  amounts  of  wheat  or  money.  These  credits,  book  credits  or 
promissory  notes,  I  call  "formal"  credits. 

He  will  be  able  to  borrow  so  long  as  he  proves  his  ability  to  pay 
more  for  the  use  of  capital  than  its  owners  will  gain  by  using  it  them- 
selves. Thus  the  "credit"  which  will  be  given  to  our  farmer  will 
depend  upon  his  industrial  worth  as  a  manager  of  capital,  and  thus 
the  capital  of  society  tends  to  get  into  the  hands  of  the  competent 
managers. 

V.  This  is  the  most  highly  developed  stage  of  industry,  with 
credit  organized  in  banks  and  banking  systems.  There  is  no  need 
to  describe  the  familiar  processes  of  banking.  In  the  further  speciali- 
zation of  industry. due  to  credit  a  special  class  of  dealers  in  credit 
instruments  themselves  has  grown  up. 

Credit,  to  attain  its  highest  usefulness,  must  be  capable  of  easy 
generalization.  This  is  accomplished  mainly  in  two  ways:  (1)  by 
expressing  credits  in  terms  of  money,  which  is  generic;  and  (2)  by  such 
an  organization  of  credit  instruments  and  credit  institutions  that  the 
owner  of  personal  industrial  capacity  may  readily  exchange  his  indi- 
vidual credit,  a  purely  specific  thing,  for  wider  credits.  The  banks  do 
this,  and  the  great  banking  systems  which  have  grown  up  in  the 


33d  INDUSTRIAL  SOCIETY 

present  century  carry  the  process  still  farther.  Our  national  bank- 
ing system  realizes  in  a  marked  degree  the  idea  of  universalizing 
individual  credit.  A  man  getting  his  note  discounted  by  a  national 
bank  has  at  his  disposal  a  credit  which  is  everywhere  accepted,  and 
this,  too,  with  a  remarkable  economy  of  gold  money  as  a  reserve. 

123.    THE  VARIOUS  KINDS  OF  CREDIT1 

The  divisions  of  credit  have  been  classified  as  follows:  Public 
Credit;  Capital  Credit;  Mercantile  Credit;  Individual  or  Personal 
Credit;   and  Banking  Credit. 

By  Public  Credit  is  meant  chiefly  the  borrowing  operations  of 
governments,  whether  national,  state,  or  local,  through  the  issue  of 
interest-bearing  securities.  The  government  promises  to  pay  interest 
on  a  bond  from  year  to  year  and  to  repay  the  principal  at  some  stated 
future  date.  The  purchaser  of  the  bond  accepts  the  government's 
promise  of  intention  to  pay  and  has  faith  in  its  ability  to  keep  that 
promise.  The  government  by  means  of  its  credit  is  therefore  able 
to  secure  funds  for  present  needs.  An  issue  of  paper  money  by  the 
government  is  another  example  of  a  credit  operation.  Even  without 
any  fund  for  redemption  purposes  an  issue  of  paper  money  will  not 
for  a  time  depreciate  to  worthlessness;  a  promise  of  ultimate  redemp- 
tion will  give  it  some  value  so  long  as  faith  in  the  word  of  the  govern- 
ment is  not  entirely  shattered.  At  any  rate,  a  partial  reserve  in 
coin,  as  in  the  case  of  our  greenbacks  at  present,  will  maintain  the 
value  of  paper  currency.  To  the  extent  of  the  uncovered  issue  we 
have  a  pure  credit  currency. 

By  Capital  Credit,  or  Industrial  Credit,  to  employ  another  term, 
is  meant  the  credit  used  by  corporations  in  procuring  the  necessary 
capital  required  in  their  business  operations.  The  corporation  agrees 
to  return  to  the  purchasers  of  its  bonds  at  some  future  date  the  equiva- 
lent of  the  funds  borrowed,  with  interest.  The  bondholder  thus 
extends  funds  to  the  corporation  because  he  believes  the  credit  of  the 
corporation  is  good.  The  purchaser  of  stock,  also,  trusts  his  funds  to 
the  managers  of  a  corporation,  and  it  is  understood  that  he  is  to 
receive  dividends  in  the  future  (if  earned)  and  ultimately,  if  the  busi- 
ness is  liquidated,  a  return  of  his  share  of  the  capital.  There  is  the 
obvious  difference  between  a  holder  of  stock  and  of  bonds  that  one  is 
an  owner  and  the  other  a  creditor,  that  the  returns  to  the  one  are 

1  Taken  by  permission  from  H.  G.  Moulton,  Principles  of  Banking,  pp.  16-21. 
(The  University  of  Chicago  Press,  1916.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        33 1 

wholly  contingent,  and  to  the  other  definite,  in  so  far  as  the  mortgage  is 
adequate.  But  credit,  through  the  entrusting  of  one's  funds  to  a 
third  party,  is  an  essential  element  in  both. 

Mercantile  Credit  is  the  credit  used  by  producers,  wholesalers, 
commission  merchants,  retailers,  etc.,  in  connection  with  the  manu- 
facture and  sale  of  commodities,  that  is,  with  the  movement  of  goods 
from  first  producer  to  ultimate  consumer.  For  instance,  a  manufac- 
turer who  buys  raw  materials  to  be  made  into  finished  commodities 
may  agree  to  pay  the  producer  of  the  raw  materials  only  after  he  has 
sold  his  product.  He  has  thus  been  "trusted"  by  the  producer; 
there  has  arisen  a  "  time  obligation,"  a  future  payment.  Or  the  manu- 
facturer may  at  once  pay  the  producer  with  cash,  procuring  the  cash 
by  a  loan  from  the  bank,  which  he  promises  to  repay  after  the  goods  are 
manufactured  and  sold.  In  this  case  he  has  used  his  credit  with  the 
bank  instead  of  with  the  producer  of  the  raw  materials;  but  it  is 
obvious  that  the  nature  of  the  operation  is  the  same.  A  wholesaler  or 
retailer  may  likewise  purchase  the  goods  he  wishes  to  sell,  on  time, 
or  on  funds  borrowed  from  a  bank,  as  the  case  may  be,  agreeing  to 
repay  the  loan  after  the  goods  are  sold. 

Mercantile  Credit  is  to  be  distinguished  from  Capital  or  Industrial 
Credit  by  the  character  of  the  business  which  employs  it  and  the 
nature  of  the  use  to  which  the  funds  are  put.  A  characteristic 
feature  of  Mercantile  Credit  is  that  it  usually  runs  for  a  short  time, 
whereas  Industrial  Credit  is  usually  extended  for  long  periods.  Mer- 
cantile Credit  is  represented  by  promissory  notes  and  bills  of  exchange 
rather  than  by  bonds  or  stock  certificates. 

Personal  or  Individual  Credit  obviously  takes  its  name  from  the 
fact  that  it  is  connected  with  individuals  rather  than  with  public 
or  private  corporations.  It  is  the  means  by  which  an  individual  may 
secure  goods  for  Consumption  purposes  without  an  immediate  pay- 
ment of  cash.  The  laborer  who  settles  his  bills  on  the  weekly  pay 
day,  the  salaried  man  who  pays  by  check  at  the  end  of  the  month, 
and  the  farmer  who  settles  his  account  at  the  village  store  when  he 
sells  his  crops  are  cases  in  point.  Personal  Credit  is  distinguished 
from  other  credit  in  part  by  the  character  of  the  security  furnished 
by  the  borrower  and  in  part  by  the  use  that  is  made  of  the  things 
borrowed.  The  basis  of  the  security  is  an  indirect  one,  consisting 
primarily,  not  of  actual  property  in  hand,  but  of  a  recognized  earning 
power  from  personal  or  professional  services.  The  things  borrowed 
are  generally  used  for  immediate  consumption  rather  than  for  further 


332  INDUSTRIAL  SOCIETY 

production.  Such  credit  is  therefore  often  called  "Consumption 
Credit."  It  is  also  sometimes  spoken  of  as  "Retail  Credit,"  because 
it  is  used  primarily  in  retail  transactions.  This,  however,  is  con- 
fusing, because  such  a  term  might  mean  the  credit  of  the  "retailer" 
himself. 

Personal  Credit  is  usually  extended  without  requiring  a  deposit 
of  collateral  as  security  and  even  without  a  written  promise  to  pay  in 
the  future.  A  promise  is,  however,  implied,  and  the  entry  on  the 
books  of  a  retail  store  is  the  evidence  of  the  credit  transaction. 
"Book  Credit"  is  a  name  commonly  used  in  this  connection;  but  this 
name  describes  not  so  much  the  character  of  the  credit  operation  as 
the  manner  of  "evidencing"  the  credit  transaction.  The  credit  on 
the  books  is  an  evidence  that  a  personal  credit  has  been  granted. 

The  fifth  form  of  credit  has  been  called  Banking  Credit.  As  is 
well  known,  banks  furnish  funds  to  borrowers  of  every  description; 
it  is  to  the  banks  that  one  in  need  of  credit  naturally  turns.  But  by 
Banking  Credit  is  not  meant  the  credit  extended  to  individuals,  cor- 
porations, merchants,  and  governments.  Such  forms  of  credit  fall 
within  the  classifications  given  above.  The  essence  of  Banking  Credit 
may  be  discovered  only  in  the  answer  to  the  question,  Where  do  the 
banks  procure  the  funds  which  they  loan  to  the  business  world? 
These  funds  are  procured  in  part  from  the  banks'  own  capital,  and 
in  part  from  the  funds  that  have  been  left  with  them  by  individual 
depositors;  but  in  the  main  it  is  through  the  use  of  their  own 
credit. 

A  bank  uses  its  own  credit  in  much  the  same  way  as  does  an 
individual.  A  man  who  is  responsible  morally,  who  has  a  reputation 
for  business  honesty  and  ability,  and  who  has  security  in  the  form  of 
commodities  that  enter  into  trade,  is  able  to  borrow  on  his  credit.  He 
uses  his  good  name  and  his  property  as  means  of  securing  funds  for 
immediate  use.  A  bank  likewise,  if  it  possesses  the  confidence  of  the 
community,  is  able  to  extend  its  business  by  means  of  its  credit.  The 
simplest  use  of  its  credit  is  found  in  the  entrusting  of  funds  by  deposi- 
tors with  the  bank — for  safe-keeping  or  use,  as  the  case  may  be. 
There  is  a  more  important  way,  however,  in  which  our  large  com- 
mercial banks  use  their  credit.  A  bank  with  $100,000  cash  on  hand  is 
able  by  means  of  its  credit  to  do  a  business  equal  to  five  or  six  times 
this  amount.  This  is  accomplished  through  borrowing  on  its  credit. 
Just  as  a  government  borrows  when  it  issues  paper  currency,  so  a  bank 
borrows  when  it  creates  obligations,  either  in  the  form  of  bank  notes 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        333 

or  deposit  accounts  against  which  checks  may  be  drawn.  The 
ordinary  commercial  bank  usually  owes  on  demand  several  times  the 
amount  of  its  cash.  A  bank  is  safe  in  thus  extending  its  obligations  so 
long  as  the  management  is  efficient  and  the  resources  other  than  cash 
are  ample.  There  are  some  special  problems  involved  in  the  use 
and  control  of  Bank  Credit,  but  in  essence  it  does  not  differ  from  the 
other  forms  of  credit  that  have  been  enumerated.  - 

Viewing  credit  apart  from  particular  groups  of  persons  or  organi- 
zations, such  as  governments,  corporations,  wholesalers  and  retailers, 
banks,  and  private  individuals,  two  distinct  types  of  credit  may  be 
distinguished,  namely,  commercial  and  investment  credit.  This  clas- 
sification is  of  the  foremost  importance  from  the  standpoint  of  eco- 
nomic analysis  and  a  clear  understanding  of  the  principles  underlying 
the  various  forms  of  banking  operations. 

Investment  credit  is  that  which  is  used  in  the  financing  and 
development  of  business  enterprises  such  as  railroads,  factories,  work- 
shops, stores,  farms,  and  mines.  The  funds  borrowed  are  invested 
in  fixed  or  durable  forms  of  capital  goods,  as  distinguished  from  con- 
sumptive goods.  In  consequence,  the  borrower  does  not  expect  to 
be  able  to  repay  the  loan  within  a  few  weeks  or  months;  rather,  he 
plans  to  pay  the  principal  of  the  loan  out  of  the  accumulated  earn- 
ings of  the  business  in  the  course  of  several  years.  The  lender, 
similarly,  regards  such  a  disposal  of  his  funds  as  permanent;  hence 
the  term  investment. 

Commercial  credit,  on  the  other  hand,  is  used  in  financing  the 
manufacture  and  marketing  of  goods,  and  it  has  to  do  only  with  con- 
sumptive goods.  It  is  only  another  name  for  the  mercantile  credit 
described  on  a  previous  page,  viewed  from  another  angle — that  of 
the  use  to  which  the  funds  borrowed  are  put.  Unlike  the  borrower 
of  investment  funds,  the  borrower  here  wishes  to  use  his  funds  only 
temporarily.  A  concrete  case  will  serve  to  illustrate  the  difference: 
A  borrows,  let  us  say,  $10,000  and  purchases  a  stock  of  goods  with  the 
money.  Two  months  later  he  sells  these  goods  for  $11,000,  or  at  a 
profit  of  10  per  cent.  The  goods  purchased  thus  furnish  the  direct 
means  of  liquidating  the  loan. '  The  borrower  for  investment  purposes, 
on  the  other  hand,  invests  the  $10,000  in  a  factory.  He  does  not  con- 
template selling  the  factory  within  a  few  weeks  or  months.  On  the 
contrary,  he  expects  to  use  the  factory  for  many  years  in  the  manu- 
facture of  commodities.  It  may  take  ten  years  or  more  before  the 
accumulated  profits  will  permit  the  repayment  of  the  principal  of  the 


334  INDUSTRIAL  SOCIETY 

loan.  The  latter  is  a  long-time  process,  requiring  years  for  fruition; 
the  former  a  short-time  operation,  carried  to  completion  in  a  few  weeks 
or  months.  It  is  by  means  of  the  former  that  industries  are  developed 
and  continued;  it  is  by  the  latter  that  the  manufacture  and  marketing 
of  goods  are  accomplished,  that  commodities  are  transferred  through 
purchase  and  sale  from  the  original  producer  to  the  hands  of  the 
ultimate  consumer. 

124.    TYPES  OF  COMMERCIAL  CREDIT  INSTRUMENTS1 

A  promissory  note  is  an  unconditional  written  promise  by  X  (the 
maker)  agreeing  to  pay,  either  on  demand  or  at  a  definite  future  date, 

A  PROMISSORY  NOTE 


f    S-i^t/./n/ 


Q£\r%{A~k 


f^g 


m*.  after  date  for  value  received  the  undersigned  promise  to  pay  to  the  order  of 

National  City  Bank  of  Chicago 


■?//!/ 


makers,  endorsers  and  guarantors  jointly  and  severally.    Any 
holder  hereof  to  the  undersigned  or  to  any  endorser  or  guarantor  may  be  appropriated  and  applied  by  sakt  bank 
or  legal  holder  on  this  note  at  any  time  either  before  or  after  maturity  of  this  note  and  without  t 
notice  to  any  one. 


a  sum  of  money  to  Y  (the  payee)  or  to  Y's  order  or  to  bearer.  It 
may  or  may  not  designate  the  place  at  which  payment  is  to  be  made. 
Promissory  notes  may  be  issued  by  institutions  and  governments  as 
well  as  by  individuals.  Bank  notes,  United  States  notes,  certificates 
of  deposit,  etc.,  are  forms  of  the  promissory  note. 

To  indorse  a  note  the  payee  writes  his  name  across  the  back  of  the 
instrument.  This  act  makes  the  payee,  like  the  maker,  responsible  for 
the  payment  of  the  note.  Notes  may  also  be  indorsed  by  third  parties, 
thereby  adding  to  the  number  of  those  "responsible  for  the  payment 
of  the  note.  Notes  which  show  only  one  person  responsible  for  the 
payment  are  called  single^name  paper.  Those  which  have  two  or 
more  signers  are  called  double-name  or  three-name  paper. 

1  Taken  by  permission  from  H.  G.  Moulton,  Principles  of  Banking,  pp.  32-35, 
(The  University  of  Chicago  Press,  1916.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION 


335 


A  bill  of  exchange  is  an  unconditional  written  order,  signed  by  X 
(the  person  giving  the  order — the  drawer),  ordering  Z  (the  drawee)  to 
pay,  either  on  demand  or  at  a  definite  future  date,  a  sum  of  money 


to  Y  (the  payee)  or  to  Y's  order  or  to  bearer.  The  drawee  may  indi- 
cate his  willingness .  to  honor  it  by  signing  his  name  to  the  word 
"accepted"  written  acrpss  the  face  of  the  bill. 


33^ 


INDUSTRIAL  SOCIETY 


Bills  of  exchange  are  of  two  kinds — foreign,  and  domestic  or  inland. 
A  foreign  bill  is  legally  defined  as  one  the  drawer  and  drawee  of  which 
live  in  different  countries  or  different  states,  while  a  domestic  bill  is 
one  both  parties  to  which  live  within  the  same  state.     Business 


A  FOREIGN  BILL  OF  EXCHANGE 


EXCHANGE  FOR 


#*- 


FIRST  OF  EXCHANGE 


custom,  however,  warrants  our  using  the  term  domestic  bill  for  all  bills 

when  both  parties  live  in  the  United  States,  regardless  of  state  lines. 

There  is  likely  to  be  some  confusion  as  to  when  to  use  the  term 

draft.    Draft  and  bill  of  exchange  are  often  used  interchangeably. 


CASHIER'S  CHECK 


.M'lATti  OF  Il.I-INOISi 


J^ll1!  TiiEXvnoxAL(»riT]JAMi()r()iii(A(;() 

^gSgpr  r.mr  ArtniTflkd^X.  JL  / /9/6  No.  <2  6<f 

l*AYTO  TIIK  OH1IKR  OF (sj^cJtsO^-^f  Ofcc^  „ _$.   S~&ZrO— 

•    '  J  )0IJiAR  JS 


c*-^«^{   Y^ 


For  instance,  we  speak  of  drafts  on  London  and  bills  of  exchange  on 
London,  and  we  say  New  York  exchange  and  drafts  on  New  York. 
In  the  business  world,  however,  there  is  a  growing  custom  of  using 
the  term  draft  when  speaking  of  domestic  transactions,  while  one  more 
frequently  hears  the  term  bill  of  exchange  in  connection  with  foreign 
transactions, 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        337 

Bills  of  exchange  may  be  classified  according  to  whether  or  not  the 
parties  to  the  order  are  bankers.  A  banker's  draft  is  an  order  drawn 
by  one  bank  and  payable  by  another.  It  is  not  necessary,  however, 
that  the  party  to  whom  it  is  payable  be  a  bank.  In  the  case  of 
individual  or  trade  bills  of  exchange  the  payee  may  be  the  drawer 
himself  as  well  as  a  third  party.  The  payee  may  also  be  a  bank.  The 
second  party,  the  drawee,  may  likewise  be  a  bank,  in  which  case  the 
bill  of  exchange  is  in  the  form  of  the  familiar  check  drawn  by  a  person 
against  his  deposit  account  in  a  bank. 

Bills  may  be  classified  according  to  whether  or  not  they  arise  out 
of  actual  commercial  transactions.  Hence  we  have  bankers'  or 
finance  bills,  trade  or  commercial  bills,  and  accommodation  bills. 

PERSONAL  BANK  CHECK 


D"»s,, 


CHICAGQ.1LL     ^*^-      /J        I9.j/      NO^<V 

TkPiroStNationalBankofEn^lewood2  -iw 

J€R  OF        J^^-     ^^ $Z^TZ_ 

^     ^^=~ : _ 


&*++46uJkL 


/jol Dollars 


LADIES   DEPARTMENT. 


Bankers'  bills  are  used  merely  as  a  means  of  making  payments  and 
transferring  balances  and  are  secured  by  the  reputation  of  the  bank 
that  draws  them.  A  commercial  bill  arises  out  of  an  actual  sale  of 
goods,  and  is  secured,  not  only  by  the  general  responsibility  of  the 
drawer,  but  also  by  the  goods  which  have  been  exchanged  for  the 
purpose  of  sale.  Accommodation  bills  are  bills  which  do  not  arise 
out  of  any  business  transaction  already  concluded,  though  there  may 
be  an  intention  to  purchase  goods  with  the  funds  procured. 

In  order  to  illustrate  the  use  of  these  instruments,  suppose  that  X 
has  bought  a  bill  of  goods  from  Y.  X  may  pay  in  one  of  several  ways : 
(1)  He  may  "pay  cash,"  and  this  may  be  in  bank  notes,  United  States 
notes,  gold  certificates,  etc.  (2)  He  may  give  Y  a  check  on  his  (X's) 
bank.  (3)  He  may  draw  and  deliver  a  bill  of  exchange  on  Z  payable 
to  Y  or  Y's  order.  In  such  a  case  Z  is  presumably  a  debtor  to  X. 
(4)  He  may  give  Y  a  promissory  note,    This  will  merely  defer  actual 


33  8  INDUSTRIAL  SOCIETY 

payment.  (5)  He  may  "  accept "  a  bill  of  exchange  which  Y  has  drawn 
upon  him.  This  also  merely  defers  actual  payment.  (6)  He  may 
transfer  to  Y  some  check  or  promissory  note  or  bill  of  exchange  which 
some  other  person  (say  V)  has  drawn  to  X's  order  or  to  bearer.  (7)  He 
may  buy  from  his  banker  a  banker's  draft  drawn  (on  some  other 
banker)  in  favor  of  Y.  (8)  He  may  buy  from  his  banker  a  cashier's 
check. 

125.    THE  INCREASING  USE  OF  COMMERCIAL  CREDIT 
INSTRUMENTS1 

1.  The  volume  of  business  that  can  be  done  by  credit  paper 
depends  on  several  circumstances.  Obviously,  in  the  first  place,  it 
depends  upon  the  banking  facilities  of  the  country.  If  the  banks  are 
widely  distributed,  if  they  are  willing  to  deal  in  transactions  small 
enough  to  be  within  the  reach  of  large  numbers  of  people,  many  more 
transactions  will  be  settled  through  them  than  would  otherwise  be  the 
case.  This  fact  undoubtedly  explains  in  large  measure  the  develop- 
ment of  what  may  be  called  the  " banking  habit"  among  the  people 
of  the  United  States.  Undoubtedly  our  people  pay  by  check  much 
more  commonly  and  much  more  largely  than  people  of  any  other 
country. 

In  the  next  place,  the  density  of  population  is,  of  course,  an  impor- 
tant factor  in  the  growth  of  credit  exchanges.  A  larger  volume  of 
business  is  settled  by  bank  paper  in  a  commercial  center  than  in  an 
agricultural  community,  even  though  the  proportion  of  total  business 
thus  settled  may  not  be  larger. 

Finally,  the  general  education  and  intelligence  of  the  mass  of  the 
people  is  an  important  factor.  Men  do  not  use  banks  unless  they  have 
confidence  in  them,  and  they  have  come  to  be  regarded  as  a  settled 
part  of  the  ordinary  commercial  mechanism  of  the  community. 

2.  It  is  very  clear  that  a  large  proportion  of  the  business  of  the 
country,  even  in  the  retail  trade,  is  done  by  means  of  credit  instru- 
ments. We  are  justified  in  concluding  that  50  or  60  per  cent  of  the 
retail  trade  of  the  country  is  settled  in  this  way.  Over  90  per  cent 
of  the  wholesale  trade  of  the  country  is  done  with  checks  and  other 
credit  documents.  We  may  therefore  safely  accept  an  average  of 
80  to  85  per  cent  as  the  probable  percentage  of  business  of  this  country 
transacted  by  check. 

1  Adapted  from  David  Kinley,  Use  of  Credit  Instruments  in  Payments  in  the 
United  States,  passim.    National  Monetary  Commission,  19 10, 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        339 


3.  The  amount  of  money  released  by  our  credit  transactions  is 
not  equal  in  amount  to  the  volume  of  credit  instruments,  for  there 
must  always  be  enough  to  settle  the  uncanceled  balances  called  for 
in  money  from  day  to  day.  The  amount  of  money  displaced  is  the 
difference  between  the  amount  that  would  be  needed  in  a  purely 
money  regime  and  the  amount  needed  to  pay  the  uncanceled  balances 


DIAGRAM  OF  THE  PEBCENTAOE  OF  CHECKS  IN  RETAIL  DEPOSITS  BY  CLASSES  OF  BANKS. 

! if if if V              .y $2 £ if. 9o_ ; u 

Total 

DIAGRAM  OF  THE  PtBCTNTAOE  OF  CHECKS  IN  RETAIL  DEPOSITS 

— 

1 

DIAORAM  OF 
10               xt              1: 

THE  PEBCENTAOE  OF  CHECKS  IN  w 
<4                   i£ 

HOLES ALEl  DEPOSITS 
f                 *                    1 

f                  f- 

Slaw  bank* 

Loan    and    trust    corn- 

Stock  savings  banks 

Mutual  savings  batiks 

DIAQRAM  OF  THE  PERCENTAGE  OF  CHECKS  IN  AGOBEOATE  DEPOSITS  BY  CLASSES  OT  BANKS. 


of  the  credit  transactions.  It  is  important  to  note  that  an  increase 
in  the  volume  of  credit  transactions  does  not  necessarily  mean  that 
we  must  get  a  proportionate  increase  in  our  reserve  of  money.  Every 
refinement  of  the  credit  mechanism  makes  it  possible  to  do  a  larger 

■volume  of  business  on  the  same  reserve. 
4.. The  fact  that  so  large  a  proportion  of  business  is  done  with 
credit  paper  may  or  may  not  be  a  good  thing.  Whether  it  is  or  not 
depends  on  circumstances.  If  any  part  of  the  country  is  compelled 
to.  use  checks  because  of  the  lack  of  currency,  when  it  would  prefer 
the  latter,  the  situation  is  an  evil. 


34o  INDUSTRIAL  SOCIETY 

In  the  next  place,  the  settlement  of  a  very  large  proportion  of 
exchanges  by  means  of  credit  paper  introduces  a  delicacy  of  character 
into  the  trading  mechanism  of  a  community  which  may  cause  it  to 
be  more  easily  upset.  The  larger  the  volume  of  credit  settlements 
in  proportion  to  the  volume  of  money  settlements,  the  greater  the 
panic  when  confidence  breaks  down  and  the  balance  of  canceled  credit 
transactions  thereby  is  made  larger.  A  breakdown  of  confidence 
means  an  increase  in  the  amount  of  transactions  that  must  be  settled 
by  ready  money.  Therefore  it  is  not  a  safe  condition  for  the  country 
to  have  the  amount  of  actual  money  so  small  for  its  retail  transactions 
that,  when  confidence  fails,  the  strain  on  it  will  be  severely  felt.  It 
would  be  better  for  the  country  to  have  a  smaller  volume  of  credit 
transactions  and  a  larger  volume  of  direct  money  payments.  If  the 
habits  of  the  people  preclude  this,  then  there  ought  to  be  some  means 
of  supplying  additional  currency  when  credit  as  a  means  of  payment 
diminishes.  This  currency  ought  to  be  as  safe  and  as  uniform  as  the 
ordinary  currency  and  it  should  be  capable  of  being  quickly  emitted 
and  recalled.    That  is,  it  should  possess  elasticity. 

5.  Such  evidence  as  there  is  seems  to  indicate  that  payment  by 
check  has  shown  an  increase  during  the  past  few  years : 

a)  In  the  first  place,  the  returns  of  our  reports  show  a  larger  per- 
centage in  retail  trade. 

b)  The  prosperity  of  the  farmers  in  the  Central  West  has  enabled 
many  to  have  bank  accounts  who  fifteen  years  ago  could  not  carry 
balances. 

c)  The  third  evidence  is  found  in  the  growth  of  the  number  of 
small  banks,  especially  in  the  country  districts.  Since  national  banks 
have  been  permitted  to  establish  themselves  with  a  capital  of  $25,000 
their  number  has  increased. 

d)  The  appearance  of  a  considerable  proportion  of  checks  in  the 
deposits  of  mutual  savings  banks  is  also,  to  some  degree,  significant. 
Of  course  the  credit  documents  received  in  the  deposits  of  these  banks 
may  be  to  a  considerable  extent  money  orders.  Nevertheless  their 
deposits  show  a  certain  use  of  credit  paper  by  the  patrons  of  these 
banks. 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        341 

126.     TYPES  OF  INVESTMENT  CREDIT  INSTRUMENTS1 
(BONDS) 

A  comprehensive  basis  for  the  classification  of  bonds  is  not  to 
be  found  in  the  bond  lists  nor  in  current  market  reports.  The  names 
and  classes  thus  arranged  are  for  purposes  of  convenient  reference 
and  usually  follow  the  practice  of  the  local  exchange.  Generally 
speaking,  bonds  receive  their  titles  from  one  or  more  of  the  following 
characteristics:  (1)  The  character  of  the  corporation  using  them; 
(2)  the  purpose  of  issue;  (3)  the  nature  of  security  given  for  payment; 
(4)  the  terms  of  payment,  and  (5)  evidence  of  ownership  and  transfer. 
The  first  of  these  five  characteristics  is  used  as  a  basis  for  general 
classification.  That  is  to  say,  quotations  are  usually  arranged  under 
the  following  heads: 

Government — state  and  national. 

Municipal  and  county. 

Railroad,  express,  and  steamship  companies. 

Traction  companies. 

Gas,  electric  light,  and  water  companies. 

Bank  and  trust  companies. 

Investment  companies. 

Industrials. 

Mining  companies. 

Miscellaneous. 

CLASSIFICATION  ACCORDING  TO  PURPOSE   OF  ISSUE 

Among  the  many  varieties  of  bonds  which  take  their  names  from 
the  purpose  of  issue  the  following  may  be  noted: 

Adjustment  bonds,  bridge  bonds,  construction  bonds,  consoli- 
dated bonds,  car  trust  bonds,  dock  and  wharf  bonds,  equipment 
bonds,  extension  bonds,  founders'  bonds,  ferry  bonds,  general  bonds, 
improvements  bonds,  interim  bonds,  interest  bonds,  purchase  money 
bonds,  refunding  bonds,  reorganization  bonds,  revenue  bonds,  subsidy 
bonds,  terminal  bonds,  tunnel  bonds,  temporary  bonds,  unified  bonds. 

CLASSIFICATION  OF  BONDS  ACCORDING  TO  THE  CHARACTER  OF  SECURITY 
PROVIDED   FOR  PAYMENT 

From  the  point  of  view  of  the  security  given  for  payment,  bonds 
fall  into  two  general  classes,  viz.,  (1)  unsecured,  and  (2)  secured.    The 

"Adapted  from  F.  A.  Cleveland,  "Classification  and  Description  of  Bonds," 
Annals  of  the  American  Academy  of  Political  and  Social  Science,  XXX,  (1907) 
400-411. 


342  INDUSTRIAL  SOCIETY 

secured  bonds  may  again  be  divided  into  two  general  classes,  (a)  those 
having  personal  security  and  (b)  those  secured  by  liens  on  specific 
property.    These  in  turn  may  be  subdivided  as  follows: 

I.  Unsecured. 

a)  Government  bonds. 

b)  Corporate  debentures. 

II.  Secured. 

a)  Personal  security, 
i.  Indorsed  bonds. 

2.  Guaranteed  bonds. 

a)  Guaranteed  as  to  principal. 

b)  Guaranteed  as  to  interest. 

c)  Guaranteed  as  to  both  principal  and  interest. 

b)  Lien  security. 

i.  By  character  of  property  pledged. 

a)  Real  property. 

i.  Land-grant  bonds. 
2.  Real  estate  bonds. 

b)  Personal  property. 

i.  Collateral  trust  bond. 
2.  Sinking-fund  bonds. 

2.  By  the  character  or  priority  of  lien. 

a)  First,  second,  or  third  mortgage  bonds. 

b)  General  mortgage  bonds. 

c)  Blanket  mortgage  bonds. 

d)  Consolidated  mortgage  bonds. 

e)  Income  bonds. 

/)   Profit-sharing  bonds. 
g)  Dividend  bonds. 

3.  By  the  character  of  the  holding  participation  receipts. 

BONDS    CLASSIFIED    ACCORDING    TO    EVIDENCE     OF     OWNERSHIP    AND 

TRANSFER 

Considered  from  this  viewpoint  there  are  three  classes,  viz., 
coupon  bonds,  registered  bonds,  and  coupon  registered  bonds. 

Coupon  bonds  are  issues  the  contracts  for  payment  of  interest  on 
which  are  evidenced  by  separate  coupons  or  contracts  for  payment, 
which  fall  due  consecutively  on  the  interest-paying  dates.  The 
coupons  may  be  detached  and  constitute  complete  promissory  notes 
in  themselves,  payable^to  bearer.    The  coupons  are  usually  written 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        343 

on  small  sections  of  a  sheet  of  paper  attached  to  the  principal  obliga- 
tion and  as  they  mature  are  clipped  off  and  presented  for  payment- 
They  are  frequently  presented  for  payment  through  a  bank  as  a 
check  or  draft  would  be. 

Registered  bonds  are  credit  instruments  the  interest  obligation 
in  which  is  expressed  in  the  same  writing  or  paper  as  in  a  promissory 
note,  the  ownership  of  the  bond  being  registered  as  a  means  of  pro- 
tecting the  payee  against  loss,  necessitating  a  formal  transfer  and 
registration  to  transfer  the  title  when  the  old  instrument  is  canceled 
and  a  new  one  issued.  Interest  is  payable  by  money  delivery  or  by 
check  sent  by  mail  to  the  address  of  the  registered  holder. 

Registered  coupon  bonds  are  issues  the  principal  of  which  is  regis- 
tered, the  coupons  being  made  payable  to  bearer. 

In  practice  a  single  bond  issue  may  have  any  number  of  these 
many  distinguishing  characteristics,  so  long  as  they  are  not  in 
conflict. 

127.    TYPES  OF  INVESTMENT  CREDIT  INSTRUMENTS1 
(STOCKS) 

For  the  sake  of  accuracy  and  convenience  in  expressing  the  inter- 
ests of  the  stockholders  in  the  capital  stock,  and  in  the  corporate 
property  and  business  which  this  capital  stock  represents,  it  is  regarded 
as  divided  into  equal  shares,  termed  "shares  of  stock."  When  by 
purchase  or  otherwise  a  person  acquires  an  interest  in  the  capital 
stock,  he  becomes  a  stockholder  in  the  corporation,  and  his  interest 
is  expressed  in  these  shares  of  stock. 

Certificates  of  stock  are  issued  to  stockholders  evidencing  the 
number  of  shares  which  they  own.  These  certificates  of  stock  are 
popularly,  though  incorrectly,  referred  to  as  "stock."  The  interest 
they  represent  in  the  corporation  is  also,  and  correctly,  designated 
"stock." 

The  par  or  face  value  of  shares  of  stock  is  fixed  by  the  charter  of 
the  particular  corporation,  and,  unless  expressly  limited  by  statute, 
is  placed  at  any  amount  desired  by  the  incorporators.  One  hundred 
dollars  is  the  most  common  par  value  of  shares. 

It  may  be  noted  that  the  par  value  and  the  actual  value  of  a  share 
of  stock  may  be  very  different.  A  hundred  dollar  share  of  stock  in  a 
prosperous  corporation  will  frequently  be  worth  several  times  that 

1  Adapted  by  permission  from  Thomas  Conyngton,  The  Modern  Corporation, 
pp.  45-57.     (The  Ronald  Press,  1913.) 


344 


INDUSTRIAL  SOCIETY 


amount,  while  in  an  unsuccessful  corporation  it  may  be  worth  little 
or  nothing.    In  either  case  the  par  value  remains  the  same. 

The  "capital  stock"  or  capitalization  of  a  corporation  should  be 
very  clearly  distinguished  from  its  "capital." 

The  capital  stock  is  the  total  amount  of  stock  the  corporation  is 
authorized  by  its  charter  to  issue.  This  amount  is  fixed  in  the  first 
place  by  the  parties  organizing  the  corporation — who  are  termed  the 
incorporators — and,  once  accepted  and  authorized  by  the  state,  may 
only  be  changed  by  formal  amendment  of  the  charter. 

The  capital,  on  the  other  hand,  is  the  actual  amount  of  property 
owned  by  the  corporation — that  is,  its  assets.  It  is  obvious  that  the 
value  of  these  assets  is  liable  to  change  with  the  fluctuations  of  the 
business  or  from  other  causes. 

In  conservative  incorporations  the  capitalization  usually  corre- 
sponds with  the  initial  capital.  That  is,  for  every  dollar  of  stock  the 
corporation  issues  at  the  time  of  its  formation  it  receives  a  dollar  in 
cash  or  property.  Later  this  relation  will  vary,  the  capital  stock 
remaining  the  same  but  the  capital  increasing  or  diminishing  with  the 
fluctuations  of  the  business. 

Unissued  stock  is  in  itself  a  nullity.  Until  it  is  issued  it  represents 
nothing.  It  is  not  an  asset  of  the  company  but  is  merely  an  unex- 
ercised right  to  issue  stock  when  and  as  subscriptions  for  it  can  be 
obtained. 

Issued  and  outstanding  stock  is  that  which  has  been  issued  for 
cash,  property,  labor,  services,  or  other  values,  or  which  has  been 
subscribed  for  and  the  subscriptions  accepted  by  the  company.  The 
actual  certificates  by  which  this  stock  is  represented  may  not  have 
been  issued,  but  as  soon  as  a  purchase  is  duly  consummated  or  a  sub- 
scription properly  accepted,  the  stock  affected  is  issued  stock,  and  the 
subscribers  or  purchasers  are  stockholders  of  the  company. 

In  most  of  the  states  payment  for  stock  may  be  made  in  anything 
of  value.  If  the  corporation  has  received  the  full  face  value  for  issued 
stock  in  cash  or  in  any  other  permitted  form  of  payment,  such  stock 
is  termed  full-paid,  and  its  certificates  should  be  marked  "Full-Paid" 
in  order  to  indicate  this  fact.  After  stock  has  once  been  issued  for 
full  value,  it  may  be  sold  at  less  than  par  without  involving  the  pur- 
chaser in  any  liability  for  the  difference. 

If  the  corporation  has  not  received  the  full  face  value  for  issued 
stock,  the  stock  is  but  partly  paid,  and  the  purchaser  of  such  stock 
may  usually  be  held  liable  for  the  amount  necessary  to  render  the 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        345 

stock  in  his  possession  full-paid.  This  liability  may  be  enforced  either 
by  the  corporation,  or,  in  event  of  its  insolvency,  by  any  creditor  of 
the  corporation. 

It  is  to  be  noted,  however,  that  if  the  corporation  has  agreed  to 
accept  less  than  the  face  value  of  stock  in  full  payment,  it  is  thereby 
estopped  from  collecting  the  deficiency,  though  the  rights  of  creditors 
would  not  be  affected  by  such  agreement. 

Common  stock  is  the  general  or  ordinary  stock  of  a  corporation 
with  neither  special  privileges  nor  restrictions. 

Preferred  stock,  as  the  term  is  usually  employed,  is  that  which 
has  some  preference  as  to  dividends  or  assets  over  other  stock  of  the 
same  corporation. 

Preferred  stock  may  be  either  cumulative  or  non-cumulative  as 
to  dividends.  If  the  latter,  it  must  receive  its  preferred  dividend  for 
the  current  year  before  any  dividend  is  paid  the  common  stock,  but 
if  in  any  year  its  dividend  fails  or  is  only  partly  paid  it  loses  the  unpaid 
amount.  The  dividends  of  a  cumulative  preferred  stock  are,  on  the 
other  hand,  a  charge  against  the  profits  of  the  company,  accumulating 
in  case  of  failure  from  year  to  year  until  paid,  and  taking  precedence 
over  any  claims  of  the  common  stock.  If  its  dividends  are  not  paid 
in  any  year,  or  years,  or  are  but  partially  paid,  the  amounts  unpaid 
go  over,  or  cumulate,  and  must  be  satisfied  before  the  common  stock 
receives  anything. 

Cumulative  preferred  stock  is  sometimes  called  guaranteed  stock, 
but  this  is  a  misnomer,  as  its  dividends  are  not  guaranteed  and  are 
not  payable  unless  profits  are  earned.  The  better  use  of  the  term 
"guaranteed"  is  to  designate  stock  of  one  corporation  upon  which  the 
dividend  payments  have  been  guaranteed  by  another  corporation — 
an  arrangement  common  among  railroad  companies. 

It  is  usually  provided  that  preferred  dividends  shall  be  paid  in  full 
before  the  common  stock  receives  any  dividend.  If  there  are  further 
profits  after  the  preference  dividends  are  paid,  it  is  sometimes  pro- 
vided that  the  preferred  stock  shall  share  equally  in  these  with  the 
common  stock.  More  often — and  always,  unless  otherwise  expressly 
provided — after  the  preferred  dividends  are  paid  in  any  year,  the 
common  stock  receives  an  equal  dividend  if  the  profits  are  sufficient, 
and  both  kinds  of  stock  then  share  alike  in  any  further  dividends 
declared  in  that  year.  At  times,  however,  the  preferred  stock  receives 
its  preferred  dividend,  but  does  not  participate  at  all  in  any  further 
dividends  of  that  year. 


346  INDUSTRIAL  SOCIETY 

Treasury  stock,  in  the  better  use  of  the  term,  is  stock  which  has 
been  issued  for  value  and  has  by  gift  or  purchase  come  back  into  the 
possession  of  the  company.  It  may  be  held  in  the  name  of  the 
treasurer,  of  a  trustee,  or  of  the  company  itself.  For  bookkeeping 
purposes  it  is  accounted  an  asset  of  the  company.  It  differs  from 
unissued  stock  in  the  fact  that  it  may  be  sold  below  par  without 
involving  the  purchaser  in  any  liability  for  the  unpaid  balance.  So 
long  as  the  treasury  stock  is  held  by  the  company  it  can  neither  vote 
nor  draw  dividends. 

The  term  " treasury  stock"  is  sometimes  loosely  and  inaptly 
applied  to  unissued  stock  and  even  to  stock  subscribed  for  but  as  yet 
unpaid.  Unissued  stock  represents  nothing  but  the  unexercised  right 
of  issue,  and  its  designation  as  treasury  stock  is  inaccurate  and 
misleading. 

See  also  277.     Preferred  Stock  and  Concentration  Control. 

D.     Some  Financial  Institutions 
128.    VARIOUS  SERVICES  OF  BANKS1 

Banks  are  useful  as  places  of  security  for  the  deposit  of  money. 
Everyone  who  has  had  the  care  of  large  sums  of  money  knows  the 
anxiety  which  attends  their  custody.  A  person  in  this  case  must 
either  take  care  of  his  money  himself  or  trust  it  to  his  servants.  If 
he  takes  care  of  it  himself,  he  will  often  be  put  to  inconvenience,  and 
will  have  to  deny  himself  holidays  and  comforts,  of  which  a  man  who 
is  possessed  of  much  money  would  not  like  to  be  deprived.  If  he 
entrusts  it  to  others,  he  must  depend  upon  their  honesty  and  ability. 
Besides,  in  both  these  cases  the  money  is  lodged  under  the  owner's 
own  roof  and  is  subject  to  thieves,  to  fire,  and  to  other  contingencies, 
against  which  it  is  not  always  easy  to  guard.  All  these  evils  are 
obviated  by  means  of  banking. 

The  bankers  allow  interest  for  money  placed  in  their  hands  on 
deposit.  By  means  of  banking,  the  various  small  sums  of  money 
which  would  have  remained  unproductive  in  the  hands  of  individuals 
are  collected  into  large  amounts  in  the  hands  of  the  bankers,  who 
employ  it  in  granting  facilities  to  trade  and  commerce.'  Thus  banking 
increases  the  productive  capital  of  the  nation. 

1  Adapted  by  permission  from  James  W.  Gilbart,  The  History,  Principles  and 
Practice  of  Banking,  1837.  Michie's  revision  (1882),  pp.  213-22.  (G.  Bell  & 
Sons,  Ltd.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        347 

Another  advantage  conferred  upon  society  by  bankers  is  that  they 
make  advances  to  persons  who  want  to  borrow  money.  These 
advances  are  made  by  discounting  bills,  upon  personal  security,  upon 
the  joint  security  of  the  borrower  and  two  or  three  of  his  friends,  and 
sometimes  upon  mortgage.  Persons  engaged  in  trade  and  commerce 
are  thus  enabled  to  augment  their  capital,  and  consequently  their 
wealth.    The  increase  of  money  in  circulation  stimulates  production. 

Another  benefit  derived  from  bankers  is  that  they  transmit 
money  from  one  part  of  the  country  to  another.  There  is  scarcely  a 
person  in  business  who  has  not  occasion  sometimes  to  send  money  to 
a  distant  town.  This  can  be  most  conveniently  done  by  paying  the 
money  into  a  bank,  which  in  turn  arranges  with  a  correspondent  bank 
in  or  near  the  distant  town  to  pay  the  designated  party  the  amount 
specified.  Periodical  settlements  between  the  two  banks  make  such 
transactions  comparatively  inexpensive.  At  the  same  time  there  is 
not  the  least  risk  of  loss. 

Wherever  a  bank  is  established,  the  public  is  able  to  obtain  that 
denomination  of  currency  which  is  best  adapted  for  carrying  on  the 
commercial  operations  of  the  place.  In  a  town  which  has  no  bank  a 
person  may  have  occasion  to  use  small  notes,  and  have  none  but  large 
ones;  and  at  other  times  he  may  have  need  of  large  notes  and  not  be 
able  to  obtain  them.  The  banks  issue  that  description  of  notes  which 
the  receivers  may  require,  and  are  always  ready  to  exchange  them 
for  others  of  a  different  denomination.  Banks,  too,  usually  supply 
their  customers  and  the  neighborhood  with  silver;  and  if,  on  the  other 
hand,  silver  should  be  too  abundant,  the  banks  will  receive  it,  either 
as  a  deposit  or  in  exchange  for  their  notes. 

By  means  of  banking  there  is  a  great  saving  of  time  in  making 
money  transactions.  How  much  longer  time  does  it  take  to  count 
out  a  sum  of  money  in  pounds,  shillings,  and  pence  than  it  does  to 
write  a  draft  ?  And  how  much  less  trouble  is  it  to  receive  a  draft  in 
payment  of  a  debt,  and  then  to  pay  it  into  the  banker's  than  it  is  to 
receive  a  sum  of  money  in  currency? 

A  merchant  or  tradesman  who  keeps  a  banker  saves  the  trouble 
and  expense  of  presenting  promissory  notes  which  he  holds  or  drafts 
which  he  may  draw  against  customers.  He  may  turn  these  over 
to  his  banker  for  safe-keeping  and  collection  at  maturity.  He  pays 
these  into  the  hands  of  his  banker  and  has  no  further  trouble.  He 
has  now  no  care  about  the  custody  of  his  bills,  no  anxiety  about  their 
being  stolen,  no  danger  of  forgetting  them  until  they  are  overdue 


348  INDUSTRIAL  SOCIETY 

and  thus  exonerating  the  endorsers,  no  trouble  of  sending  to  a  distance 
in  order  to  demand  payment.  He  has  nothing  more  to  do  than  to 
see  the  amount  entered  to  his  credit  in  his  banker's  books.  If  a  bill 
be  not  paid  it  is  brought  back  to  him  on  the  day  after  it  falls  due, 
properly  noted.  The  banker's  clerk  and  the  notary's  clerk  are  wit- 
nesses ready  to  come  forward  to  prove  that  the  bill  has  been  duly  pre- 
sented, and  the  notary's  ticket  attached  to  the  bill  assigns  the  reasons 
why  it  is  not  paid. 

Another  advantage  of  keeping  a  banker  is  that  by  this  means  you 
have  a  continual  reference  as  to  your  respectability.  If  a  mercantile 
house  in  the  country  writes  to  its  agent  to  ascertain  the  respectability 
of  a  firm  in  London,  the  first  inquiry  is,  "Who  is  the  banker  ? "  And 
when  this  is  ascertained,  the  banker  is  applied  to  through  the  proper 
channel,  and  he  gives  his  testimony  as  to  the  respectability  of  his 
customer.  When  a  trader  gives  his  bill,  it  circulates  through  the 
hands  of  many  individuals  to  whom  he  is  personally  unknown;  but 
if  the  bill  is  made  payable  to  a  banking  house,  it  bears  on  its  face  a 
reference  to  a  party  to  whom  the  accepter  is  known,  and  who  must 
have  some  knowledge  of  his  character  as  a  tradesman.  This  may 
be  an  immense  advantage  to  a  man  in  business  as  a  means  of  increas- 
ing his  credit;  and  credit,  Dr.  Franklin  says,  is  money. 

By  means  of  banking,  people  are  able  to  preserve  an  authentic 
record  of  their  annual  expenditures.  If  a  person  pays  in  to  his  banker 
all  the  money  he  receives  in  the  course  of  a  year,  and  makes  all  his 
payments  by  cheques,  then  by  looking  over  his  bank-book  at  the 
end  of  the  year  he  will  readily  see  the  total  amount  of  his  receipts 
and  the  various  items  of  his  expenditure.  A  bank  account  is  useful 
also  in  case  of  disputed  payments.  People  do  not  always  take  receipts 
for  money  they  pay  to  their  tradesmen,  and  when  they  do  the  receipts 
may  be  lost  or  mislaid. 

By  keeping  a  banker  people  have  a  ready  channel  of  obtaining 
much  information  that  will  be  useful  to  them  in  the  way  of  their 
business.  They  will  know  the  way  in  which  bankers  keep  their 
accounts;  they  will  learn  many  of  the  laws  and  customs  relating  to 
bills  of  exchange.  By  asking  the  banker,  or  any  of  the  clerks,  they 
may  know  which  is  the  readiest  way  of  remitting  any  money  they  have 
to  send  to  the  country  or  to  the  Continent.  If  they  have  to  buy  or  sell 
stock  in  the  public  funds,  the  banker  can  give  them  the  name  of  a 
respectable  broker  who  can  manage  the  business;  or  should  they  be 
about  to  travel,  and  wish  to  know  the  best  way  of  receiving  money 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        349 

abroad,  or  be  appointed  executors  to  a  will,  and  have  to  settle  some 
money  matters,  the  banker  will,  in  these  and  many  other  cases,  be 
able  to  give  them  the  necessary  information. 

Banking  also  exercises  a  powerful  influence  upon  the  morals  of 
society.  It  tends  to  produce  honesty  and  punctuality  in  pecuniary 
engagements.  Bankers,  for  their  own  interest,  always  have  a  rigid 
regard  to  the  moral  character  of  the  party  with  whom  they  deal; 
they  inquire  whether  he  be  honest  or  tricky,  industrious  or  idle, 
prudent  or  speculative,  thrifty  or  prodigal,  and  they  will  more  readily 
make  advances  to  a  man  of  moderate  property  and  good  morals  than 
to  a  man  of  large  property  but  of  inferior  reputation.  Thus  the 
establishment  of  a  bank  in  any  place  immediately  advances  the 
pecuniary  value  of  good  moral  character. 


See  also  329.  The  Function  of  the  Banker. 

129.    A  CLASSIFICATION  OF  BANKS  AND  TYPES  OF  BANKING 

OPERATIONS1 

Banks  are  commonly  classified  either  according  to  the  type  of 
business  in  which  they  specialize,  or  according  to  the  legal  authority 
under  which  they  conduct  their  business.  Under  the  first  classifica- 
tion we  find  the  following:  commercial  banks,  investment  banks  or 
bond  houses,  savings  institutions,  and  trust  companies.  However, 
there  is  often  a  far  from  complete  specialization  in  the  work  performed 
by  these  various  institutions;  indeed,  "commercial"  banks  and  trust 
companies  as  a  general  rule  now  perform  nearly  every  kind  of  banking 
operation. 

Under  the  second  classification  we  have:  national  and  state  banks 
and  private  banks — the  classification  indicating  the  source  of,  or  the 
absence  of,  specific  authority  to  conduct  a  banking  business.  The 
term  "state  bank,"  however,  has  numerous  connotations.  Most 
commonly  the  term  is  used  in  connection  with  state  institutions  which 
engage  in  commercial  operations.  From  this  standpoint — the  char- 
acter of  business  carried  on — savings  banks  and  trust  companies  can- 
not be  called  state  banks,  even  though  incorporated  under  state  law. 
Again,  private  unincorporated  banks  have  also  been  classified  as  state 
banks  where  they  are  subject  to  regulation  by  the  state.  For  our 
present  purpose,  however,  the  distinguishing  feature  is  the  chartering 
by  state  governments.    Trust  companies,  savings  banks,  bond  houses 

1  Taken  by  permission  from  H.  G.  Moulton,  Principles  of  Banking,  pp.  6-7. 
(The  University  of  Chicago  Press,  1916.) 


350  INDUSTRIAL  SOCIETY 

where  incorporated,  and  commercial  institutions  are  all  state  banks 
in  this  classification. 

Private  banks  are  of  various  kinds:  (i)  small  concerns  which 
engage  in  a  general  banking  business  (largely  savings),  without  any 
specific  grant  of  authority;  they  may  or  may  not  be  under  the  super- 
vision of  the  state  banking  department;  (2)  various  co-operative 
credit  or  loaning  associations;  (3)  unincorporated  investment  banks, 
or  bond  houses. 

But  while  banks  may  be  classified  into  several  different  kinds  of 
institutions,  and  while,  from  the  standpoint  of  services  performed, 
they  offer  a  wide  variety  of  advantages  in  the  way  of  affording  a  place 
for  the  safe-keeping  of  money,  transferring  funds  at  small  expense  for 
the  benefit  of  customers,  providing  a  convenient  and  uniform  system 
of  currency,  etc.,  there  are  nevertheless  but  two  fundamental  types 
of  banking  operations.  In  the  last  analysis  all  banking  may  be 
classified  as  either  commercial  or  investment  business. 

130.    INVESTMENT  BANKING1 

The  service  rendered  by  the  investment  bank  differs  greatly  from 
that  of  the  commercial.  It  acts  as  an  intermediary  between  the  per- 
son who  has  accumulated  capital  and  those  who  are  in  a  position  to 
invest  it  in  fixed  forms.  Two  processes  are  here  involved:  the 
accumulation  of  the  savings  of  the  community  on  the  one  hand,  the 
development  of  natural  resources  and  the  construction  and  manage- 
ment of  manufacturing  and  transportation  agencies  on  the  other. 
The  transfer  of  capital  to  public  bodies,  such  as  central  governments, 
states,  municipalities,  and  other  political  divisions,  for  unproductive 
consumption  is  a  process  also  carried  on  by  investment  banks  similar 
to  the  other  in  its  nature,  but  having  peculiarities  which  place  it  in 
a  class  by  itself. 

It  is  the  business  of  the  investment  banking  institutions  of  a 
country  to  see  that  this  work  of  directing  the  savings  of  the  country 
into  its  various  enterprises  is  economically  and  efficiently  done.  It  is 
their  business  to  stimulate  saving  and  to  provide  facilities  by  which 
every  person  who  saves  can  readily  put  his  accumulated  funds  to  pro- 
ductive use.  It  is  their  business  to  search  out  opportunities  for 
investment,  to  see  to  it  that  the  natural  and  human  resources  of  the 

Adapted  by  permission  from  W.  A.  Scott,  "Investment  vs.  Commercial 
Banking,"  Proceedings  of  the  Second  Annual  Convention  of  the  Investment  Bankers 
Association  of  America,  1913,  pp.  76-80. 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        351 

nation  are  used  to  the  best  possible  advantage  in  the  promotion  of 
its  economic  interests.  This  is  a  great  work,  as  important  and  essen- 
tial to  the  well-being  of  the  nation  as  that  which  commercial  banks 
or  institutions  of  any  other  kind  perform. 

131.  ■  THE  SERVICES  OF  BOND  HOUSES1 

The  purchasing  function. — If  a  municipal  loan  is  offered,  the  pur- 
chase is  a  comparatively  simple  matter,  provided  the  municipality  is 
well  known  to  the  fraternity.  Then  no  preliminary  investigation  is 
required;  a  bid  is  made  for  the  loan  at  the  current  market  rates  and 
acceptance  on  award  is  subject  to  the  approval  of  the  bidder's  attorney 
in  all  respects  affecting  the  validity  of  the  obligation. 

If  the  municipality  is  not  well  known  to  the  bidder,  a  qualified 
representative  will,  or  should,  be  sent  to  learn  at  first  hand  the  physical 
and  financial  condition  of  the  city  and  to  form  an  estimate  of  its  prob- 
able future  willingness  and  ability  to  meet  its  present  and  future 
obligations. 

If  a  corporation  loan  is  offered,  it  will  probably  be  submitted  at 
the  offices  of  the  bankers  by  a  representative  of  the  company  or  by  a 
promoter.  If  the  applicant  is  of  a  social  turn  of  mind,  he  will  probably 
not  lack  company  of  his  kind  in  the  anteroom.  Competition,  for- 
tunately, is  keen. 

If  the  house  is  satisfied  by  interview  and  correspondence  and  if  a 
suitable  price  can  be  agreed  upon,  then  engineers  and  accountants 
may  be  sent  to  the  plant  and  offices  to  make  a  thorough  examination; 
and  the  members  of  the  firm,  with  counsel,  meet  officers  of  the  com- 
pany and  their  attorneys  to  settle  the  matters  of  form.  On  acceptance 
of  an  issue  a  careful  banking  house  may  demand  representation  on  the 
directorate  of  the  company  until  such  time  as  the  company  shall  have 
discharged  its  bonded  obligation. 

The  advisory  function. — This  advisory  and  directive  function  is 
more  prominently  operative  in  bond  selling  than  in  bond  buying. 
It  has  its  source  in  the  statistical  departments  which  every  house  of 
quality  must  maintain.  It  finds  its  chief  expression,  as  already 
stated,  in  tabloid  investment  lessons,  printed  in  the  advertising 
columns  of  newspapers  and  periodicals,  or  with  somewhat  greater 
fulness  in  pamphlets  and  monographs.  If  a  prospective  client  has  an 
investment  policy  that  is  apparently  not  suited  to  his  particular  needs, 

1  Adapted  by  permission  from  Lawrence  Chamberlain,  Principles  of  Bond 
Investment,  pp.  516-22.     (Henry  Holt  &  Co.,  1911). 


352  INDUSTRIAL  SOCIETY 

the  home  office  may  tactfully  direct  his  attention  by  letter  or  through 
their  representative  in  his  territory  to  a  means  by  which  he  may 
better  his  position.  Some  bond  houses  maintain  a  daily  news  sheet  for 
the  benefit  of  their  salesmen  in  which  are  printed,  not  only  pertinent 
items  of  current  interest,  but  timely  discussions  of  different  problems. 

The  banking  function. — Illustrative  of  the  relation  between  house 
and  client,  there  has  arisen  the  demand  that  banking  departments  be 
established  for  the  safe-keeping  of  funds  destined,  upon  enlargement, 
to  go  into  investment,  and  also  to  accommodate  those  who  wish  to 
purchase  securities  before  they  have  sufficient  funds  to  pay  in  full  for 
them.  From  the  necessities  for  these  two  situations  it  is  only  a  short 
step  to  the  conduct  on  a  small  scale  of  a  bank  deposit  subject  to  check. 
But  properly  and  ordinarily  the  banking  department  of  a  bond  house 
is  conducted  as  a  matter  of  accommodation  to  its  customers  and  not 
primarily  to  do  a  general  banking  business. 

The  bond  houses  as  fiscal  agents. — Because  of  purchasing,  advisory, 
and  banking  functions  bond  houses  are  called  upon  to  act  as  fiscal 
agents  for  corporations,  municipalities,  and  even  states. 

The  selling  function. — American  banking  houses  are  not  eleemosy- 
nary. Whatever  may  be  their  usefulness  in  the  community,  it  is  the 
result  of  that  enlightened  self-interest  which  used  to  be  expressed  in 
the  phrase,  "Honesty  is  the  best  policy."  Their  reason  for  being  is  to 
make  money  by  selling  bonds,  and  the  competition  is  getting  keener 
every  day.  Many  of  the  ordinary  effects  of  competition  are  noticeable 
in  the  bond  business.  There  is  a  standardization  of  wares  and  policies, 
there  is  diminution  in  ratios  of  profits.  But  two  ordinary  effects  of 
competition  are  conspicuously  absent.  There  is  no  deterioration  of  the 
product  and  no  tendency  toward  consolidation  among  the  vendors. 

The  protective  function. — There  is  a  radical  difference  in  the  attitude 
of  bond  houses  in  this  matter  of  repurchasing  securities  of  clients  to 
whom  they  have  sold  them.  Some  take  the  stand  that  a  sale  is  a  sale, 
and  the  responsibility  of  a  house  that  has  acted  in  good  faith  ceases 
upon  delivery  of  the  bond  and  the  receipt  of  payment.  This  position 
is  logical  and  just,  but  again  competition  steps  in  to  benefit  the  cus- 
tomer. Other  houses  say:  " We  shall  put  out  our  issues  as  nearly  as 
possible  on  a  plane  of  marketability  with  active  listed  securities.  We 
make  no  promises,  but,  except  in  times  of  panic,  when  it  may  be 
impossible  to  raise  money  to  satisfy  everybody,  we  hope  and  expect 
to  be  so  situated  as  to  buy  back  at  the  fair  market  price  the  securities 
we  have  sold." 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        353 

But  the  protective  function  of  the  bond  house  is  most  important 
in  respect  to  the  moral  responsibility  of  "seeing  the  clients  through" 
default,  reorganization,  and  rehabilitation  in  the  extremely  rare  cases 
in  which  trouble  arises.  In  some  instances  losses  amounting  to 
hundreds  of  thousands  of  dollars  have  been  made  good;  in  many 
instances  the  firms  have  volunteered  to  pay  interest  which  has  been 
suspended;  in  every  case  a  reputable  bond  house  will  feel  called  upon 
to  take  the  active  leadership,  at  its  own  expense,  in  upholding  the 
mortgage  rights  or  other  legal  claims  of  the  bondholders. 

See  also  330.  The  Underwriter. 

132.    TRUST  COMPANIES1 

The  trust  company  has  been  called  the  omnibus  of  financial 
institutions.  Originating  in  the  early  part  of  the  nineteenth  century, 
it  specialized  at  first  in  the  management  of  estates,  acting  as  trustee 
under  wills.  Hence  the  name,  trust  company.  The  scope  of  its 
business  has  broadened  as  time  has  gone  on  until  now  almost  every 
variety  of  financial  operation  is  conducted  by  it.  It  is,  in  fact,  many 
institutions  in  one:  (1)  it  is  a  commercial  bank,  operating  upon  prin- 
ciples identical  with  those  of  our  national  and  state  commercial 
banks;  (2)  it  is  a  savings  bank;  (3)  it  is  a  bond  house;  (4)  it  is  an 
insurance  company.  Life  insurance,  once  an  important  function,  is 
now  fast  disappearing,  but  title  and  fidelity  insurance  retain  their 
importance;  (5)  it  is  a  trust  company  performing  the  following  serv- 
ices: trustee  for  corporations  and  individuals;  fiscal  agent  for  cor- 
porations and  individuals  in  making  interest  payments,  collections, 
etc.;  "registrar  for  corporate  issues;  transfer  agent  in  buying  and  sell- 
ing of  bonds  and  stock;  financial  agent  of  committees  engaged  in 
railroad  and  other  reorganizations;  assignee  and  receiver  in  individual 
and  corporate  insolvency  or  bankruptcy. 

The  great  variety  of  business  conducted  by  trust  companies  is 
due  in  part  to  an  imperative  need  for  a  well-equipped  and  responsible 
company  to  take  charge  of  the  many  minor  forms  of  financial  opera- 
tion which  characterize  modern  industrial  society,  especially  those 
not  adequately  handled  by  private  individuals  and  not  provided  for 
by  other  financial  institutions,  and  in  part — where  it  invades  the 
field  of  the  commercial  bank,  savings  bank,  bond  house,  and  insurance 
company — to  the  process  of  integration  which  is  coming  to  charac- 
terize modern  industry  in  general. 

1  From  an  unpublished  article  by  H.  G.  Moulton. 


354  INDUSTRIAL  SOCIETY 

133.    THE  FUNCTIONS  OF  THE  STOCK  EXCHANGE1 

The  fundamental  function  of  the  exchanges  is  to  give  mobility 
to  capital.  Without  them  the  stocks  and  bonds  of  the  share  company 
could  not  be  placed  to  advantage.  No  one  would  know  what  their 
value  was  on  a  given  day,  because  the  transactions  in  them  would  be 
private  and  unrecorded.  The  opportunities  for  fraud  would  be 
multiplied  a  hundred  fold.  The  mobility  for  capital  afforded  by  the 
corporation  would  be  meager  and  inadequate  if  the  holder  of  its  bonds 
and  shares  did  not  know  that  at  any  moment  he  could  take  them  to 
the  exchanges  and  sell  them.  The  publicity  prevailing  in  stock- 
exchange  quotations  gives  the  holder  of  a  security  not  only  the  direct 
benefit  of  publicity,  but  the  opinion  of  the  most  competent  financiers 
of  Europe  and  America.  If  they  were  dealing  with  him  privately 
they  might  withhold  the  information.  But  the  quoted  price  stands  as 
a  guide  to  even  the  most  ignorant  holder  of  securities. 

The  second  benefit  is  in  affording  a  test  of  the  utility  to  the  com- 
munity of  the  enterprises  which  solicit  the  support  of  investors.  The 
judgment  of  experts  is  there  expressed,  through  the  medium  of  price, 
on  the  utility  of  the  object  dealt  in.  If  an  unprofitable  railroad  is 
built  in  the  wilderness  of  Manitoba,  the  investor  does  not  have  to 
hunt  up  information  on  the  freight  and  passengers  carried;  he  has 
only  to  look  at  the  quotations  on  the  New  York  Stock  Exchange  to 
know  at  once  the  judgment  of  experts  on  it  as  a  commercial  venture. 
If  the  investor  finds  that  the  stocks  of  cotton  mills  are  declining,  he 
makes  up  his  mind  that  there  are  no  further  demands  for  cotton 
mills.  If  stocks  are  exceptionally  high,  he  knows  that  the  public 
demands  more  cotton  mills,  and  that  an  investment  in  them  will 
prove  profitable.  All  this  information  is  put  before  the  investor  in  a 
single  table  of  figures.  It  would  be  practically  unattainable  in  any 
other  form.  Thus  there  is  afforded  to  capital  throughout  the  world 
an  almost  unfailing  index  of  the  course  in  which  new  production  should 
be  directed. 

Suppose  for  a  moment  that  the  stock  markets  of  the  world  were 
closed,  that  it  was  no  longer  possible  to  learn  what  concerns  were  pay- 
ing dividends,  what  their  stocks  were  worth,  how  industrial  establish- 
ments were  faring.  How  would  the  average  man  determine  how  new 
capital  should  be  invested  ?  He  would  have  no  guide  except  the  most 
isolated  facts  gathered  here  and  there  at  great  expense  and  trouble. 

1  Adapted  by  permission  from  C.  A.  Conant,  Wall  Street  and  the  Country, 
pp.  88-116.     (G.  P.  Putnam's  Sons.     Copyright  by  the  author,  1904.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        355 

A  great  misdirection  of  capital  and  energy  would  result.  The  stock 
market  is  the  great  governor  of  values — the  guide  which  points  the 
finger  to  where  capital  is  needed  and  where  it  is  not  needed. 

The  very  sensitiveness  of  the  stock  market  is  one  of  its  safe- 
guards. Again  and  again  it  is  declared  in  the  market  reports  that 
certain  events  have  been  discounted.  As  a  consequence,  when  the 
event  actually  happens  it  results  in  no  such  great  disturbance  to 
values  a6  was  expected.  Is  it  not  better  that  this  discounting  of 
future  possibilities  should  occur  ?  Is  it  desirable  that  capital  and  pro- 
duction should  march  blindly  to  the  edge  of  a  precipice  and  then  leap 
off  instead  of  descending  a  gradual  decline? 

Another  important  influence  of  the  stock  exchange  is  that  which 
it  exerts  upon  the  money  market.  The  possession  by  any  country  of 
a  large  mass  of  salable  securities  affords  a  powerful  guarantee  against 
the  effects  of  a  severe  money  panic.  If  in  New  York  there  arises  a 
sudden  pressure  for  money,  the  banks  call  in  loans  and  begin  to  hus- 
band their  cash.  If  they  hold  large  quantities  of  securities  salable  on 
the  London  or  Paris  or  Berlin  market,  a  cable  order  will  effect  the  sale 
of  these  in  an  hour,  and  the  gold  proceeds  will  soon  be  available. 
These  securities  prevent  sudden  contraction  and  expansion  in  the 
rate  of  loans.  This  influence  of  the  stock  market  has  much  the 
effect  of  a  buffer  upon  the  impact  of  two  solid  bodies.  Crises  are 
prevented  when  they  can  be  prevented,  and  when  they  cannot  they  are 
anticipated  and  their  force  is  broken.    . 


See  also  99.     Stock  Exchanges. 


134.    A  FAVORABLE  VIEW  OF  WALL  STREET1 

New  York  is  the  gateway  of  the  nation's  commerce,  and  Wall 
Street  has  been  likened  to  a  toll-gate,  to  pass  which  every  product  of 
the  country  must  pay  tribute.  ,  As  no  one  likes  to  pay  toll,  this  would 
account  for  much  of  the  animosity  so  often  manifested  against  the 
financial  center.  Yet  someone  must  make,  maintain,  and  operate 
the  various  agencies  by  which  the  products  of  the  country  reach  the 
markets,  and  it  is  right  that  the  service  should  be  paid  for. 

Wall  Street  is  the  directing  head  of  the  great  system  of  transpor- 
tation, using  that  term  in  its  broadest  significance,  as  including,  not 

1  Adapted  by  permission  from  S.  S.  Pratt,  The  Work  of  Wall  Street, 
pp.  45-48.     (D.  Appleton  &  Co.,  191 2.) 


356  INDUSTRIAL  SOCIETY 

only  the  railroads  and  steamships,  but  also  the  banks  and  exchanges, 
and  all  the  other  manifold  agencies  by  which  the  products  of  the  soil 
are  brought  to  the  homes  of  consumers  in  forms  fit  for  human  use. 
Wall  Street,  in  its  financial  machinery,  facilitates  the  natural  flow  of 
money,  provides  the  means  for  the  promotion  of  enterprises,  safe- 
guards and  assists  the  movement  of  commerce,  and  maintains  that 
system  of  credits  by  which  a  tenfold  power  of  service  is  given  to  every 
dollar. 

By  the  machinery  of  its  stock  market  it  promotes  the  diffusion  of 
wealth;  it  makes  possible  for  great  capital  to  be  accumulated  for  vast 
undertakings,  governmental  and  private,  too  big  for  individual  effort; 
it  enables  a  multitude  of  small  capitalists  to  become  partners  in  these 
big  enterprises,  by  its  agencies  for  the  distribution  of  securities  from 
the  hands  of  producers  into  the  hands  of  investors  as  the  ultimate 
consumers;  and  it  is  able  by  its  speculative  machinery  to  anticipate 
human  needs,  and  to  secure  a  more  even  and  equitable  level  of  prices. 
For  this  work  it  must  be  paid;  call  it  a  fee  if  it  be  regarded  as  pro- 
fessional service,  call  it  a  toll  if  it  is  thought  to  liken  Wall  Street  to  a 
gate,  or  a  tax  if  one  prefers  to  speak  of  Wall  Street  as  exercis- 
ing legislative  power,  or  a  price  if  it  is  thought  more  proper  to 
regard  Wall  Street  as  a  merchant  selling  credit  and  securities  for 
the  most  they  will  bring.  But  whether  a  fee,  a  toll,  or  a  price,  it 
cannot  be  disputed  that  Wall  Street  earns  a  reward  for  an  indis- 
pensable service. 

Nowhere  else  in  the  world  is  actual  money  handled  with  such  a 
minimum  of  loss,  through  dishonesty  and  carelessness,  as  in  Wall 
Street;  and  in  its  credit  and  security  transactions  it  compares  well 
for  good  faith  and  efficiency  with  any  other  department  of  human 
endeavor. 

Wall  Street  is  the  seat  of,  (i)  the  stock  market;  (2)  the  money 
market.  Each  is  distinct  from  the  other,  but  both  are  interdependent. 
The  stock  exchange  is  the  head  of  one  and  the  bank  clearing-house 
of  the  other. 

The  stock  market  is  a  place  where  securities  may  be  bought  or 
sold,  (a)  for  investment;  (b)  for  speculation. 

The  money  market  is  in  four  main  divisions,  all  closely  allied  to  each 
other  and  having  many  subdivisions:  (a)  foreign  exchange,  by  which 
the  operations  of  international  enterprise  and  international  commerce 
are  financed;  (b)  domestic  credits,  by  which,  through  checks  and 
commercial  paper,  food  and  merchandise  are  marketed  and  the  mani- 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        357 

fold  needs  of  inland  trade  cared  for;  (c)  promotion,  by  which  corporate 
and  other  large  enterprises  are  created,  underwritten,  and  financed; 
(d)  stock-exchange  loans,  both  on  call  and  time,  by  which  investment 
and  speculative  transactions  in  securities  are  made  possible. 

135.    LIFE    INSURANCE     COMPANIES    AS    INVESTMENT 
INSTITUTIONS1 

From  a  financial  point  of  view  the  life  insurance  company  is  a 
device  for  accumulating  savings  which  shall  be  returned,  not  to  the 
man  who  saves,  but  to  his  heirs  at  his  demise.  Some  of  the  insured, 
it  is  true,  die  long  before  the  sum  of  the  premiums  they  have  paid 
equals  the  sum  that  the  insurance  company  has  agreed  to  pay  at  their 
death.  On  the  average,  however,  the  insured  live  long  enough  so 
that  their  premiums,  together  with  the  earnings  of  the  capital  which 
those  premiums  form,  are  at  least  equal  to  the  sums  which  the  insur- 
ance company  pays  out  in  death  claims. 

It  is  obvious  that  in  a  country  like  the  United  States,  where  life 
insurance  is  exceedingly  common,  immense  sums  of  money  must  be 
collected  by  the  companies  every  year  to  be  held  as  a  reserve  against 
death  claims.  As  the  business  of  life  insurance  is  steadily  growing, 
the  funds  accumulated  by  these  companies  are  also  increasing.  The 
annual  receipts  of  practically  every  important  life  insurance  com- 
pany exceed  the  annual  disbursements.  Accordingly,  a  life  insurance 
company  may  invest  its  funds  without  much  regard  to  the  possibility 
of  turning  its  investments  into  cash  at  short  notice.  It  is  important, 
however,  that  the  business  should  be  conducted  in  a  conservative 
manner,  since  the  failure  of  an  insurance  company  would  be  a  more 
widely  felt  calamity  than  the  failure  of  almost  any  other  business 
enterprise  of  equal  magnitude.  The  loss  would  be  borne  in  the  end 
largely  by  the  dependents  of  property  less  men. 

The  reserves  of  life  insurance  companies  are  largely  invested  in 
real-estate  mortgages,  in  state  and  municipal  bonds,  and  in  the  bonds 
of  railway,  commercial,  and  industrial  corporations.  Stock  invest- 
ments have  often  been  made  by  insurance  companies,  but  the  practice 
is  now  generally  regarded  with  disfavor,  since  the  values  of  stocks 
are  likely  to  show  a  wide  range  of  fluctuation. 

1  Taken  by  permission  from  A.  S.  Johnson,  Introduction  to  Economics, 
pp.  320-21.     (D.  C.  Heath  &  Co.,  1909.) 


358  INDUSTRIAL  SOCIETY 

136.  TYPES  OF  BUSINESS  ORGANIZATION1 
In  an  individualistic  competitive  economic  society  every  com- 
petent individual  of  mature  age  is  a  potential  entrepreneur.  Each 
person  is  in  varying  degree  awake  to  the  voicings  of  demand  for 
consumable  goods.  There  is  no  ear  on  which  these  fall  wholly 
without  answering  resonance. 

Of  all  these  possible  enterprisers  there  are  a  comparative  few  who, 
from  training,  experience,  temperament,  or  what  not,  are  inclined  to 
answer  some  of  these  demands.  There  is,  speaking  broadly,  only  one 
form  which  their  answer  can  take.  If  they  wish  to  reply  to  the 
demand  for  consumable  goods  they  must  undertake  production.  This 
means  that  they  must  assume  to  direct  the  forces  which  produce 
wealth;  to  "start  up  in  business, "  in  the  ordinary  sense  of  the  term, 
is  to  declare  one's  self  to  society  as  ready  to  undertake  the  direction 
of  its  social  energy. 

The  potential  enterpriser,  having  decided  to  what  end  he  will 
undertake  to  direct  social  energy,  looks  about  for  ways  and  means. 
There  are  chiefly  three  ways  in  which  the  enterpriser  may  launch  his 
business.    They  are  these: 

1.  He  may  become  an  individual  organizer  or  entrepreneur. 

2.  He  may  join  in  a  relation  with  other  persons,  called  a  partnership. 

3.  He  may  decide  that  his  business  should  be  conducted  by  a 
corporation. 

There  are  some  advantages  and  disadvantages  in  each  of  these 
forms  of  business  organization  from  the  standpoint  both  of  the  entre- 
preneur and  of  society  as  a  whole.  We  shall  consider  the  three  types 
in  order. 

1.  The  individual  entrepreneur  organization. — A  first  advantage  of 
the  individual  entrepreneur  organization  is  the  ease  with  which  it 
may  be  formed  and  terminated.  To  start  in  business  it  is  not  neces- 
sary to  go  through  any  formalities.  One  may  begin  with  any  kind  of 
business.  He  may  start  any  time  he  thinks  he  can  do  so  profitably, 
and  may  stop  without  consulting  anyone  but  himself. 

A  second  advantage  which  the  individual  finds  in  going  into  busi- 
ness alone  is  that  if  there  are  profits  he  takes  them  all.  If  he  is  capable 
and  energetic  he  is  likely  to  be  successful,  and  can  keep  for  himself 
all  the  results  of  his  ability  and  industry.  His  management  is  likely 
to  be  definite  and  coherent  in  its  policy,  and  will  never  suffer  from  a 
variety  of  counsels. 

1  Adapted  from  an  unpublished  article  by  L.  S.  Lyon. 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        359 

In  some  ways  society  also'  gains  by  having  individual  entrepreneur 
organizations.  Men  who  know  that  their  chances  of  success  or  failure 
depend  on  themselves  will  work  hard.  The  chance  for  gain  is  a 
strong  incentive.  This  means,  if  they  are  capable,  increased  produc- 
tion of  goods,  which  of  course  means  that  there  will  be  more  for  society 
to  consume.  Society  also  profits  from  this  type  of  organization 
because  these  people  are  being  constantly  educated  in  business 
management.  Lured  by  the  prize  of  profits,  threatened  by  the  rod 
of  failure,  they  are  diligent  in  learning  to  direct  more  and  more  social 
energy  for  society's  benefit. 

There  are,  of  course,  disadvantages  in  this  form  of  organization. 
If  a  man  goes  into  business  alone  he  makes  all  the  profits,  but  if  there 
is  a  loss  he  has  no  one  with  whom  to  share  it.  Besides  this,  he  has 
always  to  rely  mainly  on  his  own  judgment.  Management  is  limited 
in  breadth  of  view.  The  enterpriser  has  no  one  who  is  really  interested 
in  his  business  with  whom  to  consult.  Limitations  in  capital  are  also 
apparent.  The  amount  of  money  which  he  can  put  into  his  business 
is  limited  by  his  personal  fortune  and  his  credit.  It  may  be  that  there 
will  be  times  when  he  could  make  large  profits  if  he  had  more  funds, 
but  he  is  unable  to  supply  them.  At  such  times  he  is  likely  to  wish 
for  a  partner.  The  final  disadvantage  in  this  form  of  business,  as  the 
entrepreneur  views  it,  grows  out  of  the  fact  that  there  is  no  distinction 
between  his  business  liabilities  and  assets  and  his  personal  liabilities 
and  assets.  He  is  unable  to  take  the  risks  of  business  with  part  of  his 
money  only.  If  his  business  fails  the  receiver  will  utilize  "  personal 
property"  as  well  as  "business  property"  in  satisfying  creditors. 

2.  The  partnership. — Suppose  that,  instead  of  going  into  business 
alone,  the  enterpriser  joins  with  two  or  three  others,  agreeing  to  divide 
the  profits  and  losses.  Although  men  may  be,  and  often  actually 
become,  partners  by  implication,  partnership  is  usually  based  upon  a 
simple  oral  or  written  agreement.  The  legal  relationship  arising  from 
their  agreement  to  transact  business  in  this  way  is  called  a  partner- 
ship. The  partners  together  are  usually  spoken  of  as  a  firm.  The 
partnership  brings  with  it  changes  in  management  and  ordinarily  of 
capital.  The  management  generally  rests  with  all  the  partners  and, 
though  by  no  means  necessary,  all  may  invest  capital. 

From  what  has  just  been  said  of  the  individual  entrepreneur,  it 
is  easy  to  see  why  the  partnership  should  arise.  When  business  began 
to  be  transacted  on  so  large  a  scale  that  one  man  did  not  have  sufficient 
capital  to  conduct  the  business  alone,  and  when  business  became  so 


360  INDUSTRIAL  SOCIETY 

specialized  that  one  man  was  not  likely  to  know  everything  about 
every  phase  of  the  business,  the  partnership  became  a  valuable 
institution. 

From  the  standpoint  of  the  individuals  concerned  it  is  valuable 
because,  though  each  of  them  has  only  a  small  amount  of  money,  they 
may,  by  combining,  have  enough  to  carry  on  an  extensive  business. 
One  of  them  may  be  a  specialist  and  expert  in  managing  a  small  manu- 
facturing pl^nt.  The  other  may  be  an  able  salesman,  and,  by  com- 
bining the  ability  of  both,  they  are  able  to  manufacture  goods  and 
sell  them  to  advantage.  Neither  has  the  partnership  necessarily 
lessened  the  driving  motives.  Reward  still  depends  on  success. 
Profits  will  still  be  closely  related  to  endeavor. 

It  is  easy  to  see  that  this  institution  of  partnership  is  a  good  type 
of  business  organization  in  each  of  these  cases,  from  the  standpoint 
of  society  as  well  as  from  the  view  of  the  partner.  It  makes  good 
use  of  social  energy. 

As  the  entrepreneur  views  the  matter,  there  are  some  disadvan- 
tages and  limitations  connected  with  the  partnership.  The  first  is 
that  the  amount  of  capital,  although  fairly  large,  may  be  insufficient. 
Even  by  joining  their  money  the  two  or  three  or  more  persons 
may  not  have  secured  enough  to  carry  on  the  business  which  they 
have  undertaken.  The  discussion  of  other  disadvantages  will  reveal 
why  the  number  of  persons  in  a  given  partnership  must  be  somewhat 
limited. 

A  second  group  of  difficulties  grows  out  of  the  new  elements  in 
management.  One  of  these  is  a  certain  degree  of  inflexibility. 
Policies  cannot  be  so  easily  modified  and  fitted  to  new  conditions  as 
they  can  be  where  one  individual  is  in  command.  Lack  of  harmony 
in  management  may  easily  grow  out  of  the  responsible  relations  of 
partnership  where  viewpoint  and  opinion  vary. 

Another  objection  to  partnership,  which  comes  from  the  widened 
management,  is  a  certain  amount  of  instability.  The  partnership  may 
undergo  dissolution  from  a  number  of  causes.  Some  of  these  it  is 
beyond  the  power  of  the  firm  to  prevent.  The  bankruptcy  of  a  part- 
ner or  his  death  will  ordinarily  cause  a  dissolution  of  the  firm.  Unless 
there  is  an  agreement  to  the  contrary,  one  party  may  withdraw  or 
sell  his  share  and  thus  bring  about  a  dissolution.  Even  though  an 
agreement  may  exist,  one  partner  may  withdraw  if  he  cares  to  undergo 
an  action  for  damages.  Any  of  these  things  occurring  at  certain  times 
might  be  disastrous  to  the  welfare  of  the  firm. 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        361 

A  final  disadvantage  which  the  entrepreneur  sees  as  arising  from 
the  broadened  management  is  a  new  element  of  risk  and  responsi- 
bility. This  grows  from  the  legal  fact  that  each  partner  is,  in  all 
ordinary  affairs,  an  agent  for  the  firm.  Each  partner  may,  in  matters 
that  relate  to  the  general  business  of  the  firm,  make  contracts  binding 
on  the  firm.  This  becomes  a  serious  consideration  in  view  of  the 
liability  of  partners.  The  obligations  of  a  partnership  are  the  joint 
obligations  of  its  members — that  is,  the  action  to  enforce  it  is  brought 
against  all  jointly.  But,  although  the  creditor  brings  an  action  for 
his  debt  against  all  the  members  of  the  partnership  jointly,  he  may 
satisfy  his  judgment  out  of  the  individual  property  of  one  partner,  and 
is  not  bound  to  levy  upon  the  joint  partnership  property. 

It  is  obvious  that  this  obligation  for  debts  makes  partnership  a 
form  of  business  organization  into  which  a  man  will  go  only  after  a 
careful  consideration  of  the  type  of  men  with  whom  he  is  joining. 
From  this  great  liability  for  debts,  however,  arises  one  additional 
advantage  to  the  partnership  form  of  organization.  This  is  the  ease 
with  which  a  partnership  can  borrow  money.  People  are  willing  to 
lend  where  the  liability  reaches  so  far. 

3.  The  corporation. — It  should  be  needless,  in  discussing  the  cor- 
poration, to  clear  the  mind  of  such  dusty  impressions  as  the  notion 
that  a  corporation  is  necessarily  a  large  and  usually  a  vicious  organi- 
zation. Many  corporations  are  capitalized  for  only  a  thousand  dol- 
lars, and  the  American  Bible  Society  and  several  boards  of  foreign 
missions  find  it  convenient  to  transact  their  business  through  the 
corporate  form. 

The  corporation,  like  the  individual  organization  and  partnership, 
is  simply  a  type  of  business  organization  which  has  grown  up  because 
society  needed  it  as  a  device  through  which  social  energy  could  be 
effectively  directed  in  satisfying  wants.  A  corporation  is  sometimes 
defined  as  an  artificial  entity,  created  by  statute  law  under  a  special 
name,  with  the  liberty  of  perpetual  succession,  acting  in  many  respects 
as  an  individual.  The  point  to  be  held  clearly  in  mind  is  this,  that 
the  corporation  is  a  separate  person.  Nine  persons  in  a  room,  to  use 
a  common  illustration,  form  a  corporation.  There  are  then  ten  indi- 
viduals in  the  room.  A  corporation  is  a  distinct  legal  entity,  separate 
from  the  people  who  compose  it. 

Some  of  the  advantages  of  the  corporation  are  quite  obvious. 
Most  notable  of  these  perhaps  is  the  readiness  with  which  it  adapts 
itself  to  the  raising  of  large  amounts  of  money.     Shares  of  ownership 


362  INDUSTRIAL  SOCIETY 

in  corporations  may  bear  a  face  or  par  value  set  at  prices  ranging  from 
hundreds  of  dollars  to  a  few  cents.  There  is  ordinarily  no  limit  to  the 
amount  for  which  a  corporation  may  capitalize,  and  no  limit  in  either 
direction  to  the  amount  an  individual  may  subscribe  to  the  capitali- 
zation provided  he  is  willing  to  subscribe  for  at  least  one  share.  It 
thus  becomes  possible  to  interest  many  persons  and  to  accumulate 
gigantic  sums  of  money. 

If  the  individual  who  is  contemplating  the  formation  of  a  new 
business  has  in  mind  an  undertaking  which  will  require  a  great  deal 
of  capital  the  corporation  plainly  lends  itself  to  his  needs.  In  the 
matter  of  capital  possibilities  the  corporation  is  no  less  advantageous 
to  society.  It  is  not  enough  to  say  that  such  vast  undertakings  as 
railroads,  steamship  lines,  and  large  manufacturing  plants  would  have 
been  difficult  without  the  corporate  type  of  business  organization. 
It  is  not  too  much  to  say  that  the  whole  new  technology,  which  was 
the  wonder  of  the  nineteenth  century,  and  which  was  made  possible 
by  the  scientific  discoveries  of  the  earlier  centuries,  would  not  have 
been  so  quickly  and  so  fully  available  to  man  had  it  not  been  for  the 
corporate  type  of  business  organization.  In  several  other  ways 
society  finds  advantage  in  the  capitalizing  methods  of  the  corporate 
form.  The  small  savings  of  many  people  are  brought  into  productive 
use.  These  might  lie  idle  were  it  not  for  the  possibility  of  investments 
of  small  amounts. 

As  the  individual  views  the  corporation  it  has  a  further  advantage 
in  the  matter  of  liability,  an  advantage  which  also  reflects  favorably 
upon  the  amassing  of  capital.  Ordinarily  there  is  no  liability  or  chance 
for  loss  beyond  the  amount  invested  in  the  stock  of  the  corporation. 
The  debts  of  the  corporation,  being  those  of  an  artificial  but  distinct 
personality,  are  quite  separate  from  the  property  of  the  individual 
shareholders.  Now  it  should  be  noticed  that  there  is  nothing  here 
in  the  law  that  is  new  or  that  is  more  favorable  to  corporations  than 
to  private  persons.  The  corporation  is  absolutely  liable  to  the  extent 
of  all  of  its  assets  for  all  of  its  debts.  But  the  corporation  is  an 
individual.  The  people  who  own  shares  are  no  more  the  corporation 
than  they  are  each  other.  Thus  their  property  cannot  be  applied  to 
the  obligations  of  the  corporation.  National  banks,  where  double 
liability  attaches,  are  the  principal  exception  to  this  rule.  The 
advantage  of  this  situation  to  society  as  a  whole  is  somewhat  more 
doubtful.  Complaints  that  responsibility  cannot  be  located,  and  that 
reckless  action  has  often  been  taken  by  corporations  because  of  this 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        363 

limited  liability,  are  not  uncommon.  So  far  as  the  limited  responsi- 
bility leads  to  unwise  direction  of  the  social  energy  under  control 
these  complaints  are  a  justifiable  objection  to  the  corporate  form.  It 
must  be  recognized,  however,  that  those  who  deal  with  corporations 
are  generally  fully  aware  of  this  limited  liability  and  guide  themselves 
and  grant  credit  accordingly.  It  must  also  be  recognized  that  this 
limited  liability  has  been  of  tremendous  benefit  in  drawing  the  money 
of  investors  into  profitable  enterprise. 

A  final  consideration  in  viewing  the  corporation  as  a  type  of  busi- 
ness organization  is  its  scheme  of  management.  Control  is  usually 
vested  in  the  stockholders  in  proportion  to  the  number  of  shares  which 
they  own.  Frequently  only  stockholders  of  a  certain  type,  as  the 
holders  of  preferred  stock  or  of  common  stock,  may  have  the  right  to 
vote.  This  control  is  almost  invariably  turned  over  to  a  board  of 
directors  who  may  delegate  it  in  turn  to  an  executive  committee,  who 
may  redelegate  it  to  a  general  manager.  Where  the  interests  of  the 
corporation  are  large  it  is  usually  possible  and  profitable  to  secure  the 
most  able  managers.  If  managers  are  not  good  it  is  easy  to  remove 
them.  It  is  interesting  in  this  connection  to  compare  the  difficulty 
and  friction  of  removing  or  changing  the  management  of  a  partnership. 

Out  of  this  form  of  management  there  arise  situations  to  which 
society  as  a  whole  may  fairly  raise  some  objection.  The  control  of  the 
corporation  by  stockholders  is  likely  to  be  a  merely  nominal  matter; 
because  of  the  disinterest,  distance,  lack  of  knowledge,  and  the  like, 
many  stockholders  do  not  vote.  This  enables  the  few  who  are  inter- 
ested to  direct  the  control  of  the  corporation.  There  are  various 
other  ways  in  which  this  can  be  done.  Through  stock  manipulation 
the  actual  direction  of  policy  of  a  corporation  is  likely  to  be  concen- 
trated in  a  few  hands.  An  objection  closely  allied  to  this  is  the  imper- 
sonal relations  which  grow  out  of  the  type  of  business  organization 
having  this  form  of  management.  The  stockholders  are  easily  duped. 
Managers  are  not  always  honest,  and  stockholders,  hundreds  or 
thousands  of  miles  away  from  the  real  activities  of  the  corporation, 
are  in  no  position  to  judge  of  the  service  being  rendered  them.  Closely 
allied  with  this  also  is  the  lack  of  ethical  sense  often  charged  in  the 
term  "soulless  corporation."  The  actual  owners  of  the  social  energy 
which  has  been  concentrated  into  such  a  potent  force  are  scattered  and 
innocent  of  the  acts  of  their  company.  Their  sole  point  of  contact  is 
likely  to  be  through  the  dividend  check.  This  is  not  calculated  to 
stimulate  an  interest  in  the  ethics  of  the  company.    The  corporation 


364  INDUSTRIAL  SOCIETY. 

in  this  respect  contributes  its  share  to  the  impersonal  relations  flowing 
from  the  exchange  organization  of  industrial  society. 

Some  hybrid  types  of  business  organization. — The  discussion  of  the 
types  of  business  organization  has  held  definitely  to  the  three  distinct, 
clearly  marked,  well-defined  forms.  All  of  these,  however,  have  been 
modified  into  dozens  of  varieties.  Worth  notice  perhaps  as  examples 
(there  are  plenty  of  others)  are  the  joint-stock  company  and  the  limited 
partnership.  The  joint-stock  company  is  somewhat  of  a  cross  between 
the  partnership  and  the  corporation.  In  form  of  organization  it  is 
like  the  corporation,  shares  being  issued  and  sold  to  a  wide  number 
of  owners.  These  shares  are  transferable  without  the  consent  of 
other  owners.  The  management  is  also  like  the  corporation  in  that 
it  is  usually  delegated  to  a  board  of  directors.  Liability,  however,  in 
the  joint-stock  company  is  ordinarily  the  liability  of  partnership. 

The  limited  partnership  is  another  example  of  a  hybrid  type. 
The  limited  partnership  has  some  features  of  the  general  partnership 
and  some  of  the  features  of  a  corporation.  Such  a  partnership  can 
usually  be  created  only  under  special  provision  of  state  law.  In 
the  limited  partnership  certain  members  must  be  general  partners, 
that  is,  they  must  have  all  the  liabilities  and  rights  of  members  in  the 
ordinary  partnership.  The  limited  partners,  however,  have  a  liability 
limited  to  the  amount  of  money  invested. 

All  of  the  other  varieties  of  partnership,  such  as  the  dormant 
partner,  the  silent  partner,  and  the  secret  partner,  are  modifications  of 
these  three  types,  which  attempt  to  merge  in  a  business  organization 
some  of  the  qualities  which  we  find  in  two  or  more  of  the  distinct  types. 

A  multiplying  device. — When  the  individual  entrepreneur  organizes 
his  business  it  is  possible  that  he  will  find  two  things  desirable.  One 
of  these  is  multiplicity  of  effort.  The  other  is  co-operation.  He  may 
need  co-operation  in  two  different  ways — in  management,  in  finance. 
If  co-operation  is  the  thing  needed  it  is  likely  to  develop  either  into 
a  partnership  or  a  corporation.  The  partnership  will  add  co-operation 
in  management  and  considerable  co-operation  in  finance.  In  the  cor- 
poration there  is  the  possibility  of  limitless  co-operation  in  finance, 
and  of  any  degree  in  management. 

It  may  be,  however,  that  this  business  does  not  need  co-operation, 
but  multiplicity  of  effort.  If  this  is  true  another  device  is  likely  to 
be  called  into  use.  This  is  agency.  Agency  does  not  change  the 
liability  of  the  enterpriser.  It  adds  no  capital.  It  does  not  change  the 
motive  of  the  enterpriser  himself,  but  it  does  multiply  the  effort  which 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        365 

he  can  exercise.  Agency  viewed  in  its  functional  aspect  might,  there- 
fore, be  properly  called  a  multiplying  device.  Agency  is  equally  useful 
to  the  individual  organization,  the  partnership,  or  the  corporation. 

All  of  these  types  of  business  organization,  hybrid  as  well  as 
definite,  together  with  the  other  relations,  such  as  agency,  which 
spring  from  them,  grow  out  of  a  need  in  which  industrial  society  finds 
itself.  In  the  regulation  of  the  relationships  which  arise  society  lays 
down  law.  The  law  views  all  of  them  typically  from  two  aspects — 
one,  the  relation  between  the  parties  who  have  entered  the  relation- 
ship; the  other,  the  relations  between  these  parties  and  the  rest  of 
society.  The  law,  in  taking  this  double  view,  is  quite  in  harmony 
with  the  thought  that  types  of  business  organization  present  to  those 
interested  commercial  advantages  and  disadvantages,  while  society 
may  justify  them  as  proper  devices  and  instruments  only  when  they 
work  a  public  service  rather  than  a  public  harm. 

137.  THE  IMPORTANCE  OF  THE  CORPORATION1 

One  of  the  striking  features  of  the  evolution  of  modern  industrial 
society  has  been  the  development  of  the  corporation.  The  statistics 
in  this  field  are  of  such  very  recent  origin  that,  except  for  the  last  few 
years,  no  quantitative  study  of  the  growth  of  this  form  of  organization 
can  be  presented  which  can  lay  any  claim  to  accuracy.  From  the 
United  States  Census  we  find  that,  auring  the  decade  1 899-1 909,  the 
fraction  of  the  mineral  output  produced  by  corporation-owned  mines 
increased  from  about  85 .0  to  92  .2  per  cent,  while,  in  the  manufactur- 
ing field,  during  the  same  period,  corporations  increased  their  share 
of  the  value  added  by  manufacturers  from  approximately  63 . 3  to 
77.2  per  cent.  We  know  that  transportation  by  water,  rail,  and  wire 
has  been  mainly  carried  on  by  corporations  for  several  decades.  In 
commercial  enterprises,  the  general  impression  is  that  the  stock  com- 
pany is  gradually  playing  a  more  important  part  than  formerly.  Only 
in  the  field  of  agriculture  does  the  individual  entrepreneur — the  man 
who  controls  and  directs  his  own  business — still  remain  dominant  and 
almost  without  corporate  rivals.  A  rough  estimate  indicates  that, 
of  the  total  products  of  American  industry  in  1899,  some  39  per  cent, 
or  approximately  seven  billion  dollars'  worth,  and,  in  1909,  about 
44  per  cent,  or  thirteen  billion-  dollars'  worth,  were  turned  out  by 
corporation-owned  plants. 

1  Adapted  by  permission  from  W.  I.  King,  The  Wealth  and  Income  of  the 
People  of  the  United  States,  pp.  208-11.     (The  Macmillan  Co.,  191 5.) 


366  INDUSTRIAL  SOCIETY 

138.    CLASSES  OF  CORPORATIONS1 

Corporations  are  used  for  such  a  wide  diversity  of  objects  that 
any  classification  based  on  the  purposes  for  which  they  are  formed 
overlaps  and  is  apt  to  be  confusing. 

A  logical  classification  is  that  which  separates  all  corporations  into 
(1)  public  and  (2)  private  corporations.  Public  corporations  are 
those  formed  by  the  community  for  its  own  governmental  purposes, 
as  in  cities,  villages,  and  towns.  These  are  called  municipal  corpora- 
tions. In  the  Dartmouth  College  case  it  was  said  that  "strictly 
speaking,  public  corporations  are  such  only  as  are  founded  by  the 
government  for  public  purposes  where  the  whole  interests  belong  also 
to  the  government."    All  other  corporations  are  private  corporations. 

Corporations  formed  to  conduct  public  utilities,  such  as  railroads, 
turnpikes,  and  telegraph  systems,  or  to  supply  water,  gas,  and  elec- 
tricity, are  frequently  termed  quasi-public  corporations,  but,  if  they 
are  conducted  for  private  gain,  they  are  properly  classed  as  private 
corporations,  even  though  the  state  may  own  part  of  their  stock. 

Private  corporations  may  be  divided  into  corporations  without 
capital  stock  and  corporations  with  capital  stock. 

a)  Corporations  without  capital  stock. — Most  religious,  educational, 
charitable,  and  social  organizations  belong  to  this  class.  They  are 
non-stock,  or  membership,  corporations.  In  some  cases  certificates 
of  membership  are  issued  to  the  members,  but  these  are  not  stock 
certificates  and  are  not  usually  transferable.  When  corporate  action 
is  taken  each  member  has  one  vote  without  regard  to  the  amount  of 
his  financial  interests,  if  any,  in  the  corporation.  Mutual  insurance 
companies  are  non-stock  corporations,  as  are  also  stock  exchanges 
and  other  similar  organizations. 

b)  Corporations  with  capital  stock. — Stock  corporations  have  a 
capital  stock  divided  into,  shares,  usually  of  like  amount,  which  are 
evidenced  by  transferable  certificates  of  stock.  These  stock  certifi- 
cates are  issued  to  the  members  of  the  corporation,  who  are  termed 
stockholders,  the  certificates  evidencing  the  number  of  shares  to  which 
their  owners  are  entitled. 

On  account  of  the  convenience  of  the  system,  all  corporations 
intended  for  profit  are  organized  as  stock  corporations. 

Stock  corporations  may  be  conveniently  divided  into  the 
following  classes:   (1)  corporations  for  general  business  purposes; 

1  Adapted  by  permission  from  Thomas  Conyngton,  The  Modern  Corpora- 
tion, pp.  16-20.     (The  Ronald  Press,  1913.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        367 

(2)  corporations  for  public  service;   (3)  corporations  for  financial 
purposes. 

1.  Corporations  for  general  business  purposes. — This  class  includes 
the  greater  number  of  existing  corporations.  In  most  states  of  the 
Union  general  laws  have  been  passed  providing  that  upon  compliance 
with  simple  prescribed  formalities  and  payment  of  certain  moderate 
fees  companies  of  this  class  may  be  incorporated.  In  a  few  states, 
corporations  may  also  be  authorized  by  special  act  of  the  legislature, 
but  the  practice  prevailing  in  most  of  the  states  permits  incorporation 
only  under  the  provisions  of  general  laws,  the  benefits  of  which  may 
be  enjoyed  by  all  alike.  Many  of  the  states  have  constitutional 
prohibitions  against  special  incorporations. 

The  law  and  procedure  relating  to  corporations  for  general  busi- 
ness purposes,  such  as  manufacturing,  mining,  and  industrial  corpora- 
tions, make  up  the  great  body  of  modern  corporation  law. 

2.  Corporations  for  public  service. — The  corporations  which  control 
railways,  telegraph,  and  telephone  lines,  and  which  furnish  transporta- 
tion, light,  water,  and  power  in  our  great  cities,  form  another  exceed- 
ingly important  class.  These  corporations  are  allowed,  under  certain 
restrictions,  to  exercise  the  right  of  eminent  domain,  and  in  some  cases 
are  given  special  and  exclusive  privileges  in  the  public  ways.  The 
peculiar  nature  of  the  privileges  conferred  upon  this  class  of  corpora- 
tions, and  the  not  infrequent  resulting  abuse  of  their  monopolistic 
powers,  render  them  the  subject  of  constant  and  increasing  legislative 
restriction  and  regulation. 

3.  Corporations  for  financial  purposes. — Under  this  head  are 
included  all  banks,  trust  companies,  insurance  companies,  guaranty 
companies,  building  associations,  and  other  similar  institutions  hand- 
ling the  funds,  savings,  or  investments  of  the  public.  The  laws 
under  which  these  may  be  organized  usually  require  evidence  of  sub- 
stantial financial  responsibility  and  of  actually  paid-in  cash  capital. 
After  organization  certain  detailed  reports  are  required  and  the  cor- 
poration is  usually  subject  to  some  form  of  governmental  super- 
vision. In  each  state,  corporations  of  this  class  are  subject  to  special 
statutory  regulation,  except  national  banks,  which  are  created  and 
supervised  only  by  the  National  Government. 


See  also  282.     The  Holding  Company. 


368  •  INDUSTRIAL  SOCIETY 

E.     Some  Defects  of  the  Pecuniary  Order 
139.    FAULTY  DIRECTION  OF  ECONOMIC  ACTIVITY1 

The  union  between  encouragement  of  individual  efficiency  and 
opportunity  for  wide  co-operation  is  the  great  merit  of  the  money 
economy.  It  provides  a  basis  for  what  is  unquestionably  the  best 
system  of  directing  economic  activity  which  men  have  yet  practiced. 
Nevertheless,  the  system  has  serious  limitations. 

1.  The  money  economy  provides  for  effective  co-ordination  of 
effort  within  each  business  enterprise,  but  not  for  effective  co- 
ordination of  effort  among  independent  enterprises. 

The  two  schemes  of  co-ordination  differ  in  almost  all  respects. 
Co-ordination  within  an  enterprise  is  the  result  of  careful  planning 
by  experts;  co-ordination  among  independent  enterprises  cannot  be 
said  to  be  planned  at  all;  rather  is  it  the  unplanned  result  of  natural 
selection  in  a  struggle  for  business  survival.  Co-ordination  within 
an  enterprise  has  a  definite  aim — the  making  of  profits;  co-ordination 
among  independent  enterprises  has  no  definite  aim,  aside  from  the 
conflicting  aims  of  the  several  units.  Co-ordination  within  an  enter- 
prise is  maintained  by  a  single  authority  possessed  of  power  to  carry 
its  plans  into  effect;  co-ordination  among  independent  enterprises 
depends  on  many  different  authorities  contending  with  each  other, 
and  without  any  power  to  enforce  a  common  programme  except  so 
far  as  one  can  persuade  or  coerce  others.  As  a  result  of  these  condi- 
tions, co-ordination  within  an  enterprise  is  characterized  by  economy 
of  effort;   co-ordination  among  independent  enterprises  by  waste. 

In  detail,  then,  economic  activity  is  planned  and  directed  with 
skill;  but  in  the  large  there  is  neither  general  plan  nor  central  direction. 
The  charge  that  " capitalistic  production  is  planless"  therefore  con- 
tains both  an  important  element  of  truth  and  a  large  element  of  error. 
Civilized  nations  have  not  yet  developed  sufficient  intelligence  to  make 
systematic  plans  for  the  sustenance  of  their  populations;  they  con- 
tinue to  rely  on  the  badly  co-ordinated  efforts  of  private  initiative. 
Marked  progress  has  been  made,  however,  in  the  skill  with  which  the 
latter  efforts  are  directed,  and  also  in  the  scale  on  which  they  are 
organized.  The  growth  in  the  size  of  business  enterprises  controlled 
by  a  single  management  is  a  gain,  because  it  increases  the  portion  of 
the  field  in  which  close  co-ordination  of  effort  is  feasible. 

1  Taken  by  permission  from  W.  C.  Mitchell,  Business  Cycles,  pp.  38-40. 
(University  of  California  Press,  1913.    Author's  copyright.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        369 

2.  But,  as  pointed  out  above,  the  managerial  skill  of  business 
enterprise  is  devoted  to  making  money.  If  the  test  of  efficiency  in 
the  direction  of  economic  activity  be  that  of  determining  what  needs 
are  most  important  for  the  common  welfare  and  then  satisfying 
them  in  the  most  economical  manner,  the  present  system  is  subject 
to  a  further  criticism.  For,  in  nations  where  a  few  have  incomes 
sufficient  to  gratify  trifling  whims  and  where  many  cannot  buy 
things  required  to  maintain  their  own  efficiency  or  to  give  proper 
training  to  their  children,  it  can  hardly  be  argued  that  the  goods 
which  pay  best  are  the  goods  most  needed.  It  is  no  fault  of  the  indi- 
vidual business  leaders  that  they  take  prospective  profits  as  their 
own  guide.  On  the  contrary,  they  are  compelled  to  do  so;  for  the 
men  who  mix  too  much  philanthropy  with  business  soon  cease  to  be 
leaders.  But  a  system  of  economic  organization  which  forces  men 
to  accept  so  artificial  an  aim  as  pecuniary  profit  cannot  guide  their 
efforts  with  certainty  toward  their  own  ideals  of  public  welfare. 
The  business  management  of  single  enterprises  may  be  admirably 
systematic  in  detail;  but  it  is  controlled  by  no  large  human  purpose. 

3.  Even  from  the  point  of  view  of  business,  prospective  profit 
is  an  uncertain,  flickering  light.  For  it  has  already  been  shown  that 
profits  depend  upon  two  variables — on  margins  between  selling  and 
buying  prices  and  on  the  volume  of  trade — related  to  each  other  in 
unstable  fashion,  and  each  subject  to  perturbations  from  a  multitude 
of  unpredictable  causes.  That  the  system  of  prices  has  its  own 
order  is  clear;  but  it  is  not  less  clear  that  this  order  fails  to 
afford  certainty  of  business  success.  Men  of  long  experience  and 
proved  sagacity  often  find  their  calculations  of  profit  upset  by  con- 
junctures which  they  could  not  anticipate.  Thus  the  money  economy 
confuses  the  guidance  of  economic  activity  by  interjecting  a  large 
element  of  chance  into  every  business  venture. 

4.  The  hazards  to.be  assumed  grow  greater  with  the  extent  of 
the  market  and  with  the  time  which  elapses  between  the  initiation 
and  the  fruition  of  an  enterprise.  But  the  progress  of  industrial 
technic  is  steadily  widening  markets,  and  requiring  heavier  invest- 
ments of  capital  for  future  production.  Hence  the  share  in  economic 
leadership  which  falls  to  lenders,  that  of  reviewing  the  various  chances 
afforded  them  for  investment,  presents  increasing  difficulties.  And, 
as  has  been  shown,  a  large  proportion  of  these  lenders,  particularly  of 
the  lenders  on  long  time,  lack  the  capacity  and  the  training  for  the 
successful  performance  of  such  work. 


370  INDUSTRIAL  SOCIETY 

These  defects  in  the  system  of  guiding  economic  activity  and  the 
bewildering  complexity  of  the  task  itself  allow  the  processes  of  eco- 
nomic life  to  fall  into  those  recurrent  disorders  which  constitute 
crises  and  depressions.  Much  patient  analysis,  however,  is  required 
to  discover  just  how  these  disorders  arise,  and  why,  instead  of  becom- 
ing chronic,  they  lead  after  a  time  to  the  return  of  prosperity. 


See  also    9.     Planlessness  and  Conflict. 

104.    Some  Shortcomings  of  Self-interest. 

140.    PRODUCTION  FOR  PROFIT1 

All  our  system  revolves  around  that  central  sun  of  profit-making. 
Here  is  a  factory  in  which  a  great  many  people  are  making  shoddy 
clothing.  You  can  tell  at  a  glance  that  it  is  shoddy  clothing,  and 
quite  unfit  for  wearing.  But  why  are  the  people  making  shoddy 
goods — why  don't  they  make  decent  clothing,  since  they  can  do  it 
quite  as  well  ?  Why,  because  there  is  a  profit  for  somebody  in  mak- 
ing shoddy.  Here  a  group  of  men  are  building  a  house.  They  are 
making  it  of  the  poorest  materials,  making  dingy  little  rooms;  the 
building  is  badly  constructed,  and  it  can  never  be  other  than  a 
barracks.  Why  this  "jerry-building"?  There  is  no  reason  under 
the  sun  why  poor  houses  should  be  built  except  that  somebody  hopes 
to  make  profit  out  of  them. 

Goods  are  adulterated  and  debased,  even  the  food  of  the  nation 
is  poisoned,  for  profit.  Legislatures  are  corrupted  and  courts  of 
justice  are  polluted  by  the  presence  of  the  bribe-giver  and  the  bribe- 
taker for  profit.  Nations  are  embroiled  in  quarrels  and  armies 
slaughter  armies  over  questions  which  are,  always,  ultimately  ques- 
tions of  profit.  Here  are  children  toiling  in  sweatshops,  factories,  and 
mines  while  men  are  idle  and  seeking  work.  Why  ?  Do  we  need  the 
labor  of  the  little  ones  in  order  to  produce  enough  to  maintain  the  life 
of  the  nation?  No.  But  there  are  some  people  who  are  going  to 
make  a  profit  out  of  the  labors  which  sap  the  strength  of  those  little 
ones.  Here  are  thousands  of  people  hungry,  clamoring  for  food  and 
perishing  for  lack  of  it.  They  are  willing  to  work;  there  are  resources 
for  them  to  work  upon;  they  could  easily  maintain  themselves  in 
comfort  and  gladness  if  they  set  to  work.  Then  why  don't  they  set 
to  work  ?    Oh,  Jonathan,  the  torment  of  this  monotonous  answer  is 

1  Adapted  by  permission  from  John  Spargo,  The  Common  Sense  of  Socialism, 
PP-  75-78.     (Charles  H.  Kerr  &  Co.,  191 1.) 


MONEY  ECONOMY  AND  FINANCIAL  ORGANIZATION        371 

unbearable — because  no  one  can  make  a  profit  of  their  labor  they 
must  be  idle  and  starve,  or  drag  out  a  miserable  existence  aided  by  the 
crumbs  of  cold  charity! 

If  our  social  economy  were  such  that  we  produced  things  f<5r  use 
because  they  were  useful  and  beautiful,  we  should  go  on  producing 
with  a  good  will  until  everybody  had  a  plentiful  supply.  If  we  found 
ourselves  producing  too  rapidly,  faster  than  we  could  consume  the 
things,  we  could  easily  slacken  our  pace.  We  could  spend  more  time 
beautifying  our  cities  and  our  homes,  more  time  cultivating  our  minds 
and  hearts  by  social  intercourse,  and  in  the  companionship  of  the  great 
spirits  of  all  ages  through  the  masterpieces  of  literature,  music, 
painting,  and  sculpture.  But  instead,  we  produce  for  sale  and  profit. 
When  the  workers  have  produced  more  than  the  master-class  can  use 
and  they  themselves  buy  back  out  of  their  meager  wages,  there  is  a  glut 
in  the  markets  of  the  world,  unless  a  new  market  can  be  opened  up  by 
making  war  upon  some  defenseless,  undeveloped  nation. 

When  there  is  a  glut  in  the  market,  Jonathan,  you  know  what  hap- 
pens. Shops  and  factories  are  shut  down,  the  number  of  employees 
is  reduced,  the  army  of  unemployed  grows,  and  there  is  a  rise  in  the 
tide  of  poverty  and  misery.  Yet  why  should  it  be  so  ?  Why,  simply 
because  there  is  a  superabundance  of  wealth,  should  people  be  made 
poorer?  Why  should  little  children  go  without  shoes  just  because 
there  are  loads  of  shoes  stacked  away  in  stores  and  warehouses? 
Why  should  people  go  without  clothing  simply  because  the  ware- 
houses are  bursting  with  clothes  ?  The  answer  is  that  these  things 
must  be  so  because  we  produce  for  profit  instead  of  for  use.  All  these 
stores  of  wealth  belong  to  the  class  of  profit-takers,  the  capitalist  class, 
and  they  must  sell  and  make  profit. 

The  root  of  evil,  the  taproot  from  which  the  evils  of  modern  society 
develop,  is  the  profit  idea.  Life  is  subordinated  to  the  making  of 
profit.  If  it  were  only  possible  to  embody  that  idea  in  human  shape, 
what  a  monster  ogre  it  would  be!  And  how  we  should  arraign  it  at  the 
bar  of  human  reason!  Should  we  not;  call  up  images  of  the  million  of 
babes  who  have  been  needlessly  and  wantonly  slaughtered  by  the 
Monster  Idea;  the  images  of  all  the  maimed  and  wounded  and  killed 
in  the  wars  for  markets;  the  millions  of  others  who  have  been  bruised 
and  broken  in  the  industrial  arena  to  secure  somebody's  profit,  because 
it  was  too  expensive  to  guard  life  and  limb;  the  numberless  victims  of 
adulterated  food  and  drink,  of  cheap  tenements  and  shoddy  clothes  ? 
Should  we  not  call  up  the  wretched  women  of  our   streets;    the 


372  INDUSTRIAL  SOCIETY 

bribers  and  the  vendors  of  privilege?  We  should  surely  parade  in 
pitiable  procession  the  dwarfed  and  stunted  bodies  of  the.  millions 
born  to  hardship  and  suffering,  but  we  could  not,  alas!  parade  the 
dwarfed  and  stunted  souls,  the  sordid  spirits  for  which  the  Monster 
Idea  is  responsible. 

See  also  87.  Unrest  because  of  Violation  of  Reciprocity. 

91.  Some  Criticisms  of  Commerce. 

185.  The  Delicate  Mechanism  of  Industry. 

310.  Impersonality  under  the  Primary  Regime. 

353.  The  Socialists'  Indictment  of  Competitive  Society. 

370.  Property  at  its  Zenith. 


CHAPTER  VI 

SPECIALIZATION  AND  INTERDEPENDENCE 

A.    Problems  at  Issue 

In  our  discussion  of  the  present  day  individual-exchange- 
co-operative-pecuniary  society  we  have  assumed  both  the  existence 
and  the  defensibility  of  specialization  and  interdependence.  This  was 
permissible.  They  are  familiar  concepts — commonplaces.  It  fre- 
quently happens,  however,  that  the  significance  of  commonplaces  is 
overlooked  and  these  particular  commonplaces  are  so  pregnant  with 
consequences  that  they  must  not  be  passed  by  without  some  detailed 
explanation. 

In  considering  the  topic  specialization,  care  must  be  given  to  ter- 
minology. Some  writers  use  the  expression  "division  of  labor"  as 
synonymous  with  " specialization."  Others  use  "division  of  labor" 
with  particular  reference  to  the  apportionment  of  tasks  within  the 
industrial  plant.  Still  others  use  the  phrase  in  no  single  definite  sense. 
In  this  introductory  statement,  specialization  will  be  used  as  the 
inclusive  term  and  such  phrases  as  "separation  of  occupations," 
"division  of  labor"  (within  a  given  plant),  and  "territorial  or  geo- 
graphical specialization"  will  be  regarded  as  sub-classifications  of  the 
general  heading.  In  no  event  should  confusion  of  terminology  pre- 
vent our  seeing  that  capital,  land,  and  organization  are  as  truly 
"divided"  or  "specialized"  as  is  labor.- 

What  is  a  specialized  society?  It  has  two  significant  aspects. 
The  first  is  differentiation,  but  differentiation  would  be  purposeless  and 
barren  of  results  were  there  not  also  present  unification.  How  far 
differentiation  can  be  carried,  as  a  matter  of  laboratory  experiment, 
will  depend  upon  technological  considerations  primarily.  It  will  be 
conditioned  by  the  prevailing  state  of  the  arts  and  sciences.  How 
far  differentiation  may  wisely  be  carried  is  another  matter.  That 
will  involve  a  sense  of  proportion — will  raise  considerations  of  the 
economical  expenditure  of  social  energy.  If  differentiation  is  "  carried 
too  far"  there  is  waste,  readily  seen  by  everyone.  If  differentiation 
is  "not  carried  far  enough"  there  is  none  the  less  waste,  uneconomical 
expenditure  of  energy,  even  if  it  be  not  so  readily  seen.  Clearly  there 
must  be  some  means  of  estimating  and  correlating  the  results  of 

373 


374  INDUSTRIAL  SOCIETY 

differentiation — there  must  be  some  unifying  agency.  The  unifying 
agency  mainly  used  by  our  private-exchange-co-operative  society  is 
the  appeal  to  gain.  We  carry  differentiation  as  far  as  it  pays  to 
carry  it.  Whether  that  is  a  long  or  a  short  distance  depends,  barring 
monopoly  and  predation,  upon  the  size  of  the  opportunity  commercial 
organization  has  created.  The  term  "commercial  organization"  will 
be  found  to  include  a  great  number  of  factors.  Patent  to  the  most 
artless  mind  would  be  considerations  of  market  area,  whether  it  be 
time  area  or  geographical  area,  considerations  of  the  efficiency  of 
marketing  agencies,  and  of  the  character  as  well  as  the  volume  of  the 
demand.  Conditioning  these  will  be  found  technological  considera- 
tions, psychological  considerations,  and  the  efficiency  of  the  mechan- 
ism of  the  pecuniary  organization  of  society. 

A  differentiated-united  society  is  in  the  nature  of  the  case  an 
interdependent  society.  No  individual  of  civilized  society  is  today 
economically  independent.  What  one  does  is  a  matter  of  concern  to 
many  others,  and  he  must  not  be  surprised  if  they  feel  disposed  to 
regulate  his  activities.  The  connective  fibers  of  this  interdependent 
structure  are  numerous,  interlacing,  and  of  curious  composition. 

QUESTIONS 

i.  Is  specialization  peculiar  to  our  society?  Was  there  specialization  in 
the  manorial  economy  ?    Would  there  be  specialization  under  socialism  ? 

2.  Can  you  think  of  anyone  today  who  engages  in  every  kind  of  work 
necessary  to  produce  the  commodities  which  he  uses? 

3.  "Any  intelligently  ordered  society  will  have  specialization;  it  is  only 
a  competitive  society  that  requires  also  trade  and  money."  What 
does  this  mean  ?  Is  it  true  ?  What  other  possible  devices  (than  trade 
and  money)  could  be  used  to  secure  and  maintain  a  specialized  society  ? 

4.  Nowadays  one  machine  completes  the  process  of  pin-making  which  in 
Adam  Smith's  day  occupied  ten  men.  Has  there  been  an  increase  or 
a  decrease  in  specialization  ? 

5.  Give  examples  of  (a)  the  division  of  labor;  (b)  territorial  grouping  of 
related  industries;  (c)  territorial  grouping  of  plants  of  the  same  indus- 
try;  (d)  geographical  specialization  in  agricultural  products. 

6.  "Perhaps  the  form  of  specialization  which  is  of  greatest  importance  in 
economics  is  the  functional  specialization  in  bringing  labor,  land, 
capital,  etc.,  into  the  productive  process."  What  does  this  mean? 
Name  some  economic  and  social  problems  which  grow  out  of  this  func- 
tional specialization. 

7.  What  new  forms  of  specialization  and  what  enlargements  of  the  market 
accompanied  the  transition  from  the  handicraft  to  the  factory  system  ? 


SPECIALIZATION  AND  INTERDEPENDENCE  375 

8.  "Capital,  land,  and  organization  are  as  truly  divided  or  specialized  as 
is  labor."     Cite  illustrations. 

9.  Is  specialization  responsible  for  the  increased  participation  of  woman 
in  work  outside  the  home  ? 

10.  "Whatever  unpleasant  effects  the  division  of  labor  may  have,  as  regards 
monotony,  may  be  counteracted  and  mitigated."  How?  Can  these 
unpleasant  effects  be  entirely  overcome  ? 

11.  "Division  of  labor  promotes  invention  by  standardizing  a  process  and 
thus  pointing  out  how  it  may  be  taken  over  by  a  machine."  "Division 
of  labor  hinders  invention  by  deadening  human  faculties."  With 
which  quotation  do  you  agree  ? 

12.  "Once  we  had  a  watchmaker;  now  we  have  a  one  hundred  and  fortieth 
part  of  a  watchmaker  confined  to  a  single  process.  A  man  has  become 
a  small  part  of  a  man.  This  is  the  boasted  gain  of  specialization." 
Comment. 

13.  "Division  of  labor  tends  to  reduce  the  pleasure  men  derive  from  their 
work."    Do  you  agree? 

14.  How  can  it  be  argued  that  specialization  makes  possible  greater  quantity 
and  better  quality  of  products  ? 

15.  Draw  up  in  parallel  columns  the  advantages  and  disadvantages  of 
specialization. 

16.  In  what  ways  does  specialization  "greatly  facilitate  the  acquisition  and 
retention  of  the  sum  of  knowledge  which  is  transmissible  from  one 
generation  to  another?" 

17.  Classify  the  advantages  of  division  of  labor  (within  a  given  business  unit) 
according  to  (a)  the  business  point  of  view,  (b)  the  social  point  of  view. 

18.  Mr.  X  is  a  high-grade  lawyer.  He  is  also  the  best  stenographer  in  his 
state.  Is  he  likely  to  hire  someone  to  do  his  stenographic  work  ?  Why 
or  why  not  ? 

19.  A  is  a  good  musician  but  is  temperamentally  unfitted  for  other  work. 
B,  while  fond  of  music,  is  efficient  only  in  farming.  Is  an  exchange 
likely  to  take  place?  Would  the  situation  be  different  if  A  and  B 
represented  regions  of  different  natural  endowment  ? 

20.  A  by  one  day's  labor  can  make  9  units  of  x  or  2  units  of  y.  B  by  one 
day's  labor  can  make  2  units  of  x  or  9  units  of  y.  Would  specialization 
and  exchange  be  likely  to  take  place  ?  Would  the  situation  be  different 
if  A  and  B  represented  regions  instead  of  men  ? 

21.  A  by  one  day's  labor  can  make  20  units  of  x  or  10  units  of  y.  B  by  one 
day's  labor  can  make  15  units  of  x  or  5  units  of  y.  Would  specializa- 
tion and  exchange  be  likely  to  take  place?  Would  the  situation  be 
different  if  A  and  B  represented  regions  instead  of  men  ? 
An  American  statesman  of  the  nineteenth  century  declared  that  it  was 
bad  policy  for  the  United  States  to  import  any  commodity  that  could 
be  procured  in  the  United  States.    Do  you  agree  ? 


376  INDUSTRIAL  SOCIETY 

23.  Another  statesman  urged  that  no  commodity  which  can  be  produced 
in  the  United  States  with  the  same  amount  of  labor  as  in  foreign  coun- 
tries could  be  economically  imported.  Do  you  think  this  position 
tenable  ? 

24.  It  has  been  asserted  that  the  income  of  the  citizens  of  the  United  States 
could  be  greatly  augmented  if  all  commodities  now  imported  were  pro- 
duced at  home,  and  all  commodities  now  exported  were  consumed  at 
home.  The  cost  of  transportation,  now  amounting  to  several  hundred 
millions  annually,  would  then  be  saved.  Apply  this  argument  to  trade 
between  the  Middle  West  and  the  Pacific  slope,  and  expose  the  fallacies 
involved  in  it. 

25.  "We  may  often  by  trading  with  foreigners  obtain  their  commodities  at 
a  smaller  expense  of  our  labor  and  capital  than  these  commodities  cost 
the  foreigners  themselves." 

a)  Explain  carefully  how  this  can  be. 

b)  Show  that  in  spite  of  this  the  foreigner  gains  by  the  transaction. 

26.  What  fixes  the  mechanical  limit  to  specialization?  What  fixes  the 
commercial  limit  ? 

27.  Why  is  it  that  a  country  store  keeps  a  little  of  everything,  while  a  city 
store  very  often  deals  in  only  one  kind  of  commodities,  such  as  shoes  or 
china  or  sporting  goods  ? 

28.  Can  specialization  be  carried  as  far  in  bicycle  repair  shops  as  in  bicycle 
manufacturing  ?    Why  or  why  not  ? 

29.  Give  examples  of  specialized  occupations  which  are  made  possible  by 
the  degree  of  exchange  co-operation  which  exists  within  (a)  small 
villages;    (b)  towns  of  5,000  inhabitants;    (c)  large  cities. 

30.  Cite  cases  where  specialization  is  limited  by  (a)  the  nature  of  the  indus- 
try itself;  (b)  the  extent  of  the  market;  (c)  social  institutions;  (d)  finan- 
cial organization;  (e)  commercial  organization.  What  factors  go  to 
make  up  "the  extent  of  the  market"  ? 

31.  Have  widening  markets  led  to  specialization  or  has  the  increased  produc- 
tivity of  specialized  industry  enlarged  markets  ? 

32.  "Specialization  is  a  means  whereby  a  nation  attains  to  essential  unity. 
It  develops  the  sense  of  each  working  for  all  and  all  for  each."  Has 
our  specialization  developed  any  such  sense  ? 

33.  Draw  up  a  generalized  list  of  types  of  interdependence  in  modern  indus- 
trial society.  Try  to  work  out  another  list  of  consequences  of  this 
interdependence. 

34.  "There  is  a  sympathy  and  opposition  between  all  trades  due  to  the 
fact  that  they  draw  the  very  breath  of  life  from  common  sources." 
What  does  this  mean  ?  What  determines  how  much  "breath"  a  given 
industry  shall  obtain  ? 

35.  "Mining  and  agriculture  are  fundamental"  industries;  transport  and 
finance  are  pervasive  and  connective."     What  does  this  mean?    Do 


SPECIALIZATION  AND  INTERDEPENDENCE  377 

mining  and  agriculture  serve  as  connective  industries  in  any  sense? 
What  does  transport  include  ?     What  does  finance  include  ? 

36.  "One  of  the  connecting  fibers  of  our  interdependent  society  is  the 
financial  mechanism.  It  makes  the  structure  particularly  sensitive  to 
shock."     Is  this  true  ? 

37.  Is  interdependence  peculiar  to  the  competitive  system  ?  Would  there 
be  any  interdependence  under  socialism  ?     Under  the  family  economy  ? 

38/ Trace  in  detail  and  from  the  very  first  the  processes  which  have  aided 
in  supplying  you  with  your  cup  of  coffee.  How  many  people  do  you 
suppose  helped  in  those  processes  ?  Do  you  think  it  is  desirable  to  be 
dependent  on  so  many  people  in  the  satisfying  of  your  wants  ? 

39.  "Interdependence  puts  us,  as  it  were,  at  one  another's  mercy,  and  so 
ushers  in  a  multitude  of  new  forms  of  wrongdoing."  Explain.  What 
can  we  do  about  it  ? 

40.  "One  evil  of  interdependence — and  one  that  is  commonly  overlooked — 
is  the  fact  that  by  so  much  leaning  on  others  the  stamina  of  individuals 
is  weakened."    Is  this  true  ? 

41.  "You  cannot  touch  the  consumer  in  any  point  in  his  expenditure  with- 
out altering  in  countless  ways  his  whole  standard  of  valuation  and  thus 
affecting  industrial  processes."  Show  what  this  means  by  working  out 
some  specific  illustration. 

42.  "Among  other  evils  which  may  be  charged  against  interdependence  is 
the  pervasive  sensitiveness  of  our  modern  society.  There  follows  the 
widespread  evils  resulting  from  commercial  panics."  Is  this  true? 
Would  these  things  be  true  under  socialism?  Is  it  your  guess  that 
something  more  than  interdependence  may  be  needed  to  explain  the 
cause  of  panics  ? 

43.  "A  football  celebration  in  which  windows  are  broken  may  harm  house- 
holders but  it  is  a  good  thing  for  labor.  It  gives  employment  to  labor." 
Prove  or  disprove  this  on  the  basis  of  the  thoughts  suggested  by  the 
topic  of  interdependence. 

44.  "Such  events  as  the  Galveston  flood  are  not  unmixed  evils.  Employ- 
ment will  now  be  found  for  many  laborers  and  this  benefit  should  not 
be  forgotten  or  minimized  by  us."  What  do  you  think  of  the  state- 
ment ? 

B.     Some  Forms  of  Specialization 
141.     SPECIALIZATION  AND  CO-OPERATION1 

In  our  general  account  of  the  co-operation  prevailing  under  the 
present  order,  no  attempt  was  made  to  go  into  the  matter  at  all 
specifically.     In  fact  it  was  Vaguely  assumed  that  all  co-operation 

1  Taken  by  permission  from  F.  M.  Taylor,  Principles  of  Economics,  pp.  21-23- 
(University  of  Michigan,  1916.) 


378  INDUSTRIAL  SOCIETY 

takes  a  form  wherein  each  producer  makes  some  one  thing  from  first 
to  last — starts  it  and  finishes  it  ready  for  the  consumer,  e.g.,  the 
farmer  supplying  potatoes.  This  sort  of  co-operation  we  might  dis- 
tinguish as  primary  co-operation  or  primary  division  of  occupation. 
But  everyone  knows  that  co-operation  commonly  goes  much  further 
than  this.  Almost  no  one  carries  from  the  beginning  to  the  end  the 
processes  necessary  to  the  production  of  a  particular  consumption 
good.  The  work  of  the  baker  must  be  preceded  by  that  of  the  miller 
and  the  farmer.  So,  the  work  of  the  shoemaker  must  be  preceded 
by  that  of  the  tanner  and  the  stock  farmer.  Further,  between  each 
producer  in  the  series  and  his  successor,  must  come  the  dealer,  the 
middleman,  to  effect  the  necessary  transfer  of  the  product  between 
the  independent  producers.  In  addition,  the  various  members  in  the 
original  series  make  much  use  of  the  products  and  services  of  producers 
in  other  series.  Thus,  the  dealers  who  transfer  the  hides  from  the 
stock  farmer  to  the  tanner  make  use  of  the  services  of  various  pro- 
ducers outside  the  series,  especially  those  engaged  in  the  transporta- 
tion business.  Tanners  again  use  coal  produced  by  another  group, 
also  bark,  and  various  chemicals.  In  like  manner,  shoemakers  use 
thread,  bristles,  needles,  machinery,  cloth,  etc.,  etc.,  which  they 
obtain  from  other  classes  of  producers  quite  outside  our  original  series. 
Here  then  we  have  division  of  occupation  within  division  of  occupation. 
We  might  call  it  secondary  co-operation  or  secondary  division  of 
occupation. 

But,  in  an  economic  society  having  any  considerable  degree  of 
development,  co-operation  and  specialization  go  still  further  than  has 
yet  been  brought  out.  Even  in  the  last  case  we  were  thinking  of 
undivided  industrial  units,  though  each  was  devoted  to  providing  only 
some  one  element  in  the  ultimate  product;  e.g.,  a  stock  farm  devoted 
to  raising  cattle,  a  tannery  occupied  in  preparing  hides  for  leather 
and  so  on.  But  we  all  know  that  there  is  specialization  within  each 
industrial  unit.  The  tannery,  which  as  a  whole  produces  leather,  has 
some  men  scraping  hides,  some  attending  to  the  curing  of  the  hides 
in  the  various  baths,  some  staining,  some  finishing,  some  keeping 
books,  some  writing  letters,  etc.  Obviously  this  sort  of  specialization 
is  also  of  very  great  significance.  Writers  have  sometimes  distin- 
guished it  from  the  kinds  already  considered  as  Division  of  Labor, 
while  those  are  called  Division  of  Occupation. 

But  we  have  not  yet  brought  out  the  full  extent  of  co-operation 
and  specialization  under  the  present  order.     The  specialization  thus 


SPECIALIZATION  AND  INTERDEPENDENCE  379 

far  considered  more  especially  grows  out  of  the  differences  in  the 
physical  or  technical  operations  to  be  performed,  as  just  seen  in  the 
case  of  tanning.  But  there  are  deeper  differences  among  the  functions, 
processes,  factors,  involved  in  production.  Production  requires  that 
some  man  possessing  more  or  less  wealth  should  assume  the  respon- 
sibility of  production;  it  requires  that  he  should  have  land  upon  which 
to  work;  it  requires  that  he  should  have  laborers  to  perform  the  differ- 
ent tasks;  it  requires  that  he  should  have  materials,  tools,  and  machines 
to  assist  these  men.  In  short,  to  use  the  more  technical  language  of 
economics,  there  must  be  at  least  three  factors  of  production:  land, 
labor,  and  capital.  As  the  last  of  these  comes  to  the  work  in  two 
different  relations,  controlled  by  two  different  sets  of  persons,  we  have 
in  reality  something  like  four  groups  of  productive  agents  engaged 
in  every  industry,  namely:  landlords,  laborers,  capitalists  proper,  those 
who  supply  the  capital  needed  in  production,  and  entrepreneurs,  those 
owners  of  wealth  who  assume  the  responsibility  of  production.  Here, 
manifestly,  we  have  a  deeper  sort  of  co-operation  and  specialization 
than  anything  yet  considered.  This  particular  kind  of  co-operation 
and  specialization  now  under  consideration,  I  will  for  the  lack  of  a 
better  term  designate  as  functional  co-operation.  We  at  least  ought 
to  realize  the  existence  of  such  a  system,  even  if  we  seldom  have 
occasion  to  make  special  reference  to  it. 

The  student  should  further  note  that  the  development  of  this 
functional  specialization  and  co-operation  brings  in  its  train  new  cases 
of  specialization  analogous  to  the  simpler  forms  already  considered. 
Thus,  the  more  completely  the  furnishing  of  capital  has  become  iso- 
lated from  taking  the  responsibility  of  production,  the  more  there 
have  developed  institutions  for  dealing  in  this  capital.  Prominent 
among  such  institutions  are  commercial  banks,  savings  banks,  trust 
companies,  and  so  on. 

At  this  point  it  seems  desirable  to  remark  on  one  very  important 
general  result  of  the  great  extremes  to  which  specialization  is  carried 
in  the  present  order,  viz.,  that  this  fact  gives  to  the  existing  system  an 
extraordinary  complexity  which  is  very  confusing  to  the  general  public 
and  not  a  little  so  to  the  trained  thinker.  It  is  often  difficult  to 
isolate  the  precise  function  played  by  a  particular  business;  and  people 
who  form  hasty  conclusions  are  very  apt  to  deny  the  existence  of  such 
a  function,  to  affirm  that  the  business  in  question  plays  no  legitimate 
part,  so  that  those  who  pursue  it  are  mere  parasites  upon  society. 
The  student  should  studiously  avoid  this  practice.     In  fact,  he  will 


380  INDUSTRIAL  SOCIETY 

do  well  to  assume  at  the  outset  that  every  occupation,  not  catering 
to  human  vice,  plays  a  real  and  legitimate  r61e  in  the  total  conduct  of 
economic  affairs — is  doing  some  one  of  the  numberless  things  necessary 
to  be  done  if  we  are  to  attain  the  highest  economic  efficiency. 

To  summarize  this  discussion:  The  present  economic  system  pre- 
sents itself  to  us  as  one  wherein  we  have  a  vast  complex  of  different 
industries,  mining,  stock-raising,  farming,  manufacturing,  transport- 
ing, etc.,  each  concerned  in  the  production,  of  some  commodity  at 
one  or  another  stage  of  completion,  while,  within  each  of  these 
industries,  different  functional  groups  of  productive  agents,  entre- 
preneurs, capitalists,  laborers,  and  landlords  are  co-operating,  and 
while,  finally,  this  vast  industrial  complex  is  brought  together,  is  held 
together,  and  is  regulated  through  exchange — buying  and  selling. 

See  also  4.     The  System  of  Individual  Exchange  Co-operation. 
85.    The  Great  Co-operation. 

142.    SPECIALIZATION  IN  CAPITAL1 

Certain  fundamental  principles  characterize  American  methods  of 
manufacture;  such  as  the  employment  of  special  machines  to  per- 
form specific  operations  only,  whereby  the  output  of  a  factory  is 
enormously  increased,  minute  and  systematized  division  of  labor 
effected,  the  costly  work  of  finishing  and  adjusting  minimized,  and  the 
highest  development  of  skill,  accuracy,  and  dispatch  acquired.  The 
high  wages  paid  to  skilled  labor  in  this  country  have  acted  as  a  stimulus 
to  the  invention  and  perfecting  of  labor-saving  machinery,  and  the 
employment  of  such  labor-saving  machinery  operated  by  high-priced, 
intelligent  mechanics  has  resulted  sometimes  in  a  very  much  larger 
output  and  lower  cost  of  product  per  man  employed  than  anywhere  in 
the  world  under  old  conditions.  These  features  have  perhaps  received 
most  notable  development  in  the  fine  art  of  watchmaking  by  machinery 
in  America,  wherein  the  acme  of  perfection  and  economy  is  shown. 

The  system  of  concentration  of  labor  in  large  factories  for  making 
watches  in  this  country  is  the  antithesis  of  the  method  of  scattered 
manufacturing  which  prevailed  for  centuries  in  Europe,  notably  in 
Switzerland.  M.  Favre-Peret,  who  investigated  this  industry  in  the 
New  England  States  some  years  ago,  stated  that  the  average  produc- 
tion of  40,000  workmen  in  Switzerland  was  40  watches  each  per  annum, 

1  Taken  by  permission  from  A.  E.  Outerbridge,  Jr.,  "Specialization  in  Manu- 
facture," Annals  of  the  American  Academy  of  Political  and  Social  Science,  XXV 
(ia°5)>  47-48. 


SPECIALIZATION  AND  INTERDEPENDENCE  381. 

while  in  America  the  average  was  150  fine  watches  for  each  man 
employed. 

By  the  aid  of  special  machines  in  these  watch  factories  one  man  can 
make  1,200  fine  screws  per  day,  some  of  which  are  so  small  that  more 
than  100,000  are  required  to  weigh  a  pound.  One  of  the  finest  pieces 
made  is  a  " pallet-arbor"  or  pivotal  bolt,  which,  for  a  small-sized 
watch,  has  a  thread  of  260  to  the  inch,  weighs  1/130,000  of  a  pound, 
undergoes  25  operations,  and  costs  but  2\  cents.  Measurements  are 
gauged  to  1/25,000  of  an  inch. 

The  balance  wheel,  after  being  machined,  weighs  only  7  grains, 
and  when  fitted  with  16  gold  screws  weighs  7.2  grains;  there  are  80 
separate  operations  upon  a  balance  wheel,  66  of  them  being  drilling, 
threading,  and  countersinking  holes;  the  drills  revolve  at  a  speed  of 
4,800  turns  a  minute  and  one  operator  can  drill  upwards  of  2,200  holes 
for  the  balance  wheels  per  day. 

143.  LABOR  SPECIALIZATION  IN  MEAT  PACKING1 
The  division  of  labor  grew  with  the  industry,  following  the  intro- 
duction of  the  refrigerator  car  and  the  marketing  of  dressed  beef,  in  the 
decade  of  the  seventies.  Before  the  market  was  widened  by  these 
revolutionizing  inventions,  the  killing  gangs  were  small,  since  only  the 
local  demands  were  supplied.  But,  when  the  number  of  cattle  to  be 
killed  each  day  increased  to  a  thousand  or  more,  an  increasing  gang 
or  crew  of  men  was  put  together;  and  the  best  men  were  kept  at  the 
most  exacting  work.  At  what  point  the  greatest  economy  is  reached 
was  discovered  by  experiment  and  by  comparison  of  one  house  with 
another.  Each  firm  has  accurate  knowledge  of  the  labor  force  and 
the  output  of  every  other  house,  and  in  this  way  each  improvement 
becomes  general  and  each  superintendent  is  keyed  up.  Taking  a  crew 
of  230  butchers,  helpers,  and  laborers,  handling  1,050  cattle  a  day 
under  the  union  regulations  of  output,  the  time  required  for  each 
bullock  is  equivalent  to  131  minutes  for  one  man,  from  the  pen  to 
the  cooler,  the  hide  cellar,  and  all  the  other  departments  to  which 
the  animal  is  distributed.  But  this  is  made  up  of  6 . 4  minutes  for  the 
50-cent  man,  i|  minutes  for  the  45-cent  man,  and  so  on;  and  the 
average  wage  per  hour  for  the  gang  would  not  exceed  2 1  cents,  making 
the  entire  labor  cost  about  46  cents  per  bullock. 

Three  main  objects  were  gained  by  this  division  of  labor.  First, 
cheaper  men — unskilled  and  immigrant  labor — could  be  utilized  in 

1  Taken  by  permission  from  J.  R.  Commons.  "Labor  Conditions  in  Meat 
Packing,"  Quarterly  Journal  of  Economics,  XIX  (1904-5),  6-7. 


382  INDUSTRIAL  SOCIETY 

large  numbers.  Second,  skilled  men  became  more  highly  expert  in  the 
quality  of  their  work.  While,  on  the  one  hand,  this  greatly  increased 
the  proportion  of  low  wage  men,  it  also  pushed  up  the  wages  of  the 
very  few  skilled  men  on  the  delicate  and  particular  parts  of  the  work. 
An  all-round  butcher  might  expect  to  earn  35  cents  an  hour,  but  the 
highly  specialized  floorman  or  splitter  earns  50  cents  an  hour.  Some 
of  these  expert  floormen  work  a  week  at  a  time  without  cutting  a 
single  hide,  so  deft  and  delicate  becomes  their  handling  of  the  knife. 
If  the  company  makes  a  few  of  these  particular  jobs  desirable  to  the 
men  and  attaches  them  to  its  service  it  can  become  independent  of 
the  hundreds  who  work  at  the  jobs  where  they  can  do  but  little 
damage;  and  their  low  wage  brings  down  the  average  to  21  cents, 
where,  if  all  were  all-round  butchers,  the  average  would  be  35  cents. 
Consequently,  in  the  course  of  time  the  companies  put  a  few  of  the 
strongest  men,  and  those  with  a  particular  knack  for  their  work,  on 
"steady  time,"  paying  them  a  salary  of  $24  to  $27  a  week,  regardless 
of  time  actually  worked;  but  the  other  nine- tenths  of  the  gang  were 
hired  by  the  hour,  and  paid  only  for  the  time  at  work.  These  steady- 
time  men  not  only  stood  by  the  company,  but  acted  as  pace-setters; 
and  in  this  way  a  third  object  of  division  of  labor  was  brought  about — 
namely,  speed. 

144.    SPECIALIZATION  IN  MANAGEMENT1 

Let  us  go  over  the  duties  which  [an  old-fashioned]  foreman  in 
charge,  say,  of  lathes,  or  planes,  is  called  upon  to  perform,  and  note 
the  knowledge  and  qualities  which  they  call  for. 

First.  He  must  be  a  good  machinist — and  this  alone  calls  for 
years  of  special  training,  and  limits  the  choice  to  a  comparatively 
small  class  of  men. 

Second.  He  must  be  able  to  read  drawings  readily,  and  have 
efficient  imagination  to  see  the  work  in  its  finished  state  clearly  before 
him.  This  calls  for  at  least  a  certain  amount  of  brains  and  edu- 
cation. 

Third.  He  must  plan  ahead  and  see  that  the  right  jugs,  clamps, 
and  appliances,  as  well  as  proper  cutting-tools  are  on  hand,  and  are 
used  to  set  the  work  correctly  in  the  machine  and  cut  the  metal  at  the 
right  speed  and  feed.     This  calls  for  the  ability  to  concentrate  the 

1  Taken  by  permission  from  F.  W.  Taylor,  Shop  Management,  pp.  96-98,  and 
The  Principles  of  Scientific  Management,  pp.  123-25.  (Harper  &  Bros.  Copy- 
right by  author,  191 1.) 


SPECIALIZATION  AND  INTERDEPENDENCE  383 

mind  upon  a  multitude  of  small  details  and  to  take  pains  with  little, 
uninteresting  things. 

Fourth.  He  must  see  that  each  man  keeps  his  machine  clean  and 
in  good  order.  This  calls  for  the  example  of  a  man  who  is  naturally 
neat  and  orderly  himself. 

Fifth.  He  must  see  that  each  man  turns  out  work  of  the  proper 
quality.  This  calls  for  the  conservative  judgment  and  the  honesty 
which  are  the  qualities  of  a  good  inspector. 

Sixth.  He  must  see  that  the  men  under  him  work  steadily  and 
fast.  To  accomplish  this  he  should  himself  be  a  hustler,  a  man  of 
energy,  ready  to  pitch  in  and  infuse  life  into  his  men  by  working  faster 
than  they  do,  and  this  quality  is  rarely  combined  with  the  painstaking 
care,  the  neatness,  and  the  conservative  judgment  demanded  as  the 
third,  fourth,  and  fifth  requirements  of  a  gang  boss. 

Seventh.  He  must  constantly  look  ahead  over  the  whole  field  of 
work  and  see  that  the  parts  go  to  the  machines  in  their  proper  sequence 
and  that  the  right  job  gets  to  each  machine. 

Eighth.  He  must,  at  least  in  a  general  way,  supervise  the  time- 
keeping and  fix  piecework  rates.  Both  the  seventh  and  eighth  duties 
call  for  a  certain  amount  of  clerical  work  and  ability,  and  this  class 
of  work  is  almost  always  repugnant  to  the  man  suited  to  active  execu- 
tive work,  and  difficult  for  him  to. do;  and  the  rate-fixing  alone  re- 
quires the  whole  time  and  careful  study  of  a  man  especially  suited 
to  its  minute  detail. 

Ninth.  He  must  discipline  the  men  under  him,  and  readjust  their 
wages;  and  those  duties  call  for  judgment,  tact,  and  judicial  fairness. 

Under  functional  management,  the  old-fashioned  single  foreman 
is  superseded  by  eight  different  men,  each  of  whom  has  his  own  special 
duties,  and  these  men,  acting  as  the  agents  for  the  planning  depart- 
ment, are  the  expert  teachers,  who  are  at  all  times  in  the  shop  helping 
and  directing  the  workmen;  Being  each  one  chosen  for  his  knowledge 
and  personal  skill  in  his  specialty,  they  are  able  not  only  to  tell  the 
workman  what  he  should  do,  but  in  case  of  necessity  they  do  the 
work  themselves  in  the  presence  of  the  workman,  so  as  to  show  him 
not  only  the  best  but  also  the  quickest  methods. 

One  of  these  teachers  (called  the  inspector)  sees  to  it  that  he 
understands  the  drawings  and  instructions  for  doing  the  work.  He 
teaches  him  how  to  do  work  of  the  right  quality;  how  to  make  it  fine 
and  exact  where  it  should  be  fine,  and  rough  and  quick  where  accuracy 
is  not  required — the  one  being  just  as  important  for  success  as  the 


3^4 


INDUSTRIAL  SOCIETY 


other.  The  second  teacher  (the  gang  boss)  shows  him  how  to  set  up 
the  job  in  his  machine,  and  teaches  him  to  make  all  of  his  personal 
motions  in  the  quickest  and  best.  way.  The  third  (the  speed  boss) 
sees  that  the  machine  is  run  at  the  best  speed  and  that  the  proper 
tool  is  used  in  the  particular  way  which  will  enable  the  machine  to 
finish  its  product  in  the  shortest  possible  time.  In  addition  to  the 
assistance  given  by  these  teachers,  the  workman  receives  orders  and 

Diagram  Illustrating  the  Principle  of  Functional  or  Scientific 
Management1 


FLAMMING 


PERFORMING 


help  from  four  other  men:  from  the  "repair  boss"  as  to  the  adjust- 
ment, cleanliness,  and  general  care  of  his  machine,  belting,  etc. ;  from 
the  "time  clerk,"  as  to  everything  relating  to  his  pay  and  to  proper 
written  reports  and  returns;  from  the  "route  clerk,"  as  to  the  order  in 
which  he  does  his  work  and  as  to  the  movement  of  the  work  from  one 
part  of  the  shop  to  another;  and,  in  case  a  workman  gets  into  any  trouble 
with  any  of  his  various  bosses,  the  "disciplinarian"  interviews  him. 

1  This  diagram  is  taken  from  F.  B.  Gilbreth,  "Units,  Methods,  and  Devices 
of  Measurement  under  Scientific  Management,"  The  Journal  of  Political  Economy, 
XXI  (1913),  619. 


SPECIALIZATION  AND  INTERDEPENDENCE 


385 


145.    WOMAN  IN  INDUSTRY1 

The  census  of  19 10  shows  a  total  of  7,608,000  female  wage-earners 
as  compared  with  5,319,000  in  1900.  This  is  an  increase  of  43 
per  cent.  In  the  same  decade  the  number  of  females  ten  years  of 
age  and  over  had  increased  but  22  per  cent.  The  significance  of  the 
first  column  in  the  table  below  is  to  disclose  which  occupational 
groups  are  attracting  a  larger  and  which  a  smaller  percentage  of  the 
total  number  of  women  workers;  of  the  second  to  show  in  which 
occupational  group  women  are  gaining,  and  in  which  losing  ground, 
as  compared  with  male  workers;  and  of  the  third  to  allow  a  comparison 
of  the  increase  of  women  workers  in  the  occupational  groups  on  a 
numerical  and  a  percentage  basis. 


Occupational  Groups 

I 

Percentage  of  Total 
Female  Workers  in 
the  Various  Groups 

II 

Percentage  of 
Workers  in  the  Var- 
ious Groups  Who 
Are  Females 

III 

Increase  of  Women 

Wage-Earners 

by  Groups  , 

from  1900  to  1910 

1900 

1910 

1900 

1910 

No. 

Percentage 

Domestic  and  personal 
service 

39-4 

24.7 

18.4 

8.1 

95 

34-4* 

23.2* 

17.6* 

8.8* 

15 '8* 

375 

18.5 

9-4 

34-2 

10.6 

48.9 

16.4 

10.6* 

36.9 

15-8 

526,000 

4S9,ooo 

362,000* 

242,000 

699,000 

25 

37* 
56 

139 

Manufacturing       and 
mechanical  pursuit. . 
Agriculture 

Professional  service .  . . 
Trade  and  transporta- 
tion   

Total 

100. 0 

99.8 

18.3 

20.1* 

2,289,000! 

43* 

t  Vol.  IV,  Occupation  Statistics.    The  corrected  figure  has  been  used, 
cated  by  an  asterisk. 


Figures  affected  are  indi- 


There  is  evidence  of  this  transferal  of  work  from  the  home  in  other 
fields  than  manufacturing.  Among  domestic  workers  laundresses 
numbered  335,000  in  1900,  of  whom  325,700  were  handworkers;  less 
than  10,000  were  employed  in  steam  laundries.  In  1910  this  occu- 
pation included  597,000  women,  of  whom  520,000  were  handworkers 
and  76,000  steam-laundry  operators.  The  increase  of  factory  workers 
was  over  600  per  cent;  that  of  home  workers  less  than  60  per  cent. 
Again,  of  servants  and  waiters  combined,  there  were  1,284,800  in  1900, 
of  whom  1,242,000  were  servants  and  42,800  were  waiters.  In  1910 
the  combined  figure  was  1,495,000,  of  whom  1,309,000  were  servants,  a 

1  Adapted  by  permission  from  C.  E.  Persons,  "Women's  Work  and  Wages  in 
the  United  States,"  Quarterly  Journal  of  Economics,  XXIX  (1914-15),  202-6,  233. 


386  INDUSTRIAL  SOCIETY 

slight  increase,  and  nearly  86,000  were  waiters,  a  gain  of  over  100 
per  cent.  These  examples  and  others  which  might  be  given  illustrate 
the  continued  progress  of  the  industrial  revolution.  Obviously  the 
change  now  taking  place  affects  most  largely  the  fields  traditionally 
occupied  by  women.  Just  as  the  New  England  women  followed 
their  work  as  spinners  and  weavers  from  the  rural  home  to  the  urban 
factory,  women  today,  if  they  are  to  maintain  their  position  as  pre- 
parers of  food  and  garments,  must  leave  the  home  for  the  factory. 
Thus  work  is  being  transferred  from  family  control  to  corporate 
management.  The  home  is  less  a  workshop.  The  family  is  no  longer 
the  industrial,  though  it  remains  the  social,  unit.  Where  the  trans- 
formation will  stop  is  not  yet  apparent.  The  past  decade  shows  a 
rapidity  of  change  seldom  equalled,  and  we  may  expect,  with  the 
growing  urbanization  of  our  population,  a  continuance  of  this  rapid 
movement.  It  is  to  be  noted  that  this  brings  more  women  within  the 
ken  of  the  census.  It  means  more  work  done  by  women  outside 
the  home,  though  there  may  still  be  room  to  doubt  whether  it  means 
that  the  total  amount  of  work  done  by  women  is  greater.  It  thus 
means  that  increasing  importance  will  attach  to  problems  of  women's 
work  and  wages. 

146.    GEOGRAPHICAL  SPECIALIZATION1  ' 

I  *  First  in  importance  in  fixing  the  home  of  certain  industries  is  the 
presence  of  natural  deposits  or  supplies.  This  determines  imperiously 
the  location  of  mines,  quarries,  oil  or  gas  wells,  fisheries,  lumber  and 
fur  industries,  and  the  collecting  of  nitrates,  borax,  sponges,  pearls, 
buffalo  horns.  Thus  the  Chilian  desert  is  the  site  of  nitrate  mines,  the 
oyster  industry  haunts  the  Chesapeake,  dye-woods  are  furnished  from 
tropical  forests,  while  the  sulphur  pits  of  Sicily  supply  brimstone  to 
all  parts  of  the  world. 

Besides  the  simple  finding,  digging  up,  breaking  off,  cutting  down, 
dislodging,  capturing,  or  bringing  together  of  natural  substances  or 
growths,  we  often  find  these  reduced,  refined,  prepared,  preserved,  or 
otherwise  worked  up  before  leaving  their  original  locality.  Here  we 
may,  in  thought,  distinguish  two  industries,  one  working  on  raw 
materials  supplied  by  the  other.  Many  elaborative  processes  are  in 
this  way  attached  to  some  extractive  industry,  and  located  with  refer- 
ence to  it.    The  weaving  of  basket  ware  established  itself  in  Fran- 

1  Adapted  by  permission  from  E.  A.  Ross,  "The  Location  of  Industries," 
Quarterly  Journal  of  Economics,  X  (1895-96),  247-68. 


SPECIALIZATION  AND  INTERDEPENDENCE  3S7 

conia,  owing  to  the  splendid  growth  of  willow-trees  in  the  neighboring 
valley  of  the  Main.  Most  of  the  slate  pencils  of  the  world  are  made 
in  the  Thuringian  forest,  the  site  of  the  finest  slate  quarries. 
UtProbably  next  in  importance  is  nearness  to  the  sources  of  raw  or 
auxiliary  materials.  This  consideration  will  have  most  influence  first, 
when  the  materials  are  bulky  and  heavy  relatively  to  their  value; 
second,  when  the  finished  product  embodies  but  a  small  part  of  the 
materials  employed  or  contains  much  greater  value;  third,  when 
transportation  facilities  are  backward,  or  the  materials  are  produced 
in  a  mountainous  district  or  in  the  interior  of  a  country  where  the 
cost  of  transportation  is  unusual.  These  conditions  are  met  with  in 
the  metal  industries,  so  that  ore  is  for  the  most  part  smelted  near  the 
mine,  if  fuel  be  forthcoming.  The  sawmills,  in  turn  invade  the 
wilderness  or  follow  up  logging  streams  in  quest  of  their  material. 
While  there  is  no  great  shrinkage  in  sawing  logs  into  lumber,  the 
greater  ease  of  handling  is  sufficient  to  carry  the  sawmill  to  the  logs 
instead  of  the  logs  to  the  sawmill. 

Here  we  bring  in  a  new  consideration — the  fact  that  extractive 
and  elaborative  industries  are  linked  together  by  technical  as  well  as 
economic  bonds.  The  perishability  of  the  materials  makes  the  loca- 
tion of  the  dependent  industry  in  many  cases  something  more  than 
a  matter  of  freight  bills.  Neither  cane  nor  raw  juice  can  be  carried 
far  without  spoiling,  for  a  similar  reason  salmon  canneries  will  cling 
to  the  banks  of  the  Columbia,  while  fruit  and  vegetable  canneries  will 
stick  close  to  Maryland  orchards  and  California  ranches.  This  tether 
that  binds  one  industry  to  a  certain  spot,  despite  the  economic  attrac- 
tions of  other  localities,  is  weakened  by  every  new  device  to  preserve 
form  and  stay  decay.  So  far,  the  frozen  meat  cargoes  and  refrigerator 
fruit  shipments  are  in  the  service  of  the  consumer  rather  than  of 
dependent  industries;  but  we  may  yet  see  these  industries  set  free 
to  obey  other  forces  of  location. 

Whenever  great  heat  is  needed,  it- is  impossible  to  ignore  the 
sources  of  fuel  supply.  This,  therefore,  is  of  great  importance  in 
locating  the  metallurgical,  chemical,  and  refining  industries,  the 
smelting,  casting,  rolling,  or  forging  of  iron  or  steel,  the  manufacture 
of  brick,  hardware,  glass,  stoneware,  pottery,  and  porcelain. 

When  coal  is  burned  simply  to  develop  steam  power,  its  cost  of 
carriage  is  not  so  great  as  to  make  nearness  to  source  of  fuel  a  prime 
desideratum  in  location.  Its  rival,  water  power,  on  the  other  hand, 
has  not  been  portable  in  any  form,  and,  if  used  at  all,  has  to  be  used 


388  INDUSTRIAL  SOCIETY 

in  strict  connection  with  the  falling  water  that  generates  it.  Around 
eligible  water  power,  therefore,  settle  industries  employing  heavy 
machinery  such  as  flour  mills,  planing  mills,  sawmills,  and  many 
manufactures  of  wood  and  metal.  The  manufactures  that  seek  cheap 
power  are  mainly  those  that  receive  the  crude  natural  materials  direct 
from  the  extractive  branches,  and  impose  on  them  their  first  and 
greatest  change  of  form.  For  the  more  purely  elaborative  processes, 
lying  nearer  the  consumer,  labor  and  light  machinery  effect  the 
transformations. 

A  power  site  thus  becomes  the  core  of  an  industrial  center. 
Lowell,  Lawrence,  Fall  River,  Concord,  and  other  manufacturing 
towns  on  the  streams  tumbling  from  the  granite  hills  of  New  England 
owe  their  rise  to  this  cause.  The  South  owes  part  of  its  growth  to 
the  falls  in  its  rivers.  Great  milling  centers,  like  Rochester,  Niagara, 
and  Minneapolis,  are  the  result  of  cheap  power.  It  is  likely  that, 
with  the  advent  of  the  economical  transmission  of  electrical  energy 
to  a  distance  from  the  place  of  generation,  the  value  of  the  more 
eligible  power  sites  will  be  enormously  increased;  while,  on  the  other 
hand,  the  concentrating  tendency  being  checked,  the  milling  industries 
will  be  left  free  to  follow  other  attractions. 

Sometimes  a  trade  takes  up  its  home  where,  as  supplement  to 
some  other  branch,  it  can  fill  up  an  industrial  chink.  In  Switzerland 
hand-carving  maintains  itself,  because  not  only  can  it  be  pursued  in 
the  winter  and  in  the  long  evenings,  but  the  occupation  is  so  light 
as  to  refresh  rather  than  to  weary.  The  poultry  industry  is  in  most 
countries  scattered  and  conducted  in  a  small  way,  because  it  fills  a 
chink  in  farming,  and  up  to  a  certain  point  costs  almost  nothing.  A 
great  deal  of  stock-raising  is  merely  incidental  to  farming.  The  peach 
industry  of  Belgium  is  likewise  a  parasite.  The  clusters  of  site 
industries  that  grow  up  about  packing  establishments,  refineries,  or 
gas-works,  engaged  in  turning  refuse  into  by-products,  are  also  para- 
sitic. We  note,  on  a  higher,  plane,  the  obvious  connection  between 
the  literary  and  scientific  life  of  an  educational  center  like  Leipzig  and 
its  prominence  as  a  book  mart. 

Climate  is  not  only  decisive  for  vegetal  products,  but  appears  to 
play  no  small  role  in  locating  manufactures.  Partly  to  the  fact  that 
a  very  moist  atmosphere  is  necessary  in  order  to  spin  the  finer  cotton 
yarns  is  due  the  steady  concentration  of  the  cotton  industry  in  Lan- 
cashire, where  high  hills  inland  keep  off  the  dry  east  wind,  and  pre- 
cipitate a  copious  downfall  from  the  sea  winds  from  the  west. 


* 
SPECIALIZATION  AND  INTERDEPENDENCE  389 

5  •  The  residence  of  the  consumer  frequently  determines  the  location 
of  the  industry.  The  whole  groups  of  service  industries  of  course 
follow  the  consumer.  In  fact,  the  chief  economic  difference  between 
goods  and  services  lies  in  the  fact  that  the  place  of  production  of  the 
latter  is  in  relation  to  the  consumer.  Besides  this,  certain  industries 
that  produce  goods  such  as  tailoring,  millinery,  photography,  and 
pharmacy,  must  refer  to  the  person  of  the  consumer.  Repair  work 
settles  near  him.  Confectioneries,  bakeries,  and  market  gardens  must 
be  near  to  him  to  avoid  deterioration  of  product.  Daily  newspapers 
are  published  where  the  readers  dwell,  in  order  to  secure  promptitude. 
The  bulk  and  waste  of  artificial  ice  in  transportation,  as  well  as  the 
bulk  of  coopers'  products,  compel  them  to  be  made  where  wanted. 

If  raw  materials,  fuel,  and  power  are  necessary  to  production,  no 
less  are  labor  and  specialized  capital.  The  capital  required  for  build- 
ings and  machinery  is,  however,  rarely  influential  in  locating  an 
industry,  because  the  buildings  are  locally  supplied,  while  machinery, 
if  brought  from  elsewhere,  is  transported  once  for  all,  and  cannot 
therefore  compete  with  material  or  fuel  as  a  factor  in  location. 
Capital,  the  most  mobile  and  dynamic  factor  of  production  seeks  its 
allies  instead  of  requiring  them  to  come  to  it.  It  effaces  itself  in  the 
location  of  industries,  consulting  always  the  local  affinities  of  the 
other  productive  factors. 

Labor  is  not  sharply  localized,  as  is  natural  power,  for  instance. 
Like  fuel  or  materials,  it  can  be  transported;  and,  like  them,  its  prices 
in  different  markets  perpetually  tend  to  converge.  But  the  trans- 
plantation of  the  laborer  entails  the  expense  of  transportation  of  him- 
self, family,  and  belongings,  and  all  the  costs  in  trouble,  risks,  and 
sentiment  that  attend  a  change  of  residence.  While  the  elaborative 
industries  performing  the  first  operations  on  nature's  products  are 
the  most  regardful  of  nearness  to  materials,  fuel,  and  power,  the 
higher  branches  that  fabricate  finished  goods  are  apt  to  attend  more 
carefully  to  labor  cost.  In  the  manufacture  of  clothing,  linen,  under- 
wear, gloves,  boots  and  shoes,  millinery,  cigars,  patent  medicine  and 
cutlery,  the  cost  of  labor  enjoys  the  controlling  position.  Apart, 
therefore,  from  the  cost  of  moving  materials  or  product,  industries 
will  tend  to  congregate  in  commercial  centers,  in  order  to  profit  by  the 
cheapness  of  labor  that  results  from  a  cost  of  living  kept  low  by  easy 
resort  to  a  wide  supplying  area. 

Many  items  enter  into  the  articles  of  union  between  labor  and 
capital  besides  the  matter  of  remuneration.     Cash  wages,  prompt 


390  INDUSTRIAL  SOCIETY 

payment,  notice  of  discharge,  liability  of  employer,  provision  of  fire- 
escapes,  fencing  of  machinery,  limited  hours  for  women  and  children 
— all  these  obligations,  whether  imposed  by  law  or  by  labor  organiza- 
tions, will,  if  unattended  by  heightened  efficiency,  be  unfavorable  to 
capital  and  may  lead  to  its  migration.  So,  too,  industrial  disturb- 
ances, rioting,  frequent  and  prolonged  strikes,  dispose  capital  to 
exodus  if  a  more  tranquil  seat  can  be  found.  With  more  capitalistic 
methods  of  production,  outlay  for  labor  and  material  diminishes  rela- 
tively to  that  for  plant  and  machinery.  This  necessity  for  specializing 
and  sinking  vast  initial  sums  makes  industry  increasingly  dependent 
on  order,  security,  and  continuity  of  conditions.  Civil  disorder, 
revolutionary  changes,  sudden  alterations  in  laws,  or  even  a  vigorous 
reform  policy,  scare  away  capitalistic  industries.  On  the  other  hand, 
docility  of  laborers,  absence  of  trade  unions  or  restrictive  laws,  unques- 
tioning submission  to  the  terms  offered  by  capital,  attract  an  industry. 
Easy  incorporation,  light  taxes,  severe  penalities  for  offences  against 
property,  lavish  grants  of  authority  to  private  watchmen,  such  as  the 
Coal  and  Iron  Police  of  Pennsylvania,  prompt  use  of  police  or  militia 
in  labor  disputes,  pliant  legislatures,  complaisant  courts,  corrupt 
officials — all  these,  so  long  as  they  provoke  no  dangerous  reaction, 
attract  outside  capital,  and  make  a  community  the  home  of  vast 
industrial  investments. 

Occasionally  we  find  industries  confined  to  a  certain  locality 
because  of  dearth  elsewhere  of  adequate  technical  knowledge  and 
inventive  talent.  The  manufacturers  of  one  country  get  a  start,  and 
by  a  recourse  to  native  technique  are  able  to  keep  their  lead.  In  the 
manufacture  of  dental  instruments  and  supplies  Americans  have 
unquestioned  leadership,  owing  to  their  inventive  faculty  and  to  the 
constant  stimulus  afforded  by  a  highly-developed  profession.  Similar 
causes  give  them  pre-eminence  in  the  making  of  farm  machinery,  while 
the  ingenuity  with  which  utility  and  convenience  are  wrought  into 
their  implements  and  tools  gives  American  hardware  a  great  name 
abroad.  The  lead  acquired  by  France  in  articles  of  beauty  and  taste 
is  undoubtedly  due  to  the  presence  of  abundant  and  well-organized 
artistic  ability.  The  high  development  of  the  chemical  industries  in 
Germany  is  connected  with  the  ardent  cultivation  of  chemical 
science  in  that  country.  While,  of  course,  experts  may  be  trans- 
ported as  any  other  factor  in  production,  experience  shows  that  an 
industry  permanently  dependent  upon  imported  technical  knowl- 
edge will  pay  high  salaries  and  receive  service  less  conscientious, 


SPECIALIZATION  AND  INTERDEPENDENCE  39 1 

responsible,  and  well  considered  than  would  be  rendered  by  the  same 
men  at  home. 

The  concentration  of  a  scattered  industry  usually  comes  about  by 
some  locality  outstripping  the  other  centers  and  finally  extinguishing 
them.  The  initial  growth  is  due,  of  course,  to  some  superiority  of  this 
locality  over  the  others.  But,  as  the  center  leaves  its  rivals  behind, 
it  requires  a  momentum  from  the  fact  that  the  economies  of  concen- 
trated industry  now  work  in  its  favor  as  well  as  its  special  advantages. 
With  these  urging  it  in  the  same  direction,  one  might  wonder  why  the 
rising  center  does  not  go  on  killing  out  its  small  rivals  over  larger  and 
larger  areas  and  appropriating  their  business.  But  trees  do  not  grow 
up  into  the  sky,  nor  does  an  industrial  center  expand  till  it  absorbs 
the  custom  of  the  globe.  For  this  there  are  two  chief  reasons.  One 
is  that,  as  a  place  becomes  more  of  a  center,  its  special  advantage 
tends  to  disappear.  If  it  is  water  power  the  multiplication  of  mills 
raises  the  cost  of  power  till  it  is  no  longer  cheaper  than  elsewhere. 
If  it  is  accessible  coal,  the  increase  of  consumption  compels  shafts  to 
be  sunk  deeper  and  galleries  to  be  cut  farther  till  the  local  superiority 
has  vanished.  The  other  reason  is  that,  as  industry  concentrates, 
the  radius  of  the  territory  from  which  its  materials  and  the  subsistence 
of  its  dependent  population  are  drawn,  and  of  the  territory  over  which 
the  finished  product  is  distributed,  increases;  the  average  cost  of 
transportation  per  unit  of  industry  grows,  until  its  growth  neutralizes 
the  economies  of  further  concentration. 

147.    INTERNATIONAL  SPECIALIZATION  AND  FREE  TRADE1 

It  has  not  been  possible  to  get  thus  far  in  our  discussion  of  eco- 
nomic principles  without  bringing  out  by  implication  one  of  the  prin- 
cipal reasons  why  economists  as  a  class  are  free  traders — they  favor 
the  utmost  possible  freedom  from  restrictions,  because  this  means  the 
largest '  possible  amount  of  co-operation — it  enables  everyone  to 
benefit  most  completely  by  the  productive  activity  of  everyone  else. 
But,  whatever  economists  think,  governments  continue  to  try  to 
guide  our  trade  into  more  or  less  artificial  channels.  In  doing  this, 
they  profess  to  act  on  the  basis  of  principles.  We  have  no  intention 
of  undertaking  here  a  study  of  these  principles.  But  one  or  two  of 
them  belong  to  our  present  topic  in  that  they  concern  directly  the 

Adapted    by   permission   from    F.   M.   Taylor,   Principles   of  Economics, 
PP-  73— 77-     (University  of  Michigan,  1916.) 


392  INDUSTRIAL  SOCIETY 

question — When  is  exchange-co-operation,  trade,  between  different 
countries  profitable  ?  To  this  question,  therefore,  we  must  now  give 
a  little  attention. 

One  general  condition  under  which  exchange-co-operation  would 
surely  be  profitable  would  be  realized  if  two  communities,  d  and  C2, 
produced  just  two  things,  Px  and  P2,  and  d  could  produce  Px  much 
•  more  cheaply  than  could  C2,  while  C2  could  produce  P2  much  more 
cheaply  than  could  Cx.  Evidently  both  would  gain  if  d  should  pro- 
duce enough  Px  for  both,  and  C2  enough  P2  for  both.  On  the  basis 
of  this  case,  we  might  say  that  exchange  will  usually  pay  if  each  of 
the  exchanging  countries  can  produce  some  particular  thing  much 
more  cheaply  than  the  other. 

But,  while  the  most  important  cases  of  exchange-co-operation 
between  countries  would  probably  be  covered  by  such  a  principle, 
fuller  analysis  long  ago  showed  that  this  statement  does  not  cover  all 
cases,  is  in  fact  misleading.  If  we  stopped  at  this,  the  reader  might 
very  naturally  conclude  that  trade  would  pay  only  when  the  condition 
just  explained  was  present.  He  might  even  conclude  that  we  ought 
never  to  buy  a  thing  from  other  countries  if  we  could  produce  that 
thing  as  cheaply  as  those  other  countries.  This  notion,  though  quite 
wrong,  is  quite  common.  The  unsoundness  of  the  doctrine  as  applied 
to  the  case  of  an  individual  is  at  once  evident.  Here,  for  example,  is 
a  lawyer  who  very  likely  can  mow  his  lawn,  cultivate  his  garden,  and 
take  care  of  his  furnace  much  better  than  the  person  or  persons  whom 
he  hires  to  do  these  things.  But  what  he  does  is  to  devote  himself  to 
the  practice  of  his  profession,  and  buy  the  services  named  from  other 
people;  and  of  course  he  acts  wisely  in  doing  so.  So  long  as  he  can 
find  a  market  for  his  possible  output,  he  would  better  devote  his  time 
entirely  to  doing  the  thing  for  which  .he  is  pre-eminently  fitted,  and 
get  his  supplies  of  other  things  from  his  neighbors,  even  though  he 
can  make  those  other  things  better  than  his  neighbors. 

Now,  it  seems 'pretty  evident  that  the  case  of  a  community  or 
nation  is  in  this  respect  no  different  from  that  of  an  individual.  The 
Upper  Peninsula  of  Michigan  produces  little  but  copper  and  iron, 
getting  most  other  goods  through  exchange  with  other  communities. 
Yet  it  would  be  easy  to  prove  that  Upper  Michigan  is  really  better 
fitted  to  produce  some  of  these  things  which  she  buys  from  the  rest 
of  us  than  we  are,  and  that  her  people  are  quite  aware  of  this.  The 
explanation  of  this  situation  is  to  be  found  in  what  has  been  long 
known  as  the  Law  of  Comparative  Cost. 


SPECIALIZATION  AND  INTERDEPENDENCE  393 

Ignoring  cost  of  transportation,  two  communities  (persons)  find 
it  profitable  to  specialize  respectively  in  the  production  of  two  com- 
modities and  to  exchange  those  commodities  each  for  the  other, 
provided  the  comparative  real  costs  of  the  two  commodities  in  one 
community  are  different  from  their  comparative  real  costs  in  the 
other  community. 

Illustration:  Letting  labor  represent  all  real  costs,  suppose  that 
in  England  the  cost  of  a  ton  of  iron  is  25  days'  labor  and  the  cost  of  a 
yard  of  broadcloth  is  5  days'  labor;  while  in  America  the  cost  of  the 
iron  is  16  days'  labor  and  that  of  the  broadcloth  4  days'  labor. 

Eng.  cost  Iron  :  Eng.  cost  Cloth  : :  25  :  5 
Am.  cost  Iron  :  Am.  cost  Cloth  : :  16  :  4 

The  comparative  costs  are  not  equal;  therefore,  by  the  principle, 
specialization  and  exchange  will  pay. 

Argument:  Since  in  England  a  ton  of  iron  costs  five  times  as  much 
as  a  yard  of  cloth,  it  will  naturally  tend  to  be  worth  the  same  as  five 
yards  of  cloth;  under  which  conditions  England  can  afford  to  give 
iron  for  cloth  if,  and  only  if,  she  can  get  more  than  five  yards  per  ton; 
or  trade  cloth  for  iron  if,  and  only  if,  she  can  get  it  with  less  than  five 
yards  per  ton.  In  America,  on  the  other  hand,  a  ton  of  iron  tends  to 
be  worth  four  yards  of  cloth;  under  which  conditions  America  can 
afford  to  trade  iron  for  cloth  if,  and  only  if,  she  can  get  more  than 
four  yards  per  ton;  or  to  trade  cloth  for  iron  if,  and  only  if,  she  can 
get  it  with  less  than  four  yards.  But  the  first  hypothesis  for  England 
and  the  second  for  America  are  plainly  shut  out.  England  cannot 
get  more  than  five  yards  of  cloth  for  iron,  since  in  America  it  is  worth 
only  four  yards.  So  America  cannot  buy  iron  with  less  than  four 
yards  of  cloth  since  it  is  worth  five  yards  in  England.  On  the  other 
hand,  the  second  hypothesis  for  England  and  the  first  for  America 
fit  each  other  perfectly.  England  can  get  iron  for  less  than  five  yards, 
since  it  is  worth  only  four  in  America;  and  America  can  sell  iron  for 
more  than  four  yards  of  cloth,  since  it  is  worth  five  in  England. 
Accordingly,  under  the  conditions  supposed,  an  exchange  of  English 
cloth  for  American  iron  would  be  profitable. 

The  foregoing  statement  of  the  Principle  of  Comparative  Cost  puts 
it  in  terms  of  the  reciprocal  trade  of  two  countries.  But  in  fact  most 
international  trade  is  not  of  this  twofold  character.  It  is  triangular 
or  multiangular.  Nation  A  sells  to  B;  B  sells  to  C;  and  C  sells  to  A. 
At  bottom,  however,  the  cases  are  substantially  alike.    The  condition 


394  INDUSTRIAL  SOCIETY 

which  makes  specialization  and  exchange  profitable  is  a  difference 
between  the  comparative  costs  to  one  country  of  the  things  exchanged 
and  their  comparative  costs  to  other  countries. 


See  also  90.     The  Benefits  of  International  Trade. 

C.    An  Estimate  of  the  Value  and  Limits  of  Specialization 
148.    ADVANTAGES  OF  SPECIALIZATION1 

1.  The  first  of  the  advantages  of  division  of  labour  is  that  it 
enables  man  to  make  the  best  use  of  the  various  qualities  possessed 
by  different  parts  of  the  surface  of  the  earth.  If  each  man  worked 
entirely  by  himself,  he  would  be  obliged  to  get  everything  from  a  very 
small  area. 

We  must  not  think  only  of  the  impossibility  of  obtaining  certain 
products  from  certain  areas.  There  is  a  great  deal  more  than  that  to 
be  considered.  There  are  many  degrees  of  difficulty  short  of  the 
infinite  degree  which  is  literal  impossibility.  We  get  coffee  from 
Brazil,  tea  from  Ceylon,  and  bananas  from  Teneriffe  or  Jamaica,  not 
because  it  is  absolutely  impossible  to  grow  these  things  in  England, 
but  because  it  is  much  more  difficult  to  grow  them  here  where  the  soil 
and  climate  are  not  so  suitable.  It  would  be  obviously  the  act  of  a 
madman  to  insist  on  growing  a  little  of  everything  on  each  acre,  or  to 
cut  the  farm  up  into  sections  for  wheat,  meadow,  potatoes,  and  so 
on,  with  no  regard  to  anything  except  facility  of  transport  to  the  home- 
stead.    Mankind  at  large  is  in  much  the  same  position. 

We  must  be  very  cautious  about  accepting  any  short  and  taking 
phrase  for  a  summary  description  of  the  advantage  resulting  from 
the  local  concentration  of  industries.  To  say,  for  instance,  that  it 
"  enables  everything  to  be  done  in  the  place  best  fitted  for  the  purpose" 
is  not  satisfactory,  since  it  often  happens  that  one  place  is  the  best 
fitted  for  carrying  on  two,  or  even  more  than  two,  different  industries. 
Then,  as  there  is  not  room  for  more  than  one,  the  others  must  be 
placed,  not  in  the  best,  but  in  the  second  or  even  third,  fourth,  fifth, 
or  sixth  best  place.  Industries  must  be  arranged  in  what  is  the  best 
way  on  the  whole,  taking  into  consideration  all  of  them  and  also  the 
amenities  enjoyed  by  the  consumer  so  far  as  these  are  to  be  considered 
separately  from  the  industries.  This  last  proviso,  concerning  ameni- 
ties, is  necessary  in  order  to  prevent  such  things  as  the  discomfort  of 

1  Adapted  by  permission  from  Edwin  Cannan,  Wealth,  pp.  41-51.  (P.  S.  King 
&  Son,  Ltd.,  1914.) 


SPECIALIZATION  AND  INTERDEPENDENCE  395 

living  in  a  bad  climate  from  being  overlooked.  A  concentration  of 
industries  which  was  extremely  good  so  far  as  the  mere  product  of  the 
industries  was  concerned  would  be  a  very  bad  one  if  it  compelled  a  large 
part  of  the  people  of  the  world  to  live  on  the  Antarctic  continent.  If 
we  adhere  to  the  phrase  adopted  at  the  beginning  of  this  section  and 
say  that  co-operation  enables  man  to  make  the  best  use  of  the  various 
qualities  possessed  by  different  parts  of  the  earth's  surface,  we  seem 
to  be  on  fairly  safe  ground. 

2.  The  second  great  advantage  of  division  of  labour  is  that  it 
enables  labour  to  be  so  distributed  between  different  persons  that 
their  original  or  natural  qualities  may  be  best  utilised. 

Obviously  it  will  be  better  to  divide  the  whole  of  the  work  to  be 
done  between  all  the  workers  concerned  in  such  a  way  that  the  work 
requiring  great  strength  is  given  to  the  strong,  work  requiring  dex- 
terity of  mind  to  the  clever,  and  so  on,  as  far  as  possible.  The  proviso 
"as  far  as  possible"  is  necessary  because,  just  as  it  is  not  true  to  say 
everything  must  be  done  in  the  place  best  fitted  for  it,  so  it  is  not  true 
to  say  everything  must  be  done  by  the  person  best  fitted  for  it. 
Often  the  person  best  fitted  for  one  kind  of  work  will  also  be  the  best 
fitted  for  another  kind  of  work  or  for  several  other  kinds:  he  must 
then  be  allotted  the  labour  which  it  is  best  he  should  perform  when 
the  special  capabilities  of  all  the  workers,  including  himself,  are  taken 
into  consideration.  Some  of  the  work  will  then  necessarily  be  allotted, 
not  to  the  person  best  fitted  for  it,  but  to  the  second,  third,  fourth,  and 
fifth  best  fitted. 

In  practice  this  advantage  of  division  of  labour  is  inextricably 
mixed  up  with  the  third,  to  which  we  now  proceed. 

3.  The  third  advantage  of  division  of  labour  lies  in  the  fact  that 
it  enables  much  greater  skill  and  dexterity  of  hand  and  brain  to  be 
acquired  for  each  of  the  various  occupations.  "Jack  of  all  trades" 
is  proverbially  "master  of  none."  A  person  who  had  to  supply  all 
his  own  needs  would  have  to  do  so  many  things  that  he  could  not 
expect  practice  to  make  him  perfect  at  any  of  them.  When  different 
kinds  of  labour  are  allotted  to  different  persons,  so  that  the  whole  or 
greater  part  of  the  working  time  of  each  is  given  to  one,  or  at  any  rate 
a  few  kinds  of  labour,  each  acquires  in  a  high  degree  that  special 
dexterity  required  for  his  particular  work  which  is  obtained  by  prac- 
tice. Furthermore,  it  becomes  possible  to  give  to  each  person  the 
perhaps  more  important  kind  of  skill  and  dexterity  which  is  to  be 
obtained  by  education  or  deliberate  training.     Human  life  is  far  too 


396  INDUSTRIAL  SOCIETY 

short  to  make  it  worth  while  to  give  individuals  the  elaborate  train- 
ing necessary  for  more  than  one  of  the  more  difficult  employments. 

This  advantage  is  necessarily  mixed  up  with  the  second,  because 
when  once  particular  quality  have  been  acquired,  it  does  not  matter 
whether  they  have  been  acquired  by  training  and  practice  or  are  the 
result  of  "original"  or  "natural"  characteristics. 

4.  The  fourth  advantage  of  division  of  labour  is  that  it  greatly 
facilitates  the  acquisition  and  retention  of  the  sum  of  knowledge  which 
is  transmissible  from  one  generation  to  another.  This  is  quite  dis- 
tinct from  the  advantage  of  skill  and  dexterity  just  discussed.  Skill 
and  dexterity  enable  people  to  use  known  processes  themselves. 
Without  division  of  labour  the  inventions  and  discoveries  which  have 
made  modern  man's  power  over  the  forces  of  nature  so  much  greater 
than  that  of  his  remote  ancestors  could  not  have  been  made,  because 
no  man  would  have  had  time  to  specialize  sufficiently  in  the  particu- 
lar lines  of  study  required.  When  the  knowledge  has  been  once 
acquired,  it  would  often  be  lost  if  it  were  not  for  the  existence  of 
books  and  instruments  which  could  not  be  produced  without  division 
of  labour.  In  other  cages  the  retention  of  the  knowledge  in  the 
world  is  only  effected  by  means  of  the  exertions  of  a  class  of 
educators,  which,  again,  could  not  exist  in  the  absence  of  the  division 
of  labour. 

5.  The  fifth  advantage  of  division  of  labour  is  that  it  economises 
tools  and  machinery  of  all  kinds,  including  the  buildings  in  which 
work  is  carried  on.  By  this  we  mean  that  it  makes  a  given  amount 
of  machinery  "go  farther,"  or  be  more  effective,  and  so  makes  it 
advantageous  to  mankind  to  provide  itself  with  machinery  which 
would  otherwise  be  too  costly.  Everyone  has  experienced  difficulties 
from  the  want  of  appropriate  tools  when  he  has  attempted  quite  simple 
jobs  outside  his  own  trade  or  profession.  "Jack  of  all  trades"  is  not 
only  unskillful,  but  also  ill-provided  with  tools.  Evidently  if  every- 
one had  to  do  all  kinds  of  work  it  would  have  to  be  done  for  the  most 
part  with  very  much  less  effective  tools  and  machinery  than  at 
present.  As  things  are,  these  things  can  be  liberally  provided,  even 
when  costly,  because  the  division  of  labour  allows  them  to  be  kept  in 
continuous  use,  which  would  be  impossible  if  everyone  had  a  complete 
equipment  of  each.  

See  also  85.     The  Great  Co-operation. 

86.     The  Indirect  Method  of  Satisfying  Wants. 
89.     Benefits  of  Exchange. 


SPECIALIZATION  AND  INTERDEPENDENCE  397 

149.    DISADVANTAGES  OF  SPECIALIZATION 
A1 

Whether  we  fasten  our  eyes  upon  the  ordering  of  the  individual 
life  or  upon  the  life  of  a  social  group,  over-specialization  looms  before 
us  as  one  of  the  gravest  and  largest  social  dangers,  the  more  insidious 
because  it  conceals  its  "social"  nature  and  masquerades  as  individual 
liberty. 

Society,  we  have  admitted,  properly  requires  its  individual  mem- 
bers to  specialize — that  is,  devote  a  considerable  amount  of  their  time 
and  energy  to  serving  society  by  the  performance  of  certain  routine 
work  which  shall  contribute  to  the  social  support.  Modern  methods 
of  mechanical  production  and  of  business  organization  favour  a  con- 
tinual advance  of  this  specialization,  and  have  brought  about  certain 
notable  changes  in  its  character  and  its  reaction  upon  those  who 
undergo  its  influence.  So  long  as  the  specialization  needed  to  con- 
tribute to  social  service  meant  that  each  person  should  ply  some  par- 
ticular trade  or  profession,  should  apply  himself  exclusively  to  the 
production  of  some  single  class  of  commodities  as  farmer,  tailor,  doc- 
tor, under  conditions  which  required  considerable  variety  of  skill  and 
experience,  and  evoked  a  corresponding  interest  in  the  work,  so  long 
as  the  range  of  specialism  at  least  allowed  each  man  to  see  the  end 
and  the  utility  of  the  work  he  did,  no  net  injury  to  individuality  was 
wrought.  But  where  machinery  of  ever  nicer  character  is  brought 
more  and  more  into  play,  and  where  the  arrangement  of  large  busi- 
nesses and  the  increased  specialism  of  small  businesses,  proceeding 
apace  over  the  industrial  world,  brings  about  an  ever  finer  subdivision 
of  labour,  for  the  express  purpose  of  rendering  such*  labour  as  far  as 
possible  unskilled  and  purely  mechanical,  in  order  that  a  larger 
quantity  of  routine  products  may  be  turned  out  by  each  worker  in  a 
given  time,  such  specialization  has  distinctly  degrading  effects  upon 
the  life  and  character  of  the  workers.  Enlightened  teachers  of 
humanity — such  as  Carlyle,  Emerson,  Ruskin,  Tolstoy — have  uttered 
vain  protests  against  the  degradation  of  individual  life  and  character 
by  this  narrowing  and  monotonizing  of  all  labour  on  the  one  hand, 
and  the  grossly  materialistic  conception  of  civilization  involved  in 
measuring  prosperity  by  quantity  of  mechanically  wrought  goods  on 
the  other  hand.     No  one  acquainted  widely  with  the  facts  of  industry 

1  Adapted  by  permission  from  J.  A.  Hobson,  The  Social  Problem,  pp.  226-30. 
(James  Pott  &  Co.,  1901.) 


398  INDUSTRIAL  SOCIETY 

can  seriously  question  the  statement  that  the  conditions  of  much 
modern  work  tend  to  crush  out  all  human  interest  in  it.  A  man  can  get 
no  pleasure  from  his  work  when  it  imposes  a  constant  strain  upon  the 
same  muscles  and  nerves,  and  can  be  most  easily  done  so  far  as  the 
actions  become  automatic;  when  the  tedium  of  constantly  repeating 
the  same  narrow  movements  compels  the  cultivation  of  indifference; 
when  strict  confinement  to  a  single  process  hides  from  him  the  true 
,  purpose  and  utility  of  his  work,  and  he  cannot  claim  any  single  whole 
commodity  as  the  product  of  his  labour.  By  such  methods  the  eco- 
nomic "cost  of  production"  of  commodities  is  reduced  to  a  minimum, 
but  the  real  human  cost  is  continually  enhanced.  That  cost  consists 
in  the  degradation  of  the  individuality  of  the  worker,  primarily  as 
worker,  but  secondarily  as  consumer,  by  the  oppression  of  society. 

These  dangers  of  over-specialization,  due  to  a  defective  order  of 
society  which  subordinates  the  interests  of  the  producer  to  the  sup- 
posed interests  of  the  consumer,  are  not  confined  to  individuals,  but 
beset  the  life  of  larger  units  of  society.  Nations  are  specializing 
more  and  more,  some  confining  themselves  to  growing  corn  or  cotton, 
sugar  or  tobacco,  others  to  particular  departments  of  manufacture. 
England  is  devoting  herself  to  textile  and  metal  manufactures,  ship- 
building, and  certain  branches  of  commerce;  within  England  large 
districts  are  monotonized  by  exclusive  devotion  to  pottery  or  iron; 
town  life  is  becoming  more  strongly  differentiated  from  the  country, 
the  town  itself  divided  into  residential  and  business  quarters,  while 
these  again  are  split  by  endless  subdivision.  These  are  but  the  wider 
social  aspects  of  an  excessive  division  of  labour,  which  reaches  its 
culmination  in  the  machine-tender  of  the  most  highly  organized 
modern  factory — a  man  whose  working  life  is  incomparably  narrower 
in  scope  and  more  vacant  of  human  interest  than  that  of  any  living 
creature  in  the  past. 

Local  specialization  exaggerates  the  ill  effects  of  over-specialism 
upon  the  individual  worker  by  furnishing  a  material  environment 
which  offers  no  relief.  To  have  one's  life  bounded  by  a  horizon  of 
" black  country"  or  "potteries,"  "cotton"  or  "coal,"  the  land 
and  labour  of  which  are  alike  devoted  to  a  single  industry,  implies 
not  merely  a  daily  dullness  and  monotony  of  outward  life,  but  an 
absence  of  all  wholesome  stimuli  to  the  development  of  the  intellectual 
and  moral  tastes  which  make  for  the  progress  of  national  life  and 
character.  Cheap  railway  trips,  cheap  print,  and  external  machinery 
of  education  are  ineffective  to  counteract  the  degrading  provincialism 


SPECIALIZATION  AND  INTERDEPENDENCE  399 

of  these  specialized  industrial  areas  of  which  modern  countries  are 
more  and  more  composed. 

B1 

The  division  of  labor,  and  the  accompanying  development  of 
machinery,  give  inducement  to  the  employment  of  classes  that  should 
not  be  employed  at  steady  and  monotonous  labor.  Small  children 
and  persons  failing  in  health  are  drawn  into  the  circle  of  sustained 
labor.  The  former  should  be  allowed  to  develop  their  faculties  in  a 
natural  way;  the  latter  to  recover  their  health.  When  each  employ- 
ment required  all  the  faculties  of  a  normal  man,  there  was  nothing 
to  tempt  producers  to  employ  laborers  of  this  class.  Since  the  intro- 
duction of  division  of  labor,  the  evil  of  employing  those  who  should  not 
be  employed  has  assumed  serious  proportions.  Legislation  has  been 
invoked  to  limit  the  employment  of  children,  but  in  few  countries 
has  child  labor  been  subjected  to  wholly  satisfactory  regulation. 

A  further  disadvantage  of  division  of  labor  is  that  it  renders  the 
workman  dependent  on  a  certain  kind  of  work,  and  therefore  exposes 
him  to  the  risk  of  non-employment  when  supplies  of  material  are 
wanting  or  when  markets  fail.  There  are  in  most  modern  countries 
many  men  and  women  who  are  well-trained  textile  workers,  but  who 
do  not  know  how  to  find  employment  when  a  crisis  causes  a  contrac- 
tion of  the  textile  industry.  The  higher  the  degree  of  specialization 
the  more  serious  are  the  effects  of  changes  in  industrial  conditions. 


Besides  th"e  physical  strain  due  to  speed  and  complexity  of 
machinery,  health  is  injured  by  the  extreme  monotony  of  many 
branches  of  industry.  Specialization  has  been  carried  so  far  that 
change  and  variety  of  work  are  reduced  to  a  minimum.  Minute 
division  of  labor  results  in  the  constant  repetition  of  similar  motions 
and  processes  by  the  same  worker,  favoring  the  onset  of  fatigue 
and  requiring  for  relief  the  establishment  of  a  shorter  workday. 

Monotony  of  occupation  is  a  true  factor  in  inducing  fatigue, 
because  it  has  a  true  physiological  basis,  which  can  briefly  be  made 
clear.  We  know  that  with  repetition  and  sameness  of  use  there 
results  continuous  fatigue  of  the  muscle  or  organ  used.     So,  too,  with 

■  *  Taken  by  permission  from  A.  S.  Johnson,  Introduction  to  Economics, 
pp.  1 1 7-18.     (D.  C.  Heath  &  Co.,  1909.) 

2  Adapted  by  permission  from  Josephine  Goldmark,  Fatigue  and  Efficiency, 
Part  I,  pp.  67-68;  Part  II,  pp.  42-44.     (Charities  Publication.  Committee,  191 2.) 


4oo  INDUSTRIAL  SOCIETY 

the  nerve  centers  from  which  our  motive  power  springs.  We  must 
bear  in  mind  that  the  special  functions  of  the  brain  have  separate 
centers.  Thus,  there  is  a  center  for  hearing,  another  for  sight, 
another  for  speech,  etc.  When  certain  centers  are  working  continu- 
ously, monotonously,  from  morning  to  night,  day  by  day  and  week  by 
week,  it  is  physiologically  inevitable  that  they  should  tire  more  easily 
than  when  work  is  sufficiently  varied  to  call  upon  other  centers  in 
turn. 

The  monotony  of  so-called  light  and  easy  work  may  thus  be  more 
damaging  to  the  organism  than  heavier  work  which  gives  some  chance 
for  variety,  some  outlet  for  our  innate  revolt  against  unrelieved 
repetitions.  Monotony  often  inflicts  more  injury  than  greater 
muscle  exertion  just  because  it  requires  continuous  recurring  work 
from  nerve  centers,  fatigue  of  which  reacts  with  such  disastrous 
consequences  upon  our  total  life  and  health. 

150.    THE  LIMITS  OF  SPECIALIZATION 
A1 

So  long  as  differentiation  of  functions  rests  upon  a  direct  exchange 
of  services,  it  cannot  be  carried  far.  Population  would  need  to  be 
fairly  dense  before  a  man  could  devote  himself  exclusively  to  the 
building  of  houses,  even  if  he  undertook  the  work  of  stone  mason, 
brick  mason,  and  plasterer  in  addition  to  that  of  carpenter.  Such 
trades  as  that  of  locksmith  could  hardly  exist  at  all,  since  a  scattered 
rural  population  could  scarcely  furnish  work  enough  to  maintain  it. 
An  important  step  in  the  direction  of  economic  specialization  was 
taken  when  men  began  to  produce  commodities  for  sale. 

Differentiation  of  function  in  production  is  in  large  measure 
dependent  upon  the  character  of  the  existing  commercial  organization. 
In  the  mediaeval  towns  the  artisan  was  at  the  same  time  a  trader. 
He  was  compelled  to  supply  himself  with  materials,  often  from  distant 
sources;  he  was  often  compelled  to  carry  his  wares  from  place  to  place 
in  order  to  find  purchasers.  The  risks  incident  to  procuring  materials 
and  marketing  products  weighed  heavily  upon  him.  Co-operation, 
as  in  the  German  Hanse  towns,  reduced  his  difficulties  in  some  meas- 
ure; nevertheless,  under  the  conditions,  comparatively  few  men  could 
rely  for  their  subsistence  upon  a  single  occupation.  With  the  develop- 
ment of  a  merchant  class,  the  producer  was  relieved  of  the  labor  and 

1  Adapted  by  permission  from  A.  S.  Johnson,  Introduction  to  Economics , 
pp.  107-13.     (D.  C.  Heath  &  Co.,  1909.) 


SPECIALIZATION  AND  INTERDEPENDENCE  401 

risks  of  assembling  materials  and  marketing  products.  The  accumu- 
lation of  large  and  permanent  stocks  of  material  gave  occasion  for  a 
constantly  increasing  number  of  occupations  or  subdivisions  of 
occupations. 

In  the  field  of  production  at  the  order  of  the  consumer,  division 
of  labor  is  dependent  largely  upon  the  density  of  population.  Where 
the  producer  of  a  commodity  deals  directly  with  the  consumer,  the 
opportunity  for  minute  division  of  labor  is  not  so  great  as  where 
the  producer  is  brought  into  relation  with  the  consumer  through  the 
intermediation  of  a  general  market.  The  amount  of  work  that  may 
be  secured  by  a  single  custom-tailor's  shop  is  limited  by  the  number 
of  purchases  of  custom-made  garments  within  easy  distance.  In  a 
village  this  number  may  be  so  small  that  anything  like  subdivision  of 
the  tailor's  trade  is  impracticable.    In  a  large  city  the  case  is  different. 

The  degree  in  which  the  functions  of  production  may  be  subdivided 
is  dependent  upon  the  prevailing  form  of  economic  organization. 
Where  each  workman  is  his  own  employer,  as  was  generally  the  case 
in  the  mediaeval  industrial  organization,  labor  cannot  be  very  minutely 
subdivided.  Where,  on  the  other  hand,  industry  is  carried  on  under 
the  factory  system,  the  workmen  are  assembled  under  one  roof,  subject 
to  the  control  of  an  employer.  The  material  passes  through  the  shop 
without  interruption,  and  apprentices  are  taken  on  in  each  branch  in 
the  proportions  which  experience  shows  to  be  most  desirable.  Of 
course  this  implies  a  large  accumulation  of  wealth  on  the  part  of  the 
employer,  who  must  provide  the  premises,  furnish  materials,  pay 
wages,  and  assume  all  other  expenses  of  production.  In  fact,  we 
may  say  that  large  capital  and  efficient  management  are  prerequisites 
to  a  thoroughgoing  system  of  division  of  labor. 

B1 

The  division  of  labor  is  also  limited,  in  many  cases,  by  the  nature 
of  the  employment.  Agriculture,  for  example,  is  not  susceptible 
of  so  great  a  division  of  occupations  as  many  branches"  of  manu- 
factures, because  its  different  operations  cannot  possibly  be  simul-- 
taneous.  One  man  cannot  be  always  ploughing,  another  sowing, 
and  another  reaping.  A  workman  who  practiced  only  one  agricultural 
operation  would  be  idle  eleven  months  of  the  year.  The  same  person 
may  perform  them  all  in  succession,  and  have,  in  almost  every  climate, 

1  Taken  by  permission  from  John  Stqart  Mill,  Principles  of  Political  Economy, 
I,  175.     (D,  Appleton  &  Co.,  1893.) 


402  INDUSTRIAL  SOCIETY 

a  considerable  amount  of  unoccupied  time.     To  execute  a  great 

agricultural  improvement  it  is  often  necessary  that  many  laborers 

should  work  together;  but  in  general,  except  the  few  whose  business  is 

superintendence,  they  all  work  in  the  same  manner.    A  canal  or  a 

railway  embankment  cannot  be  made  without  a  combination  of  many 

laborers;  but  they  are  all  excavators,  except  the  engineer  and  a  few 

clerks. 

C1 

Whilst  it  is  quite  evident  that  there  must  exist  definite  commercial 
and  mechanical  conditions  beyond  the  limits  of  which  specialisation 
will  cease  to  be  profitable,  it  is  not  easy  to  define  these  limits  in  so 
many  words  on  account  of  the  extreme  complexity  of  the  question. 
Moreover,  specialisation  being  essentially  a  process  of  evolution,  it 
is  not  at  all  certain  that  its  tendencies  can  be  controlled,  or  that  its 
developments  will  always  be  on  the  side  of  even-handed  progress. 

The  mechanical  limits  of  specialisation  in  any  given  product  will 
evidently  have  been  reached  when  no  further  standardisation  of  parts 
can  be  attained  without  sacrifice  of  technical  efficiency,  and  when  all 
the  machines  in  use  are  special  machines  each  producing  one  article, 
and  one  only,  more  cheaply  and  satisfactorily  than  it  could  otherwise 
be  produced.  The  critical  point  is  the  determination,  for  any  given 
piece,  when  it  will  pay  to  devote  a  machine  wholly  to  its  manufacture 
when  such  machine  will  have  to  stand  idle  for  part  of  its  time.  The 
problem  of  adopting  a  machine  that  cap  be  filled  with  work  is  an 
easy  one  to  adjudicate  upon;  to  know  just  when  to  employ  a  machine 
that  must  perforce  lie  fallow  for  more  or  less  doubtful  periods  demands 
a  fine  judgment. 

The  commercial  considerations  limiting  specialisation  are  much 
more  numerous  and  important  than  the  mechanical.  The  ultimate 
appeal  in  all  these  matters  is  to  the  arbitrament  of  competition.  The 
reason  why  specialisation  has  such  surpassing  interest  for  the  engineer 
today  is  because  the  engineering  industries  are  at  that  particular 
phase  of  evolution  in  which  specialisation  presents  the  most  vigorous 
weapon  of  competition  available.  To  competition  by  specialisation 
there  is  no  possible  answer  but  equal  or  further  specialisation.  It  is  in 
the  nature  of  things  a  temporary  or  passing  phase,  yet  with  the  most 
rapid  progress  possible  its  possibilities  will  not  be  exhausted  in  our 
time.    But  where  rivals  are  already  trying  to  occupy  the  same  field 

1  Taken  by  permission  from  J.  S.  Lewis,  "The  Mechanical  and  Commercial 
Limits  of  Specialization,"  Engineering  Magazine,  XX  (i 900-1 901),  709-12. 


SPECIALIZATION  AND  INTERDEPENDENCE  403 

in  which  there  is  not  room  for  both,  the  superiority  will  obviously 
remain  with  that  one  who  has  the  balance  of  conditions  in  his  favour. 
Now  it  is  much  more  probable  that  mechanical  conditions  will  be 
equally  balanced  than  that  commercial  conditions  will  be.  For  this 
we  have  to  thank  the  spread  of  technical  education,  the  chief  use  of 
which  is  in  averaging  technical  conditions. 

By  technical  education  is  not  meant,  however,  the  set  curriculum 
of  the  technical  school.  This  provides  merely  the  groundwork  on 
which  further  progress  may  be  built.  The  true  technical  education 
of  the  engineer  lies  in  the  free  interchange  of  experience  by  the  medium 
of  the  technical  press,  the  papers  read  before  learned  societies,  with 
the  discussions  they  elicit;  the  throwing  open  of  works  to  the  expert 
on'  his  travels,  and  kindred  methods  by  which  the  news  of  progress 
circulates  through  the  world.  The  effect  of  all  this  is  undoubtedly 
to  average  up  the  standard  of  practice  the  world  over,  and  to  make 
purely  mechanical  conditions  equal  between  intelligent  competitors 
in  the  same  special  line. 

As  regards  commercial  conditions,  there  is  no  such  opportunity  of 
availing  one's  self  of  the  results  of  others'  experience.  The  manu- 
facturer who  has  discovered  a  new  channel  for  the  disposal  of  his  pro- 
ductions does  not  call  upon  his  rivals  to  admire  his  cuteness.  On  the 
contrary,  he  keeps  all  such  matters  in  the  prof oundest  obscurity  that 
he  can  manage.  In  some  cases  precautions  almost  bordering  on  the 
grotesque  are .  taken  to  keep  the  knowledge  of  the  destination  of 
orders  confined  to  as  few  officials  as  possible.  The  result  is  that 
notwithstanding  the  cult  of  the  technical  schools,  the  real  arena  on 
which  the  survival  of  the  fittest  is  fought  out  is  and  will  remain  the 
commercial  one.  The  bearing  of  this  on  the  question  of  specialisation 
is  obvious.  Sufficient  grasp  of  commercial  conditions  to  know  when  it 
will  pay  to  sink  capital  for  the  purpose  of  forcing  the  market's  con- 
sumption of  any  article  is  the  possession  of  very  few.  The  reward  of 
success  is  very  great,  but  the  risks  of  faulty  judgment  are  far  heavier 
than  in  the  case  of  an  ordinary  enterprise.  One  of  the  principal 
reasons  for  this  lies  in  the  stereotyped  character  of  the  productive 
elements  of  high  specialisation.  A  plant  which  is  arranged  for  pro- 
duction of  some  speciality,  for  which  after  all  there  is  not  sufficient 
commercial  excuse,  becomes  a  very  heavy  clog  on  its  possessor.  The 
commercial  limitations  are  thus  seen  to  be  very  serious  and  rigid, 
and  to  deal  successfully  with  them  demands  exceptional  study  and 
mature  consideration  of  all  possible  contingencies. 


404  INDUSTRIAL  SOCIETY 

D.    Interdependence,  Its  Forms  and  Consequences 
IS i.    TWO  PERVASIVE  AND  CONNECTIVE  INDUSTRIES1 

There  are  two  sorts  of  industry  which  deserve  particular  atten- 
tion as  unifying  influences,  viz.,  transport  and  finance.  They  are  not 
fundamental,  like  mining  and  agriculture,  but  pervasive  and  connec- 
tive. Wherever  any  business  is  carried  on,  a  constant  conveyance 
of  materials  to  the  business,  and  of  finished  goods  from  the  business,  is 
involved;  every  act  of  buying  and  selling  involves  some  act  of  con- 
veyance. The  group  of  trades  concerned  with  such  conveyance 
must,  therefore,  occupy  a  place  of  peculiar  prominence  in  the  indus- 
trial system.  Taken  as  a  whole,  they  form  an  apparatus  correspond- 
ing to  the  vasomotor  system  in  an  animal  organism.  In  one  sense, 
indeed,  all  physical  work  is  movement  of  matter,  and  much  of  it  forms 
part  and  parcel  of  every  business  operation.  But  in  modern  industrial 
societies  transport  in  its  special  sense,  the  conveyance  of  persons, 
goods,  and  intelligence  from  one  place  to  another,  becomes  a  highly 
specialised  and  important  work.  The  railway  and  the  steamship 
find  a  place  in  almost  every  series  of  productive  processes.  They 
furnish  the  physical  links  that  give,  efficiency  and  continuity  to  the 
whole  movement.  Any  stoppage  of  a  great  railway  or  a  great  shipping 
service  paralyses  a  whole  industrial  area;  even  cutting  of  telegraph- 
wires  confuses  and  retards  the  whole  working  of  industry.  As  industry 
becomes  more  complex,  materials  and  labour  are  drawn  from  more  dis- 
tant and  more  numerous  places  to  take  part  in  more  delicate  and 
complex  processes  of  co-operation,  and  the  commercial  working  of 
the  system  depends  more  and  more  upon  rapid  and  reliable  informa- 
tion about  their  movements.  For  this  reason  transport  is  found  in 
every  civilised  country  to  play  a  larger  and  more  imposing  part  in 
industry,  absorbing  an  increasing  proportion  of  capital  and  labour, 
and  presenting  the  most  critical  problems  of  control.  When,  as  is 
the  case  in  many  large  countries,  the  railroad  is  the  sole  effective 
means  of  transport,  it  may  wield  a  power  over  the  life,  prosperity /  and 
industry  of  the  population  which  is  despotic  unless  the  government 
intervenes.  Every  improvement  of  transport  facilitates,  every  break- 
down of  transport  damages,  simultaneously,  all  the  industries  con- 
cerned with  the  production  of  material  wealth. 

Equally  pervasive  and  more  authoritative  in  its  general  control 

over  all  modern  industry  is  finance.     Under  that  term  we  include  all 

1  Taken  by  permission  from  J.  A.  Hobson,  The  Science  of  Wealth,  pp.  37-40. 
(Henry  Holt  &  Co.,  191 1.) 


SPECIALIZATION  AND  INTERDEPENDENCE  405 

business  connected  with  the  production,  protection,  and  conveyance 
of  money,  or  purchasing  power,  and  the  creation  of  and  dealing  in 
stocks,  shares,  and  other  negotiable  securities.  We  saw  that  our 
science  is  concerned  entirely  with  things  that  have  a  marketable 
value  and  with  processes  each  act  of  which  involves  a  purchase.  So 
it  is  obvious  that  the  industries  concerned  with  the  production  and 
application  of  purchasing  power  are  in  their  influence  as  critical  and  as 
pervasive  as  the  work  of  physical  transport.  The  familiar  saying, 
"Money  makes  the  world  go  round,"  is  a  popular  testimony  to  the 
importance  attaching  to  the  sort  of  business  enterprises  which  produce 
and  regulate  the  supply  of  financial  power.  The  forces  issuing  from 
finance  are  operative  everywhere  throughout  the  industrial  order. 
A  great  banking  crisis  paralyses  all  industrial  activities  as  surely  and 
even  more  completely  than  a  breakdown  in  the  railway  system. 

152.    THE  BONDS  OF  HARMONY  AND  OF  REPULSION 
AMONG  TRADES1 

a)  The  closest  relations  of  common  interest  will  evidently  exist 
between  trades  which  draw  upon  some  single  source  of  supply  of  raw 
materials  or  productive  power. 

All  trades  whose  chief  material  is  wool  or  leather,  or  timber  or 
steel,  pulling  at  some  common  supply,  must  look  closely  after  one 
another;  anything  which  increases  or  reduces  the  common  supply 
affects  them  all  alike,  so  far  as  there  is  community  of  interest;  any- 
thing which  gives  one  of  them  a  better  pull  upon  the  supply  than  the 
others  affects  these  latter  injuriously,  so  far  as  there  is  diversity  of 
interest.  The  same  evidently  holds  where  a  number  of  local  manu- 
factures are  dependent  for  coal  or  other  source  of  power  upon  the  same 
supply.  Dependence  on  some  subsidiary  material  or  other  trade 
accessory  will  set  up  a  similar  relation,  important  or  trivial,  according 
to  the  part  played  by  such  material  in  the  respective  trades.  The 
recent  condition  of  the  "rubber"  market  is  a  striking  example  of  the 
influence  of  an  important  trade  accessory  acting  upon  a  large  number 
of  different  trades. 

b)  Trades  that  are  complementary  or  subsidiary  to  one  another  in 
some  direct  way  are,  as  we  have  seen,  in  closest  harmony.  The  coal 
and  iron  trades  are  the  largest,  most  obvious  instance,  but  every  art 

1  Taken  by  permission  from  J.  A.  Hobson,  The  Industrial  System,  pp.  28-31 
(Longmans,  Green,  &  Co.,  1909),  and  The  Science  of  Wealth,  p.  41  (Henry  Holt 
&  Co.,  1911). 


4o6  INDUSTRIAL  SOCIETY 

of  production  of  course  throws  a  number  of  trades  into  similar  depend- 
ency on  one  another.  Whenever  a  number  of  materials  must  be  put 
together  to  make  a  commodity,  such  direct  community  of  interest  is 
established  among  the  trades  that  handle  each  material.  Such  are 
the  relations  between  the  fruit-growing  and  the  sugar-refining  trades, 
between  the  wine-growing  and  the  bottle-making  trades,  between 
the  numerous  trades  which  go  to  feed  with  materials  the  building 
trade. 

It  is,  of  course,  very  uncommon  for  these  complementary  trades  to 
be  entirely  dependent  upon  one  another:  the  bottle-making  trade  is 
related  also  to  the  brewing  and  the  fruit  trades,  sugar-refining  also 
to  the  confectionery  and  the  mineral- water  trade,  and  so  forth.  But 
the  trades  which  prepare  the  various  ingredients  for  any  important 
commodity  are  evidently  kept  in  close  harmony  with  one  another. 

c)  Where  two  sorts  of  material  or  two  sets  of  processes  are  alterna- 
tives for  production,  a  keen  antagonism  exists  between  them.  Here 
we  first  come  across  the  relation  known  as  substitution,  which  plays  so 
important  a  part  in  industrial  progress. 

Bedsteads  are  made  of  wood  or  steel,  so  are  many  other  articles 
of  furniture  or  fittings;  sugar  may  be  made  from  cane  or  beet;  cotton, 
linen,  wool,  are  alternatives  for  many  kinds  of  dress  or  other  fabrics; 
electricity,  gas,  oil,  steam,  are  competing  against  one  another  as 
sources  of  industrial,  locomotive,  or  domestic  energy.  Just  here  we  are 
not  concerned  with  the  choice  between  different  sorts  of  goods  which 
satisfy  the  same  want,  but  with  the  choice  exercised  by  producers 
between  different  materials  and  processes  which  can  be  substituted 
for  one  another  in  some  business  process.  The  choice  exercised 
by  the  consumer  has  generally  some  influence  in  the  selection  of 
material  or  method  of  production,  as,  for  instance,  in  determining  the 
alternative  use  of  wood,  vulcanite,  amber,  in  making  pipe-stems,  but 
for  the  present  purposes  we  may  separate  the  interaction  of  producer 
and  consumer,  and  distinguish  substitution  as  a  force  which  antago- 
nises various  trades  that  compete  by  offering  some  alternative  mate- 
rial to  manufacturers. 

But  as  the  law  of  substitution  opens  out,  we  get  glimpses  of  a  wider, 
more  general  sympathy  and  opposition  between  trades.  The  pro- 
ductive energy  of  man,  directly  operative  through  labour,  indirectly 
through  capital,  is  within  certain  limits  free  to  choose  among  all  the 
various  channels  of  industry:  they  are  all  open  to  him  as  alternative 
occupations.     So  there  is  a  more  universal  sympathy  and  opposition 


SPECIALIZATION  AND  INTERDEPENDENCE  407 

between  all  trades  than  any  yet  named,  due  to  the  fact  that  they 
draw  the  very  breath  of  life  from  common  sources.  Fresh  streams 
of  capital  and  labour  continually  enter  industry  to  maintain,  invig- 
orate, and  enlarge  its  structure  and  its  vital  energy.  In  its  first 
emergence,  as  productive  energy  available  for  use,  this  fresh  supply 
of  capital  and  of  labour  power,  the  new  crop  of  young  labourers  and 
of  new  savings,  is,  in  a  "free"  country,  at  liberty  to  apply  itself  to  any 
special  sort  of  industry,  and  all  trades  must  draw  for  their  needs  upon 
this  common  and  constant  supply.  They  have,  therefore,  a  supreme 
common  interest  in  the  size,  quality,  and  reliability  of  this  supply, 
and  in  the  terms  upon  which  it  is  procurable.  So  every  cause  affecting 
the  volume,  the  fluidity,  and  the  efficiency  of  the  new  capital  and 
labour  in  a  community  will  affect  all  the  several  trades.  As  we 
examine  the  working  of  the  industrial  system  in  more  detail,  we  shall 
see  that  many  barriers  block  or  impede  the  free  flow  alike  of  labour 
and  of  capital.  But  so  far  as  labour  and  capital  have  liberty  to  enter 
different  trades,  or  to  transfer  themselves  from  one  employment 
to  another,  they  must -be  regarded  as  forming  common  funds  of 
industrial  energy,  pulsing  through  the  whole  framework  of  industry  as 
the  blood  courses  through  the  various  organs  and  cells  of  the  body, 
giving  organic  unity  to  the  entire  system. 

But  trades  are  connected,  not  only  through  common  interests  in 
processes  of  production,  but  through  changes  in  methods  of  consump- 
tion. The  "standard  of  comfort"  of  different  classes  is  constantly 
changing:  every  rise  or  fall  of  wages  alters  the  proportion  of  working- 
class  incomes  spent  on  different  commodities,  and  so  directly  stimu- 
lates or  depresses  groups  of  trades;  the  great  change  from  the  rural  to 
city  life  has  revolutionised  the  expenditure  of  large  masses  of  our  popu- 
lation; new  articles  of  consumption,  or  the  cheapening  of  old  articles 
which  brings  them  in  reach  of  poorer  classes,  create  or  stimulate  new 
tastes  which  not  merely  absorb  new  increments  of  income,  but  displace 
older  articles  of  consumption.  Taste,  fashion,  and  caprice  constantly 
exert  a  larger  influence  on  the  expenditure  of  larger  sections  of  the 
public.  Every  article  of  a  man's  consumption  is  in  a  sense  competing 
with  every  other  article  for  a  larger  share  in  his  expenditure. 

Any  change  in  standards  of  consumption  brings  other  changes  by 
reason  of  affinity ;  a  man  who  takes  to  drink  not  only  spends  more  on 
beer,  but  often  more  on  tobacco,  sport,  and  betting,  while  a  man  who 
gives  up  beer  and  stays  at  home  is  likely  to  spend  more,  not  only  on 
tea,  but  on  reading  and  quiet  recreations. 


4o8  INDUSTRIAL  SOCIETY 

The  rapid  spread  of  the  taste  for  cycling  which  followed  the 
invention  of  the  safety  bicycle,  besides  its  direct  competitive  effect 
upon  the  use  of  riding  horses  and  the  carriage  trade,  had  a  large 
number  of  clearly  traced  subsidiary  effects,  reducing  the  sale  of  cheap 
pianos  and  jewellery,  damaging  the  book  trades,  altering  the  nature  of 
clothing  trades,  stimulating  the  sale  of  non-alcoholic  drinks,  and 
reviving  the  country  inns.  Nor  are  these  influences  confined  to 
changes  of  material  consumption.  The  increased  demand  for  educa- 
tion in  England,  by  its  excessive  strain  upon  the  intellectual  machin- 
ery of  the  nation,  not  only  stimulates  the  teaching,  the  printing,  and 
paper-making  trades;  it  causes  immense  expenditure  of  English  money 
upon  Swiss  holidays,  and  helps  to  revolutionise  the  economic  structure 
of  that  country. 

Thus  the  growth  of  harmonious  and  conflicting  desires  of  con- 
sumers weaves  the  closest  and  most  intricate  network  of  relations 
between  all  the  various  productive  processes  of  the  industrial  world. 

As  we  recognise  the  fineness  of  these  relations,  we  come  uncon- 
sciously to  shift  the  metaphors  we  use,  and  to  regard  industry  less 
as  a  stream  or  a  machine  and  more  as  a  live  organism  with  something 
like  a  common  flow  of  blood,  a  common  system  of  nerves,  and  an 
organic  co-ordination  of  parts  resting  upon  a  complexity  of  business 
cells.  None  of  these  metaphors  is  strictly  applicable:  industry  is 
neither  river,  machine,  nor  organism,  but  there  are  many  points  in 
which  the  last  term  gives  the  most  correct  impression.  If  we  could 
follow  out  far  enough  the  ties  between  businesses  and  trades  and 
trade-groups  in  what  we  call  the  industrial  world,  we  should  find 
a  sort  of  common  connective  tissue  running  throughout,  thinner 
and  coarser  in  some  parts,  stouter  and  finer  in  others,  but  binding  the 
whole  set  of  industrial  operations  so  closely  together  that  any  touch 
bestowed  at  any  point  may  be  communicated  to  the  most  distant 
parts. 

153.    INTERDEPENDENCE  OF  PRICES1 

1.  The  prices  of  consumers1  commodities. — The  prices  which  retail 
merchants  charge  for  consumers'  commodities  afford  the  best  starting- 
point  for  a  survey  of  this  system.  These  prices  are  loosely  connected 
with  each  other;  for  an  advance  in  the  price  of  any  commodity  usually 
creates  an  increased  demand  for  other  commodities  which  can  be 

Adapted  by  permission  from  W.  C.  Mitchell,  Business  Cycles,  pp.  27-31. 
(University  of  California  Press,  1913.     Author's  copyright.) 


SPECIALIZATION  AND  INTERDEPENDENCE  409 

bought  as  substitutes  in  certain  if  not  all  of  its  uses,  and  thus  creates 
business  conditions  which  favor  an  advance  in  the  prices  of  these 
substitutes. 

But  retail  prices  are  more  closely  related  to  the  prices  for  the 
same  goods  which  shopkeepers  pay  to  wholesale  merchants,  and  the 
latter  to  manufacturers.  There  is  wide  diversity  in  the  margins 
between  the  successive  prices  in  the  series.  These  margins  are 
usually  wider  in  retail  than  in  wholesale  trade;  wider  on  goods  limited 
in  sale,  perishable,  requiring  a  large  assortment  for  selection,  subject 
to  changes  in  fashion  or  in  season,  than  on  durable  staples;  wider 
when  the  manufacturer  sells  directly  to  the  consumer  than  when 
wholesale  and  retail  merchants  intervene;  wider  when  a  monopolist 
can  fix  prices  in  his  own  favor  than  under  conditions  of  keen  compe- 
tition, etc.     But  these  diversities  are  themselves  measurably  regular. 

2.  The  prices  of  producers'  goods  in  relation  to  the  prices  of  con- 
sumers'1 commodities. — To  merchants  the  prices  paid  for  all  produ- 
cers' goods  are  important  factors  in  fixing  the  margins  between  the 
buying  and  selling  prices  of  the  consumers'  goods  in  which  they  deal. 
But,  save  in  the  case  of  transportation  and  certain  kinds  of  labor,  it 
is  difficult  to  connect  directly  the  prices  which  figure  as  costs  with 
the  margins  upon  which  particular  commodities  change  hands.  For 
the  cost  prices  of  the  other  producers'  goods  are  usually  paid  for  the 
pecuniary  advantage  of  the  enterprise  as  a  whole,  and  the  accruing 
benefits  extend  to  many  transactions  and  often  cover  a  long  time." 
The  like. is  true  of  manufacturers. 

3.  The  prices  of  producers'1  goods  in  relation  to  antecedent  prices. — 
With  the  exception  of  labor,  producers'  goods  are  provided,  like 
consumers'  goods,  chiefly  by  business  enterprises  operating  on  the 
basis  of  margins  between  buying  and  selling  prices.  Hence  the 
price  for  any  given  producers'  goods  is  related  not  only  to  the  prices  of 
the  consumers'  goods  in  the  manufacture  or  distribution  of  which  it  is 
used,  but  also  to  the  prices  of  the  various  other  producers'  goods 
employed  in  its  own  manufacture  and  distribution.  Thus  the  prices 
of  producers'  goods  do  not  form  the  ends  of  the  series  of  price  relation- 
ships, but  the  beginnings  of  new  series  of  relationships  which  run 
backward  with  countless  ramifications  and  never  reach  definite 
stopping-points.  Even  the  prices  of  raw  materials  in  the  hands 
of  the  ultimate  producers  are  related  intimately  to  the  prices  of  the 
labor,  current  supplies,  machinery,  buildings,  land,  loans,  leases,  etc., 
which  the  farmers,  miners,  lumbermen,  etc.,  employ. 


4io  INDUSTRIAL  SOCIETY 

Concerning  the  prices  of  such  producers'  goods  as  consist  of 
material  commodities  no  more  need  be  said.  And  most  of  the  less 
tangible  services — loans,  transportation,  insurance — require  but  a 
word.  They  are  the  subjects  of  an  organized  business  traffic  in  which 
price  margins  are  computed  on  the  same  general  principles  as  prevail 
in  the  buying  and  selling  of  commodities.  Therefore,  the  prices 
charged  by  the  bank,  the  railway,  and  the  insurance  company  are 
systematically  related  both  to  the  prices  which  these  enterprises  must 
pay  for  their  own  producers'  goods  and  to  the  prices  of  the  wares 
dealt  in  by  the  enterprises  which  borrow  money,  ship  goods,  and 
carry  insurance. 

The  price  of  labor  may  seem  to  bring  the  series  to  a  definite 
stop,  at  least  at  one  point.  For,  in  most  cases,  the  laborer  or  his  union 
deals  directly  with  the  employer  or  his  association,  and  the  laborer 
does  not  have  a  business  attitude  toward  the  production  of  his  own 
energy.  But  the  price  which  the  laborer  can  command  is  indubitably 
connected  with  the  prices  of  the  consumers'  goods  which  established 
habit  has  made  into  a  standard  of  living.  At  this  point,  therefore, 
analysis  of  the  interrelations  between  prices  brings  us,  not  to  a  full 
stop,  but  back  to  our  starting-point — the  prices  of  consumers'  com- 
modities. 

4.  The  prices  of  business  enterprises. — Besides  the  prices  of  con- 
sumers' commodities,  of  raw  materials,  and  of  other  producers' 
goods,  we  must  take  account  of  the  prices  of  business  enterprises  them- 
selves. Occasionally  established  business  enterprises  are  sold  out- 
right as  running  concerns.  Promoters  are  also  constantly  offering 
new  business  schemes  or  reorganizations  of  old  enterprises  for  sale. 
But  the  most  important  transactions  of  this  class  are  stock-exchange 
dealings  in  the  shares  of  joint-stock  companies.  That  the  prices 
of  whole  business  enterprises  or  of  shares  in  them  are  intimately 
related  to  the  prices  which  have  been  discussed  is  clear;  for  these 
prices  depend  primarily  upon  present  and  prospective  profits,  and 
profits  depend  primarily  upon  price-margins  and  the  volume  of 
business  transacted. 

5.  The  prices  of  services  to  persons. — There  remains  one  other 
division  of  the  system  of  prices — a  division  which  has  much  in  com- 
mon with  the  prices  of  consumers'  goods  on  the  one  hand  and  with  the 
prices  of  labor  as  a  business  adjunct  on  the  other  hand.  It  consists 
of  the  heterogeneous  services  rendered  to  persons  as  such — not  to 
business  enterprises.      Here  belong  the  prices  of  domestic  service, 


SPECIALIZATION  AND  INTERDEPENDENCE  41 1 

medical  attendance,  much  instruction,  many  forms  of  amusement, 
etc.  The  furnishing  of  such  services  presents  a  certain  contrast  to 
the  business  traffic  in  consumers'  goods,  materials,  machinery,  loans, 
transportation,  etc.  For  systematic  organization  has  not  been 
developed  to  so  high  a  point,  business  motives  do  not  have  such 
unrestricted  scope,  and  the  wares  are  not  standardized  in  equal 
measure. 

6.  The  interrelations  between  prices. — The  value  of  this  classi- 
fication of  prices  is  that  it  assists  in  seeing  the  relations  which  bind 
all  prices  together  and  make  of  them  a  system.  The  close  relations 
between  the  prices  of  consumers'  commodities,  materials,  business 
adjuncts  of  all  kinds,  and  of  business  enterprises  are  sufficiently  clear, 
and  enough  has  been  said  about  the  looser  bonds  which  unite  the 
prices  of  services  to  persons  with  the  larger  field  of  business  traffic. 
But  several  other  lines  of  relationship  should  be  indicated  more 
definitely. 

(1)  On  the  side  of  demand  almost  every  producers'  or  consumers' 
goods  has  its  possible  substitutes  in  certain  or  in  all  uses.  Through  the 
continual  shifting  of  demand  changes  in  the  price  of  one  commodity 
are  often  communicated  to  the  prices  of  its  substitutes,  from  the 
latter  to  the  prices  of  their  substitutes,  and  so  on.  An  initial 
change,  however,  usually  becomes  smaller  as  it  spreads  out  in  these 
widening  circles. 

(2)  Similarly,  on  the  side  of  supply,  almost  every  good  has  genetic 
relationships  with  other  goods,  made  of  the  same  materials,  or  sup- 
plied by  the  same  set  of  enterprises.  Along  these  lines  also  price- 
changes  may  spread  over  a  wide  field.  Particularly  important 
because  particularly  wide  are  the  genetic  relationships  based  upon 
the  use  of  the  same  producers'  goods  in  many  lines  of  trade.  Floating 
capital  most  of  all,  in  somewhat  less  degree  transportation  and  certain 
general  forms  of  labor,  current  supplies,  machinery  and  plant,  not  to 
mention  the  less  important  insurance  and  advertising,  enter  into  the 
cost  of  most  commodities.  Accordingly,  a  changed  price  established 
for  one  of  these  common  producers'  goods  in  any  important  use  may 
extend  to  a  great  diversity  of  other  uses  and  produce  further  price 
disturbances  without  assignable  limits. 

(3)  Closely  connected  with  this  genetic  relationship  through 
common  producers'  goods  is  the  relationship  through  business  com- 
petition, both  actual  and  potential.  In  so  far  as  effective  competition 
exists,  a  state  of  price-margins  which  makes  any  one  trade  decidedly 


412  INDUSTRIAL  SOCIETY 

more  or  less  profitable  than  other  trades  in  the  same  market  area 
cannot  long  maintain  itself.  For  sooner  or  later  the  influx  or  efHux  of 
capital  so  changes  the  supply  of  the  commodities  concerned  as  to 
restore  a  balance  on  the  basis  of  cost  prices. 

(4)  Present  prices  are  affected  by  prices  of  the  recent  past  and 
the  anticipated  prices  of  the  near  future.  Indeed,  present  prices  are 
largely  determined  by  past  bargains,  which  established  time  con- 
tracts. Thus  the  price  system  has  no  definable  limits  in  time.  No 
analysis  can  get  back  to  the  ultimate  term  in  the  endless  series  of 
bargains  which  helped  to  make  the  prices  of  the  present. 

(5)  Nor  has  the  system  of  prices  any  logical  beginning  or  end.  At 
whatever  point  analysis  may  start  to  follow  the  interlocking  links,  to 
that  point  will  analysis  come  again  if  it  proceeds  far  enough.  The 
foregoing  analysis,  for  example,  began  with  the  prices  of  consumers' 
goods  at  retail.  These  prices  are  paid  out  of  personal  incomes. 
But  these  incomes  are  themselves  aggregates  of  prices  received  for 
labor,  for  the  use  of  loan  funds,  or  for  the  use  of  rented  property; 
or  they  are  aggregates  of  the  net  price-margins  which  yield  profits. 
Thus  the  system  of  prices  is  an  endless  chain. 

154.    THE  CROPS  IN  RELATION  TO  INDUSTRY1 

One  can  easily  discern  four  or  five  important  ways  in-  which 
general  business  conditions  are  likely  to  be  affected  by  the  success  or 
failure  of  the  crops. 

1.  In  the  first  place,  the  size  of  the  crops  exerts  considerable  in- 
fluence over  the  community's  power  to  purchase  other  goods.  If  the 
season  has  been  successful,  the  farmer  is  almost  sure  to  increase  his 
expenditures,  and  use  at  least  a  part  of  his  new  earnings.  He  may 
build  an  addition  to  his  house  or  erect  a  new  barn,  or  he  may  purchase 
a  piano  or  a  new  buggy  or  new  house  furnishings  or  new  clothes  for 
himself  and  his  family.  Even  if  he  does  not  use  all  of  the  additions  to 
his  income  himself,  but  deposits  some  of  them  in  the  bank,  they  will 
none  the  less  help  to  swell  the  market  for  other  goods  in  the  hands 
of  other  customers  of  the  bank.  If,  further,  on  account  of  a  plentiful 
harvest  the  prices  of  food  and  of  certain  sorts  of  clothing  are  reduced, 
another  result  to  be  expected  is  that  people  in  general  outside  of 
agricultural  pursuits  will  have  more  to  spend  upon  other  things.     A 

1  Adapted  by  permission  from  A.  P.  Andrew,  "Influence  of  Crops  upon 
Business  in  America,"  Quarterly  Journal  of  Economics,  XX  (1905-6),  324-29. 


SPECIALIZATION  AND  INTERDEPENDENCE  413 

bountiful  harvest  is  thus  significant  for  almost  all  of  the  occupations 
in  a  community. 

2.  In  the  second  place,  the  very  solvency  of  a  large  part  of  the 
agricultural  population,  and  of  those  connected  by  business  relations 
with  them,  depends  to  a  considerable  degree  upon  the  outcome  of  the 
year's  harvest.  Whether  or  not  the  farmer  will  be  able  to  repay  loans 
which  he  has  contracted,  whether  or  not  he  will  be  able  to  settle  his 
bills  with  tradesmen  and  dealers,  and  whether  or  not  he  can  pay  for 
his  agricultural  machinery  and  farm  improvements,  will  in  many 
cases  be  decided  by  the  size  of  the  crop.  A  failure  in  agriculture 
may  be  propagated  into  other  fields,  and  bankruptcies  among  bankers, 
dealers,  and  manufacturers  may  ensue.  If  the  harvest  on  the  other 
hand  is  good,  and  can  be  marketed  at  profitable  prices,  the  capital  of 
the  affiliated  creditors  will  once  more  be  set  free  and  made  ready  for 
new  activities. 

3.  In  .the  third  place,  in  a  country  where  agricultural  products 
form  an  important  factor  in  the  foreign  commerce,  the  size  of  the 
crops  will  exert  a  considerable  influence  upon  the  balance  of  trade 
and  the  international  movement  of  gold.  The  extent  of  the  bank 
reserves  in  the  great  financial  centers  and  the  contraction  or  expan- 
sion of  general  credit  may  in  consequence  depend  most  importantly 
upon  the  output  of  the  season's  harvests. 

4.  Again,  the  size  of  such  crops  as  are  not  consumed  in  the  locality 
of  their  production  is  of  great  significance  for  the  transportation 
interests.  One  has  only  to  observe  the  fluctuations  in  railway  earn- 
ings month  by  month  during  the  course  of  any  normal  year  to  realize 
how  important  a  factor  the  harvests  are  in  railway  affairs. 

5.  Finally,  the  success  or  failure  of  certain  crops  is  also  of  sig- 
nificance for  those  industries  into  which  the  crop  enters  as  a  raw 
material.  A  failure  of  the  wheat  crop  will  obviously  depress  the 
milling  industry,  and  a  failure  of  the  cotton  crop  will  curtail  the  earn- 
ings of  the  cotton  factories,  not  only  those  in  the  vicinity  of  the  cotton- 
growing  states,  but  those  in  New  or  old  England  as  well.  A  failure 
of  the  corn  crop  similarly  will  diminish  the  profits  of  cattle  raising, 
may  work  injury  to  the  packing  interests,  and  to  some  extent  may 
affect  also  the  distillers  of  whiskey. 

At  the  same  time  there  are,  needless  to  say,  other  factors  than 
the  output  of  our  farms  which  may  affect  our  prosperity,  and  whose 
influence  may  quite  outweigh  the  influence  of  our  harvests. 


414 


INDUSTRIAL  SOCIETY 


155.     THE  WORLD'S  FOOD  SUPPLY1 

One  of  the  most  momentous  results  of  the  recent  great  extension 
and  cheapening  of  the  world's  railway  system  and  service  is  that  there 
is  no  longer  any  occasion  for  the  people  of  any  country  indulging  in 
either  excessive  hopes  or  fears  as  to  the  results  of  any  particular 
harvest,  inasmuch  as  the  failure  of  crops  in  any  one  country  is  no 
longer  identical  with  high  prices  of  grain,  the  prices  of  cereals  being 
at  present  regulated,  not  within  any  particular  country,  but  by  the 
combined  production  and  consumption  of  all  countries  made  mutually 
accessible  by  railroads  and  steamships.  As  a  matter  of  fact,  indeed, 
the  granaries  for  no  small  portion  of  the  surplus  stock  of  the  world's 
cereals  are  at  the  present  time  ships  and  railroad-cars  in  the  process 
of  movement  to  the  points  of  greatest  demand  for  consumption. 
Hence  it  is  that,  since  1870,  years  of  locally  bad  crops  in  Europe 
have  generally  witnessed  considerably  lower  prices  than  years  when 
the  local  crops  were  good,  and  there  was  a  local  surplus  for 
export. 

How  much  of  misery  and  starvation  a  locally  deficient  harvest 
entailed  under  the  old  system  upon  the  poorer  classes,  through  the 
absence  of  opportunity  of  supplying  the  deficiency  through  importa- 
tions from  other  countries  and  even  from  contiguous  districts,  is 
shown  by  the  circumstance  that  in  the  English  Parliamentary  debates 
upon  the  corn  laws,  about  the  year  1840,  it  was  estimated  upon  data 
furnished  by  Mr.  Tooke,  in  his  History  of  Prices,  that  a  deficiency 
of  one-sixth  in  the  English  harvest  resulted  in  a  rise  of  at  least  100  per 
cent  in  the  price  of  grain;  and  another  estimate  by  Davenant  and 
King,  for  the  close  of  the  seventeenth  century,  corroborates  this 
apparently  excessive  statement. 

The  following  table,  given  on  German  authority,  and  representing 
the  price  (in  silver  gulden  per  hectolitre)  of  grain  for  various  periods, 
exhibits  a  like  progress  of  price  equalization  between  nations: 


Period 


England 


France 


Belgium 


Prussia 


I 821-1830 
I 831-1840 
1841-1850 
1851-1860 
1861-1870 


IO.25 
9.60 

915 
9.40 
8.80 


6.44 
7-31 
7-99 
9-65 
9.24 


•65 
.27 
.41 
.07 
•79 


1  Adapted  by  permission  from  D.  A.  Wells,  Recent  Economic  Changes,  pp.  45-47. 
(D.  Appleton  &  Co.,  1896.) 


SPECIALIZATION  AND  INTERDEPENDENCE  4I5 

During  the  eleven  months  of  1888,  ending  November  30,  Great 
Britain  imported  a  little  more  than  sixty-seven  million  hundred- 
weight of  wheat  and  flour.  In  the  corresponding  eleven  months  of 
1887  the  foreign  supply  was  practically  the  same.  There  was,  how- 
ever, a  very  great  change  in  the  sources  of  supply.  Thus,  in  1887, 
North  and  South  America  furnished  forty-nine  million  hundred- 
weight out  of  the  sixty-seven  million  hundredweight  that  Great 
Britain  required;  but  in  1888  the  harvest  of  America  was  compara- 
tively meager  and  supplied  Great  Britain  with  but  twenty-nine 
million  hundredweight,  leaving  a  deficiency  of  twenty  millions  to  be 
obtained  from  other  sources. 


156.     THE  SENSITIVENESS  OF  INDUSTRIAL  SOCIETY 

Our  pecuniarily  organized,  interdependent  society  is  naturally 
enough  a  sensitive  society,  sensitive  both  to  demand  and  to 
shock. 

Almost  any  organization  of  society  would  be  sensitive  in  some 
degree  to  demand.  In  a  socialistic  society,  for  example,  it  is  to  be 
expected  that  desires  and  demands  would  change  from  time  to  time 
and  that  the  industrial  structure  would  be  altered  to  meet  the  new 
situation.  How  quickly  the  structure  would  be  altered  is  another 
matter.  It  is  not  probable  that  it  would  be  altered  as  quickly  as  it  is 
in  our  present  society.  In  a  society  organized  on  the  gain  basis 
bribes  (sometimes  of  tremendous  size)  are  continually  awaiting  the* 
early  comers  in  any  readjustment,  and  punishments  (sometimes  of 
tremendous  size)  are  continually  awaiting  the  laggards.  Indeed, 
desire  for  gain  even  causes  us  to  stimulate  new  demands. 

Any  interdependent  society  will  be  sensitive  to  shock — this  by 
hypothesis.  If  the  society  is  interdependent,  one  section  cannot 
be  indifferent  to  the  events  occurring  in  another  section.  Of  course, 
different  societies  would  be  sensitive  to  shock  in  varying  degrees.  In 
general  terms,  an  interdependent  society  organized  on  a  pecuniary 
uasis  is  probably  more  sensitive  to  shock  than  would  be  a  socialistic 
;ociety.  The  gain  structure  transmits  the  shock  at  a  speed  com- 
parable to  the  speed  involved  in  the  reactions  of  the  nervous  system. 
5ven  more,  in  our  society  the  shock  may  very  well  grow  in  the  process 
)f  transmission.  The  failure  of  a  small  business  unit  may  well  cause 
he  failure  of  a  larger  one,  and  this  of  one  still  larger,  and  so  on  more 
>r  less  indefinitely.     It  is  probable  that  shock  could  be  more  readily 


416  INDUSTRIAL  SOCIETY 

confined  to  a  relatively  small  territory  in  a  socialistic  community 
than  is  the  case  today. 

In  all  of  the  foregoing  there  is,  or  should  be,  no  implication  of 
judgment  being  passed.  There  are  many  respects  in  which  it  is  for- 
tunate and  many  respects  in  which  it  is  unfortunate  that  our  society 
is  exceedingly  sensitive  both  to  demand  and  to  shock.  For  our  present 
purpose  the  essential  need  is  to  see  that  our  society  is  sensitive  and 
to  realize  that  if  we  desire  to  retain  the  gains  of  a  society  organized 
in  such  a  way  as  to  bring  about  this  sensitiveness  we  must  be  alert  to 
cope  with  the  disadvantages.  This,  of  course,  we  are  trying  to  do. 
A  long  catalogue  might  readily  be  made  of  our  activities  in  striving 
to  overcome  these  disadvantages.  It  is  perhaps  sufficient  to  mention 
in  this  connection  the  formation  of  the  federal  reserve  system  in  our 
banking  operations.  

See  also  185.     The  Delicate  Mechanism  of  Industry. 


CHAPTER  VII 

MACHINE  INDUSTRY— AN  EXPRESSION  OF  THE  NEW 
TECHNOLOGY 

A.     Problems  at  Issue 

Since  the  time  of  the  industrial  revolution  our  private-exchange- 
co-operative-specialized-interdependent-pecuniary  society  has  become 
more  and  more  one  which  makes  use  of  technology.  The  seventeenth 
and  eighteenth  centuries  laid  the  foundation  for  this  situation  in  the 
rapid  development  of  mathematics  and  chemistry.  Later,  physics 
and  biology  contributed  their  share.  The  contributions  of  all  these 
sciences  reached  their  culmination,  from  the  point  of  view  of  our 
present  interest,  in  the  power  machinery  which  came  in  with  the 
industrial  revolution,  in  the  schools  of  technology  which  began  to 
spring  up  to  meet  the  pressure  of  the  market  on  production  in  the 
middle  of  the  nineteenth  century,  and  then  in  the  great  scientific 
researches  and  their  applications  to  industry  which  have  characterized 
the  last  half  of  the  nineteenth  and  the  beginning  of  the  twentieth 
century.     Today  science  is  the  handmaiden  of  industry. 

Machine  industry  furnishes  one  good  illustration  or  expression 
of  this  new  technology.  It  is  very  different  from  the  craft-tool 
regime  which  preceded  it — different  both  in  the  character  of  its 
processes  and  •  in  the  character  of  its  contribution  to  human 
well-being. 

Of  the  wide  range  of  subjects  which  might  be  taken  to  illustrate 
or  develop  this  difference  between  machine  industry  and  its  pred- 
ecessor, attention  is  directed  in  this  chapter  to  three  main  con- 
siderations. The  first  of  these  is  introductory  in  character  and  has 
to  do  with  the  explanation  of  what  the  machine  is  and  what  its 
functions  are  in  the  struggle  of  man  to  gratify  his  wants.  The 
second  has  to  do  with  certain  characteristics  of  the  machine  process 
as  a  process.  No  matter  whether  machine  industry  be  conducted 
under  our  present  organization  of  society  or  under  the  organization 
proposed  by  the  communist  or  the  socialist,  certain  outstanding 
facts  concerning  machine  operations  and  their  effect  upon  human 
beings  would  remain  the  same.    There  would  be  machine  industry 

417 


4i8  INDUSTRIAL  SOCIETY 

problems  under  any  organization  of  society.     No  "ism"  will  ever 
enable  us  to  escape  them. 

The  third  of  these  considerations  centers  around  the  problem  of 
indirect  costs  and  the  difficulties  connected  with  the  social  control 
of  industries  in  which  indirect  costs  are  a  large  part  of  the  total  costs. 
True,  machine  industry  is  not  exclusively  responsible  for,  the  fact  that 
indirect  costs  are  characteristically  a  large  part  of  the  total  costs  of 
business  today.  But  while  it  is  not  exclusively  responsible  it  is 
largely  responsible,  both  immediately  and  mediately.  Immediately, 
the  large  cost  of  the  machine  and  of  its  appropriate  surroundings 
furnishes  a  burden  of  overhead  costs.  Mediately,  the  presence  of  the 
machine  sets  in  motion  other  factors  and  forces  which  add  their  share 
to  the  overhead  burden. 

The  presence  of  indirect  costs  in  modern  industry  is  not,  however, 
our  prime  concern.     Primarily  we  are  concerned  with  knowing  the 
consequences  of  this  presence.     Perhaps  no  person  living  today  can 
realize  the  full  significance  of  these  consequences.     We  may,  however, 
approach  the  subject  by  observing  some  of  the  consequences  con- 
nected with  the  social  control  of  machine  industry  in  the  interests  of 
the  fuller  service  of  society.     This  is,  of  course,  not  exclusively  a 
machine  industry  topic.     It  is  connected  with  all  the  other  phases  of 
our  society,  particularly  with  its  pecuniary  organization.     Whether 
for  better  or  worse,  industry  is  conducted  for  gain  today.     Social 
control  is  needed  lest  the  individual  gain  in  ways  harmful  to  society. 
To  control  wisely  means  to  know.     To  know  is  difficult  in  a  new, 
complex,  rapidly  changing  situation.     How  can  we  control  the  genie  ? 
As  will  appear,  it  is  permissible  to  speak  of  the  industries  which 
preceded  the  industrial  revolution  as  "simple"  industries  and  of  the 
industries  of  today  as  "  complex  "  industries.     This  classification  helps 
us  to  appreciate  some  of  the  difficulties  connected  with  social  control 
of  industrial  matters  today,  for,  in  itself,  a  complex  situation  is  difficult 
to  cope  with.    Then,  too,  during  the  many  generations  of  simple 
industry    certain    attitudes    of    mind    developed — certain    slogans, 
maxims,  watchwords,  and  theories.     These,  reasonably  well  adapted 
to  simple  industry,  have  by  social  inheritance  come  down  to  us,  and 
'we  try  to  apply  them  to  complex  industry  with  more  or  less  disastrous 
consequences.     Since  the  reign  of  the  machine — the  new  technology — 
has  been  too  brief  for  us  to  have  developed  new  attitudes  of  mind — 
indeed,  even  expert  students  are  often  at  a  loss  to  know  what  new 
attitudes  should  be  developed — it  follows  that  for  some  time  to  come 


MACHINE  INDUSTRY  410 

we  are  likely  to  be  in  a  state  of  uncertainty  and  bewilderment  with 
respect  to  many  matters  of  social  control.  Our  old  mental  landmarks 
have  been  swept  away,  but  we  have  not  yet  learned  what  ones  may 
safely  be  set  up  in  their  place. 

One  illustration  will  suffice.  Under  simple  industry  there  grew 
up  a  faith  in  "free"  competition  as  an  efficient  organizing  force  for 
industrial .  society.  Free  competition  involves,  among  other  things, 
adequate  knowledge  of  the  essential  facts  by  all  interested  parties,  and 
mobility  with  respect  to  productive  forces.  Under  simple  industry 
these  conditions  obtained.  Men  could  ascertain  essential  facts; 
furthermore,  it  was  easy  to  abandon  an  unprofitable  line  of  activity 
and  easy  to  take  up  a  new  one.  Under  complex  industry,  however, 
adequate  knowledge  and  mobility  of  productive  forces  are  not  readily 
secured;  consequently  the  conditions  which  would  render  competition 
efficient  as  a  universal  regulator  no  longer  obtain  in  large  sections  of 
industry.  None  the  less  there  still  rests  firmly  in  the  minds  of  the 
general  public,  and,  as  a  result,  in  the  minds  of  most  of  our  legislators, 
the  conviction  that  competition  is  under  all  circumstances  "the  life 
of  trade."  Accordingly,  much  of  our  legislation  (witness  the  Inter- 
state Commerce  Act  and  almost  all  of  our  trust  legislation)  proceeds 
calmly  on  the  assumption  that  most  matters  may  wisely  be  left  to 
"free"  competition.  It  is,  of  course,  true  that  competition  still  has 
very  important  functions  and  possibly  an  increasing  range  of  functions 
to  perform  in  our  industrial  society.  Little  is  gained,  however,  by 
attempting  to  apply  eighteenth-century  philosophy  concerning 
competition  to  twentieth-century  conditions. 

What  is  true  concerning  our  mental  attitude  toward  competition 
is  equally  true  in  many  other  fields.  Apparently  it  will  be  many 
generations  before  we  shall  have  developed  scientific  knowledge  and 
public  information  competent  to  cope  with  the  problems  of  control 
raised  by  the  presence  of  indirect  costs,  but  at  least  we  may  begin. 


QUESTIONS 

i.  "The  new  technology."     What  does  this  expression  mean  ? 

2.  "Roundabout  methods  lead  to  greater  results  than  direct  methods." 
Just  why  ? 

3.  "Roundabout  production  is  not  merely  usually  a  better  way.     In  the 
case  of  certain  goods  it  is  the  only  way."     Illustrate. 

4.  "The  machine  is  a  tool  plus."     Plus  what? 

5.  "Capital  may  be  classified  as  (a)  active,  such  as,  engines,  tools,  and 
factories,  and  (b)  passive,  such  as  raw  cotton,  pig  iron,  and  lumber." 


420  INDUSTRIAL  SOCIETY 

What,  in  generalized  terms,  is  the  function  in  production  of  active 
capital  ?    of  passive  capital  ? 

6.  "The  machine  has  lengthened  the  time  of  the  productive  process." 
Is  this  true  ?  Reflect  upon  how  rapidly  the  machine  turns  out  goods. 
Is  this  what  is  referred  to  in  the  quotation  when  it  speaks  of  "the  time 
of  production"? 

7.  If  the  machine  really  has  lengthened  the  time  of  the  productive 
process,  what  are  the  consequences?  Has  it  made  industry  more 
speculative? 

8.  "The  machine  has  widened  the  market."    How  ? 

9.  "The  rapid  expansion  of  the  railway  net  in  the  United  States  opened 
up  a  great  market  and  this  made  machine  production  possible."  Is  a 
large  market  a  prerequisite  of  machine  production  ? 

10.  "Standardization  is  the  magic  word  which  reveals  the  circumstances 
under  which  an  industry  lends  itself  readily  to  machine  methods." 
What  does  this  mean  ?     Standardization  of  what  ? 

11.  Can  machine  production  be  used  in  making  goods  of  fashion  ?  artistic 
goods  ? 

12.  One  of  the  selections  shows  why  England  led  in  machine  industry.  It  is 
generally  said  that  the  United  States  is  a  great  machine-using  nation- 
What  causes  can  you  give  for  this  situation  ?  Are  they  the  same  causes 
which  enabled  England  to  assume  leadership  in  machine  industry  at 
the  earlier  period  ? 

13.  The  agricultural  revolution  of  the  eighteenth  century  greatly  facilitated 
the  coming  in  of  machine  industry  in  England.  Just  how  ?  Why  did 
not  the  earlier  agricultural  revolution  cause  a  coming  in  of  machine 
industry  ? 

14.  Just  why  is  the  rhythm  of  machinery  of  significance  ? 

15.  "The  machine  has  caused  business  relations  to  become  more  imper- 
sonal." Contrast  relations  under  the  tool  regime  with  those  under 
modern  industrialism. 

16.  Make  a  list  of  the  new  strains  in  industry  due  to  (a)  the  machine  process, 
(b)  harmful  instances  of  the  control  of  this  process  for  purposes  of 
individual  gain.  Note  the  necessity  of  differentiating  (a)  and  (b). 
Would  machinery  roar  and  have  rhythm  under  socialism?  Differ- 
entiate between  machine  industry  under  capitalism,  and  machine 
industry  under  socialism. 

17.  "The  significant  thing  about  the  coming  in  of  machinery  is  that  it 
meant  a  transfer  of  thought,  skill,  and  intelligence."  What  does  this 
mean  ?  What  has  been  the  effect  of  this  transfer  upon  (a)  apprentice- 
ship, (b)  competition  among  workers,  (c)  the  bargaining  relation 
between  employer  and  employee,  (d)  the  development  of  large-scale 
production,  (e)  the  development  of  impersonal  relations,  (/)  the 
development  of  working-class  solidarity  ? 


MACHINE  INDUSTRY  42 1 

18.  Can  you  cite  any  illustrations  of  the  transfer  of  thought,  skill,  and 
intelligence  to  management  ? 

19.  What  is  the  relation  of  machinery  to  large-scale  production? 

20.  Draw  up  a  statement  of  the  effect  of  the  machine  upon  the  laborers 
who  work  in  machine  industries;  upon  other  laborers. 

21.  One  writer  says  that  machine  methods  have  profoundly  influenced  our 
mental  outlook.  How  could  this  be  true  ?  Have  these  methods  had 
sufficient  time  or  have  they  covered  a  sufficient  proportion  of  our  human 
activities  to  have  had  a  profound  influence  of  this  sort  ? 

22.  "We  talk  of  machine  industry  having  revolutionized  society.  It  is 
power  machinery  which  has  done  so,  and  thus  power  and  not  machinery 
is  the  matter  which  should  have  our  attention."     Is  this  true  ? 

23.  Explain  what  is  meant  by  direct  cost,  indirect  cost,  prime  cost,  supple- 
mentary cost,  overhead,  constant  cost,  variable  cost,  burden. 

24.  If  a  railroad  between  New  York  and  Chicago  is  already  in  existence  and 
trains  are  running,  what  added  cost  would  the  railroad  incur  if  it  hauled 
a  five-pound  box  from  Chicago  to  New  York  ? 

25.  Would  it  be  good  business  policy  for  the  road  to  haul  such  a  box  at  a 
rate  only  a  little  in  excess  of  this  added  cost  if  it  could  get  no  more  for 
the  service?  Would  it  be  good  policy  to  haul  all  traffic  at  such 
rates  ? 

26.  A  package  of  goods  is  shipped  from  London  to  Chicago.  The  freight 
charges  are:  for  the  ocean  transportation  from  London  to  New  York, 
$2,  and  for  the  railroad  transportation  from  New  York  to  Chicago,  $1. 
But  the  consignee  pays  50  cents  for  cartage  in  New  York  and  50  cents 
for  delivery  in  Chicago,  and  gives  25  cents  to  the  porter  who  carries  the 
package  upstairs  at  the  destination.  Why  is  it  necessary  to  pay  nearly 
a  third  of  the  total  expense  for  carrying  the  goods  a  thousandth  part 
of  the  total  distance  ? 

27.  The  efficiency  of  modern  railroad  transportation  is  attested  by  the 
example  of  a  certain  American  railroad  which  is  said  to  haul  freight 
at  an  average  cost  of  one  mill  per  ton-mile.  Should  you  regard  it  as 
worth  your  while  to  carry  a  ton  of  goods  a  mile  for  a  tenth  of  a  cent  ? 
How  is  the  railroad  able  to  do  it  ?     ' 

28.  Before  the  Erie  Canal  was  constructed,  the  hauling  of  a  ton  of  wheat 
over  the  roads  from  Buffalo  to  New  York  cost  $100.  As  facilities  for 
transportation  improved,  it  was  found  that  a  horse  could  draw  on  a 
turnpike  three  times  the  load  and  in  a  canal-boat  twenty-five  times  the 
load  he  could  draw  on  ordinary  earth  roads.  Today  steam  transporta- 
tion permits  the  profitable  shipment  of  wheat  from  the  Far  West  to 
Liverpool.  Why  do  earth  roads  and  horse-drawn  canal-boats  continue 
to  be  used  ? 

29.  Suppose  empty  cars  were  being  hauled  in  a  certain  direction.  Would 
a  railroad  be  justified  in  offering  to  haul  traffic  in  that  direction  at  very 


422  INDUSTRIAL  SOCIETY 

low  rates?  If  so,  under  what  circumstances?  If  not,  why  not? 
Would  your  answer  be  the  same  from  a  social  point  of  view  as  from  the 
point  of  view  of  railroad  management  ? 

30.  "In  industries  where  the  indirect  cost  is  a  large  proportion  of  the  total 
cost,  it  pays  to  take  business  at  a  price  which  is  below  total  cost  pro- 
vided that  price  is  above  prime  cost."     Explain  why. 

31.  Can  you  think  of  any  circumstances  under  which  it  would  be  wise  (a) 
from  the  railroad's  point  of  view,  (b)  from  the  social  point  of  view,  for  a 
railroad  to  charge  less  than  direct  cost  ? 

32.  x — — y z 

y  is  an  inland  town  on  a  railroad  connecting  x  and  z.  The  rate  from 
x  to  z  is  "  compelled  "  by  water  competition  to  be  $3  per  cwt.  The  local 
rate  from  z  to  y  is  50  cents.  The  road  charges  $3.50  from  x  to  y. 
When  complaint  is  made  to  the  Interstate  Commerce  Commission,  the 
railroad  alleges  that  the  rate  of  $3  from  x  to  z  benefits  rather  than  harms 
y,  even  though  the  rate  from  x  to  y,  a  shorter  distance,  is  higher.  How 
can  this  be  urged  ? 
S$.  An  American  manufacturer  of  a  certain  commodity  could  sell  it  in 
England  if  he  quoted  a  price  of  $18  per  ton  in  England.  The  market 
in  the  United  States  was  such  as  to  enable  him  to  get  $24.  He  con- 
tended that  charging  $18  (which  included  freight  charges,  etc.)  in 
England  actually  benefited  the  American  consumer.  How.  could  he 
argue  this  ? 

34.  When  we  speak  of  industry  in  1750  as  having  been  "simple"  and  of 
industry  today  as  being  "complex,"  what  do  we  mean  ?  What  are  the 
component  elements  of  this  simplicity  or  complexity  ? 

35.  "The  machine  is  not  responsible  for  all  the  overhead  costs  in  industry." 
Is  this  true?  If  it  is,  what  other  factors  share  the  responsibility? 
Would  these  factors  have  been  present  if  we  had  not  had  machine 
industry  ? 

36.  "Indirect  cost  is  the  father  of  cut-throat  competition."  What  does 
this  mean  ? 

37.  Why  does  the  competition  of  railroads  so  often  force  them  into  receiver- 
ships and  reorganizations  ? 

38.  Are  the  economic  problems  of  the  railroad  business  essentially  different 
from  the  problems  of  any  modern  industry  in  which  indirect  costs  make 
up  a  large  part  of  total  cost  ? 

39.  "The  formation  of  trusts  was  inevitable.  The  pecuniary  organization 
of  society  with  its  financial  machinery,  especially  the  corporation,  made 
possible  the  assembling  of  large  masses  of  capital.  The  expansion  of 
markets  and  machine  industry  made  such  assembling  wise.  The 
pressure  of  indirect  costs  made  competition  intolerable  at  the  same  time 
that  it  rendered  industry  complex  and  thus  not  easily  regulated  by 
unfettered  competition.    The  desire  for  monopoly  profits  and  other 


MACHINE  INDUSTRY  423 

forms  of  individual  gains  were  the  matches  which  set  the  powder  off." 
Do  you  agree  ?  Explain  the  "why"  of  each  statement  with  which  you 
do  agree. 

40.  The  apportionment  of  productive  energy  is  worked  out  through  the 
agency  of  prices  and  margins  of  profits.  What  is  the  bearing  of  indirect 
cost  upon  efficient  apportionment  ? 

41.  "It  is  of  vital  importance  that  the  regulation  of  our  public  utilities  shall 
be  sane.  We  must  have  a  proper  proportion  of  our  productive  energy 
in  such  services."  What  bearing  has  indirect  cost  upon  ease  of  securing 
wise  regulation  ? 

42.  "Cost  accounting  is  merely  a  device  which  man  is  developing  to  enable 
him  to  understand  and  control  complex  industry."  Is  this  true? 
Can  it  really  help  us  either  to  understand  or  to  control  ?  Should  an 
accountant  be  primarily  a  mathematician,  or  an  economist,  or  a  mechan- 
ical engineer  ?     Why  ? 

43.  What  bearing,  if  any,  has  accounting  upon  the  regulation  of  public 
utilities  ? 

44.  Draw  up  a  list  of  the  consequences  (a)  to  society,  (b)  to  the  business 
manager,  of  the  rise  of  indirect  costs. 

45.  Make  a  list  of  non-serviceable  aspects  of  machine  industry.  Precisely 
why  is  it  difficult  to  secure  adequate  social  control  in  the  case  ?  Is  it 
because  the  adjustment  of  problems  is  so  delicate  that  the  inevitably 
somewhat  clumsy  machinery  of  control  works  poorly?  Is  it  because 
we  do  not  know  enough  to  control  wisely  ?  If  the  latter,  what  explana- 
tions can  you  give  for  our  lack  of  knowledge  ? 

46.  Try  to  state  the  relationship  of  machine  industry  to  (a)  specialization, 
(b)  money  economy,  (c)  capitalism,  (d)  interdependence,  (e)  the  forma- 
tion of  classes,  (/)  speculative  markets. 

47.  Would  a  socialistic  state  make  use  of  machinery?  If  so,  would 
they  have  problems  of  social  control?  What  is  their  scheme  of 
control  ? 

48.  "Machine  industry  has  been  tried — abundantly  tried — and  has  been 
found  wanting."     Why  or  why  not  ? 

B.     The  Role  of  the  Machine 
157.     THE  SERVICES  OF  THE  NEW  TECHNOLOGY1 

A  peasant  requires  drinking  water.  The  spring  is  some  distance 
from  his  house.  There  are  various  ways  in  which  he  may  supply  his 
daily  wants.  First,  he  may  go  to  the  spring  each  time  he  is  thirsty, 
and  drink  out  of  his  hollowed  hand.    This  is  the  most  direct  way; 

1  Adapted  by  permission  from  Eugen  von  Bohm-Bawerk,  The  Positive  Theory 
of  Capital,  pp.  18-22.     (Macmillan  and  Co.,  Ltd.,  1891.) 


424  INDUSTRIAL  SOCIETY 

satisfaction  follows  immediately  upon  exertion.  But  it  is  an  incon- 
venient way,  for  our  peasant  has  to  take  his  way  to  the  well  as  often 
as  he  is  thirsty.  And  it  is  an  insufficient  way,  for  he  can  never  col- 
lect and  store  any  great  quantity  such  as  he  requires  for  various  other 
purposes.  Second,  he  may  take  a  log  of  wood,  hollow  it  out  into  a 
kind  of  pail,  and  carry  his  day's  supply  from  the  spring  to  his  cottage. 
The  advantage  is  obvious,  but  it  necessitates  a  roundabout  way  of 
considerable  length.  The  man  must  spend,  perhaps,  a  day  in  cutting 
out  the  pail;  before  doing  so  he  must  have  felled  a  tree  in  the  forest; 
to  do  this,  again,  he  must  have  made  an  axe,  and  so  on.  But  there  is 
still  a  third  way;  instead  of  felling  one  tree  he  fells  a  number  of  trees, 
splits  and  hollows  them,  lays  them  end  to  end,  and  so  constructs  a 
runnel  or  rhone  which  brings  a  full  head  of  water  to  his  cottage. 
Here,  obviously,  between  the  expenditure  of  the  labour  and  the 
obtaining  of  the  water  we  have  a  very  roundabout  way,  but  then  the 
result  is  ever  so  much  greater.  Our  peasant  needs  no  longer  take  his 
weary  way  from  house  to  well  with  the  heavy  pail  on  his  shoulder, 
and  yet  he  has  a  constant  and  full  supply  of  the  freshest  water  at  his 
very  door. 

Another  example.  I  require  stone  for  building  a  house.  There  is 
a  rich  vein  of  excellent  sandstone  in  a  neighboring  hill.  How  is  it  to  be 
got  out  ?  First,  I  may  work  the  loose  stones  back  and  forward  with 
my  bare  fingers,  and  break  off  what  can  be  broken  off.  This  is  the 
most  direct,  but  also  the  least  productive  way.  Second,  I  may  take 
a  piece  of  iron,  make  a  hammer  and  chisel  out  of  it,  and  use  them  on 
the  hard  stone — a  roundabout  way,  which,  of  course,  leads  to  a  very 
much  better  result  than  the  former.  Third  method :  having  a  hammer 
and  chisel,  I  use  them  to  drill  a  hole  in  the  rock;  next  I  turn  my 
attention  to  procuring  charcoal,  sulphur,  and  nitre,  and  mixing  them 
in  a  powder,  then  I  pour  the  powder  into  the  hole,  and  the  ex- 
plosion that  follows  splits  the  stone  into  convenient  pieces — still 
more  of  a  roundabout  way,  but  one  which,  as  experience  shows, 
is  as  much  superior  to  the  second  way  in  result  as  the  second  was 
to  the  first. 

Yet  another  example.  I  am  short-sighted,  and  wish  to  have  a 
pair  of  spectacles.  For  this  I  require  ground  and  polished  glasses  and 
a  steel  framework.  But  all  that  nature  offers  towards  that  end  is 
silicious  earth  and  iron  ore.  How  am  I  to  transform  these  into 
spectacles?  Work  as  I  may,  it  is  as  impossible  for  me  to  make 
spectacles  directly  out  of  silicious  earth  as  it  would  be  to  make  the 


MACHINE  INDUSTRY  425 

steel  framework  out  of  iron  ore.  Here  there  is  no  immediate  or  direct 
method  of  production.  There  is  nothing  for  it  but  to  take  the 
roundabout  way,  and,  indeed,  a  very  roundabout  way.  I  must 
take  silicious  earth  and  fuel,  and  build  furnaces  for  smelting  the  glasses 
from  the  silicious  earth;  the  glass  thus  obtained  has  to  be  carefully 
purified,  worked,  and  cooled  by  a  series  of  processes;  finally,  the  glass 
thus  prepared — again  by  means  of  ingenious  instruments  carefully 
constructed  beforehand — is  ground  and  polished  into  the  lens  fit  for 
short-sighted  eyes.  Similarly  I  must  smelt  iron  in  the  blast  furnace, 
change  the  raw  iron  into  steel,  and  make  the  frame  therefrom — 
processes  which  cannot  be  carried  through  without  a  long  series  of 
tools  and  buildings  that,  on  their  part  again,  require  great  amounts 
of  previous  labour.  Thus,  by  an  exceedingly  roundabout  way  the 
end  is  attained. 

In  the  last  resort  all  our  productive  efforts  amount  to  shiftings 
and  combinations  of  matter.  We  must  know  how  to  bring  together 
the  right  forms  of  matter  at  the  right  moment,  in  order  that  from  those 
associated  forces  the  desired  result,  the  product  wanted,  may  follow. 
But,  as  we  saw,  the  natural  forms  of  matter  are  often  so  infinitely 
large,  often  so  infinitely  fine,  that  human  hands  are  too  weak  or  too 
coarse  to  control  them.  We  are  as  powerless  to  overcome  the  cohesion 
of  the  wall  of  rock  when  we  want  building  stone  as  we  are,  from  carbon, 
nitrogen,  hydrogen,  oxygen,  phosphor,  potash,  etc.,  to  put  together  a 
single  grain  of  wheat.  But  there  are  other  powers  which  can  easily 
do  what  is  denied  to  us,  and  these  are  the  powers  of  nature.  There 
are  natural  powers  which  far  exceed  the  possibilities  of  human  power 
in  greatness,  and  there  are  other  powers  in  the  microscopic  world  which 
can  make  combinations  that  put  our  clumsy  fingers  to  shame.  If  we 
can  succeed  in  making  those  forces  our  allies,  in  the  work  of  production, 
the  limits  of  human  possibility  will  be  infinitely  extended.  And  this 
we  have  done. 

Often,  of  course,  we  are  not  able  directly  to  master  the  form  of 
matter  on  which  the  friendly  power  depends,  but  in  the  same  way  as 
we  would  like  it  to  help  us,  do  we  help  ourselves  to  gain  it;  we  try 
to  secure  the  alliance  of  a  second  natural  power  which  brings  the  form 
of  matter  that  bears  the  first  power  under  our  control.  Just  as  we 
control  and  guide  the  immediate  matter  of  which  the  good  is  composed 
by  one  friendly  power,  and  that  power  by  a  second,  so  can  we  control 
and  guide  the  second  by  a  third,  the  third  by  a  fourth,  this  again  by 
a  fifth,  and  so  on — always  going  back  to  more  remote  causes  of  the 


426  INDUSTRIAL  SOCIETY 

final  result — till  in  the  series  we  come  at  last  to  one  cause  which  we  can 
control  conveniently  by  our  own  natural  powers.  This  is  the  true 
importance  which  attaches  to  our  entering  on  roundabout  ways  of 
production,  and  this  is  the  reason  of  the  result  associated  with  them; 
every  roundabout  way  means  the  enlisting  in  our  service  of  a  power 
which  is  stronger  or  more  cunning  than  the  human  hand;  every 
extension  of  the  roundabout  way  means  an  addition  to  the  powers 
which  enter  into  the  service  of  man,  and  the  shifting  of  some  portion  of 
the  burden  of  production  from  the  scarce  and  costly  labour  of  human 
beings  to  the  prodigal  powers  of  nature. 

And  now  we  may  put  into  words  an  idea  which  has  long  waited  for 
expression,  and  must  certainly  have  occurred  to  the  reader;  the  kind 
of  production  which  works  in  these  wise  circuitous  methods  is  nothing 
else  than  what  economists  call  Capitalist  Production,  as  opposed  to 
that  production  which  goes  directly  at  its  object,  as  the  Germans 
say,  "mit-der  nackten  Faust."  And  Capital  is  nothing  but  the 
complex  of  intermediate  products  which  appear  on  the  several  stages 
of  the  roundabout  journey. 

158.    WHAT  THE  MACHINE  IS1 

Mathematicians  and  mechanicians,  and  in  this  they  are  followed 
by  a  few  English  economists,  call  a  tool  a  simple  machine,  and  a 
machine  a  complex  tool.  They  see  no  essential  difference  between 
them,  and  even  give  the  name  of  machine  to  the  simple  mechanical 
powers,  the  lever,  the  inclined  plane,  the  screw,  the  wedge,  etc.  As 
a  matter  of  fact,  every  machine  is  a  combination  of  those  simple 
powers,  no  matter  how  they  may  be  disguised.  From  the  economical 
standpoint  this  explanation  is  worth  nothing,  because  the  historical 
element  is  wanting.  Another  explanation  of  the  difference  between 
tool  and  machine  is  that  in  the  case  of  a  tool,  man  is  the  motive  power, 
while  the  motive  power  of  a  machine  is  something  different  from  man 
— is,  for  instance,  an  animal,  water,  wind,  and  so  on.  According  to 
this,  a  plough  drawn  by  oxen,  whicli  is  a  contrivance  common  to  the 
most  different  epochs,  would  be  a  machine,  while  Claussen's  circular 
loom,  which,  worked  by  a  single  labourer,  weaves  96,000  picks  per 
minute,  would  be  a  mere  tool. 

All  fully  developed  machinery  consists  of  three  essentially  differ- 
ent parts,  the  motor  mechanism,  the  transmitting  mechanism,  and 

1  Adapted  by  permission  from  Karl  Marx,  Capital,  I,  405-18.  (Charles  H. 
Kerr  &  Co.,  1909.) 


MACHINE  INDUSTRY  427 

finally  the  tool  or  working  machine.  The  motor  mechanism  is  that 
which  puts  the  whole  in  motion.  It  either  generates  its  own  motive 
power,  like  the  steam  engine,  the  caloric  engine,  the  electro-magnetic 
machine,  etc.,  or  it  receives  its  impulse  from  some  already  existing 
natural  force,  like  the  water-wheel  from  a  head  of  water,  the  windmill 
from  wind,  etc.  The  transmitting  mechanism,  composed  of  fly-wheels, 
and  shafting,  toothed  wheels,  pullies,  straps,  ropes,  bands,  pinions, 
and  gearing  of  the  most  varied  kinds,  regulates  the  motion,  changes 
its  form  where  necessary,  as  for  instance  from  linear  to  circular,  and 
divides  and  distributes  it  among  the  working  machines.  These 
two  first  parts  of  the  whole  mechanism  are  there  solely  for  putting 
the  working  machines  in  motion,  by  means  of  which  motion  the 
subject  of  labour  is  seized  upon  and  modified  as  desired.  The  tool 
or  working-machine  is  that  part  of  the  machinery  with  which  the 
industrial  revolution  of  the  eighteenth  century  started.  And  to  this 
day  it  constantly  serves  as  such  a  starting-point,  whenever  a  handi- 
craft, or  a  manufacture,  is  turned  into  an  industry  carried  on  by 
machinery. 

On  a  closer  examination  of  the  working-machine  proper,  we  find 
in  it,  as  a  general  rule,  though  often,  no  doubt,  under  very  altered 
forms,  the  apparatus  and  tools  used  by  tjie  handicraftsman  or  manu- 
facturing workman;  with  this  difference,  that  instead  of  being 
human  implements,  they  are  the  implements  of  mechanism,  or 
mechanical  implements. 

An  organized  system  of  machines,  to  which  the  motion  is  com- 
municated by  the  transmitting  mechanism  from  a  central  automaton, 
is  the  most  developed  form  of  production  by  machinery.  Here  we 
have,  in  the  place  of  the  isolated  machine,  a  mechanical  monster  whose 
body  fills  whole  factories,  and  whose  demon  power,  at  first  veiled 
under  the  slow  and  measured  motions  of  his  giant  limbs,  at  length 
breaks  out  into  the  fast  and  furious  whirl  of  his  countless  working 
organs. 

Just  as  the  individual  machine  retains  a  dwarfish  character,  so 
long  as  it  is  worked  by  the  power  of  man  alone  and  just  as  no  system 
of  machinery  could  be  properly  developed  before  the  steam  engine  took 
the  place  of  the  earlier  motive  powers,  animals,  wind,  and  even  water; 
so,  too,  Modern  Industry  was  crippled  in  its  complete  development 
so  long  as  its  characteristic  instrument  of  production,  the  machine, 
owed  its  existence  to  personal  strength  and  personal  skill,  and 
depended  on  the  muscular  development,  the  keenness  of  sight,  and  the 


428  INDUSTRIAL  SOCIETY 

cunning  of  hand  with  which  the  detail  workmen  in  manufactures,  and 
the  manual  labourers  in  handicrafts,  wielded  their  dwarfish  imple- 
ments. 

159.    FUNCTIONS  OF  MACHINERY1 

Man  does  his  work  by  moving  matter.  Hence  machinery  can 
only  aid  him  by  increasing  the  motive  power  at  his  disposal. 

1.  Machinery  enables  forces  of  man  or  nature  to  be  more  effec- 
tively applied  by  various  mechanical  contrivances  composed  of  levers, 
pulleys,  wedges,  screws,  etc. 

2.  Machinery  enables  man  to  obtain  the  use  of  various  motor 
forces  outside  his  body — wind,  water,  steam,  electricity,  chemical 
action,  etc. 

Thus  by  the  provision  of  new  productive  forces,  and  by  the  more 
economical  application  of  all  productive  forces,  machinery  improves 
the  industrial  arts. 

Machinery  can  increase  the  scope  of  man's  productive  ability 
in  two  ways.  The  difficulty  of  concentrating  a  large  mass  of  human 
force  upon  a  given  point  at  the  same  time  provides  certain  quantitative 
limits  to  the  productive  efficiency  of  the  human  body.  The  steam- 
hammer  can  perform  certain  work  which  is  quantitatively  outside  the 
limit  of  the  physical  power  of  any  number  of  men  working  with 
simple  tools  and  drawing  their  motor  power  from  their  own  bodies. 
The  other  limit  to  the  productive  power  of  man  arises  from  the  imper- 
fect continuity  of  human  effort  and  the  imperfect  command  of  its 
direction.  The  difficulty  of  maintaining  a  small,  even,  accurate 
pressure,  or  a  precise  repetition  of  the  same  movement,  is  rather  a 
qualitative  than  a  purely  quantitative  limit.  The  superior  certainty 
and  regularity  of  machinery  enables  certain  wOrk  to  be  done  which 
man  alone  could  not  do  or  could  do  less  perfectly.  The  work  of  the 
printing  machine  could  not  be  achieved  by  man.  Machinery  has 
improved  the  texture  and  quality  of  certain  woolen  goods;  recent 
improvements  in  milling  result  in  improved  quality  of  flour,  and  so  on. 
Machinery  can  also  do  work  which  is  too  fine  or  delicate  for  human 
fingers,  or  which  would  require  abnormal  skill  if  executed  by  hand. 
Economy  of  time,  which  Babbage  accounts  a  separate  economy,  is 
rightly  included  in  the  economies  just  named.  The  greater  rapidity 
with  which  certain  manufacturing  processes — e.g.,  dyeing — can  be 
achieved  arises  from  the  superior  concentration  and  continuity  of 

1  Taken  by  permission  from  J.  A.  Hobson,  The  Evolution  of  Modern  Capitalism, 
pp.  72-74.     (The  Walter  Scott  Publishing  Co.,  Ltd.,  191 2.) 


MACHINE  INDUSTRY 


429 


force  possible  under  machinery.     All  advantages  arising  from  rapid 
transport  are  assignable  to  the  same  causes. 

The  continuity  and  regularity  of  machine  work  are  also  reflected  in 
certain  economies  of  measurement.  The  faculty  of  self-registering, 
which  belongs  potentially  to  all  machinery,  and  which  is  more  utilised 
every  day,  performs  several  services  which  may  be  summed  up  by 
saying  that  they  enable  us  to  know  exactly  what  is  going  on.  When  to 
self-registration  is  applied  the  faculty  of  self -regulation,  within  certain 
limits  a  new  economy  of  force  and  knowledge  is  added.  But  ma- 
chinery can  also  register  and  regulate  the  expenditure  of  human 
power.  Babbage  well  says:  "One  of  the  most  singular  advantages 
we  derive  from  machinery  is  in  the  check  which  it  affords  against  the 
inattention,  the  idleness,  or  the  knavery  of  human  agents."  This 
control  of  the  machine  over  man  has  certain  results  which  belong  to 
another  aspect  of  machine  economy. 

160.    THE  PRODUCTIVITY  OF  MACHINERY1 

The  number  of  days'  work  of  man-labor  requisite  for  pro- 
ducing the  specified  crops  by  the  aid  of  machine  power,  together 
with  the  quantity  of  those  several  crops  which  the  same  labor-power 
could  have  produced  by  the  earlier  hand  method,  is  shown  in  the 
following: 


Crop 
of 

Quantity  Produced 

Days'  Work 
of  Man- 
Labor  Re- 
quired 

The  Same  Labor-Power 

Name 

By  Meth- 
ods of 

Could  Have 
Produced 

Barley ...'..... 

1896 
1894 
1895 
1895 
1893 
1895 
1895 
1895 
1896 

69,695,223  bu. 
1,212,770,052  bu. 

7,161,094  500-lb.  bales 
47,078,541  tons 
638,854,850  bu. 
297,237,370  bu. 
168,685,440  lbs. 
27,210,070  bu. 
427,684,346  bu. 

630,354 

45,873,027 

28,178,904 

18,556,791 

11,334,266 

5,134,100 

1      108,889 

2,739,147 

7,099,560 

1829-30 
1855 
1841 
1850 
1830 
1866 
1870 
1847-48 
1829-30 

2,972,839  bu. 
473,528,022  bu. 

Cotton 

Hay 

2,518,972  bales 
8,801 ,640  tons 

Oats 

68,433,307  bu. 

Potatoes 

Rice 

103,703,321  bu. 
46,303,587  lbs. 

Rye 

10,872,795  bu. 

Wheat 

23,245,490  bu. 

Finding  next  the  difference  between  the  quantities  of  the  several 
crops  actually  produced  under  machine  methods  in  the  years  indi- 
cated, and  the  quantities  which  the  labor-power  requisite  for  their 
production  with  the  aid  of  machines  could  have  produced  had  it 

Adapted  by  permission  from  H.  W.  Quaintance,  "The  Influence  of  Farm 
Machinery  on  Production  and  Labor,"  Publications  of  the  American  Economic 
Association,  Third  Series,  Vol.  V  (1904),  No.  4,  pp.  21-23. 


430 


INDUSTRIAL  SOCIETY 


been   devoted   to  the  production   of   those  same   crops  by  hand 
methods,  we  have  the  following: 


Name 

Crop  of 

Due  to  Use  of 

Machinery 

Percentage  of 
Actual  Product 

Barley 

1896 
1894 
1895 
1895 
1893 
189S 
1895 
189S 
1896 

66,722,384  bu. 
739,242,030  bu. 
4,642,122  bales 

38,276,901  tons 
570,421,543  bu. 
193,534,049  bu. 
122,381,853  lbs. 

16,337,275  bu. 
404,438,856  bu. 

95-7 

Corn 

60.9 

Cotton 

64.8 

Hay 

81.3 

Oats 

89.2 

Potatoes 

Rice 

65-1 

72.5 

Rye 

60.0 

Wheat 

94.5 

The  increased  effectiveness  of  man-labor  power  when  aided  by  the 
use  of  machinery,  as  indicated  by  these  figures,  varies  from  150  per 
cent  in  the  case  of  rye  to  2,244  per  cent  in  the  case  of  barley.  From 
this  point  of  view,  a  machine  is  not  a  labor-saving  but  rather  a  product- 
making  device.  Taking  the  percentage  of  labor  saved  as  indicating 
the  average  proportion  of  these  crops  due  to  the  use  of  machinery,  it 
appears  that  the  quantity  of  product  is  almost  five  times  as  great  per 
unit  of  labor  as  it  formerly  was. 


161.    THE  INCREASE  OF  ACTIVE  CAPITAL  IN  THE 
UNITED  STATES1 

In  Table  I  we  have  an  attempt  to  collect  the  various  figures  of  the 
United  States  Census  and  combine  them  into  a  harmonious  whole. 
While  the  numbers  are,  in  no  case,  exact,  it  is  believed  that  the  errors 
are  too  small  to  vitiate  any  of  the  following  conclusions.  We  see  that 
the  total  supply  of  active  capital  has  enormously  increased;  in  fact, 
that  in  1910  the  value  was  about  seventeen  times  as  great  as  in  1850. 
In  this  great  increase,  all  industries  have  participated,  but  the  fishing 
equipment  has  grown  most  slowly  and  the  transportation  facilities 
fastest  of  all.  At  no  census  year  has  there  been  a  recession  in  a  single 
industry — development  has  been  continuous  in  all  lines. 

But  an  increase  in  the  total  value  of  active  capital  is  not,  in  itself, 
significant.  It  must  be  compared  with  the  increase  in  population  and 
with  a  changing  price-level  before  we  can  arrive  at  any  conclusions 
concerning  the  influence  of  the  change  upon  the  social  welfare.     The 

1  Adapted  by  permission  from  W.  I.  King,  The  Wealth  and  Income  of  the 
People  of  the*United  States,  pp.  42-44.     (The  Macmillan  Co.,  1915.) 


MACHINE  INDUSTRY 


431 


third  column  in  Table  II  indicates  that  the  per  capita  value  of  active 
capital  has  steadily  grown  larger  until,  in  19 10,  it  has  become  more 
than  four  times  as  great  as  in  i860.  Only  in  the  Civil  War  period 
has  this  apparent  increase  been  due  wholly  to  changing  prices,  for,  if 
the  per  capita  value  is  divided  by  the  price  index,  we  obtain  an  index 
of  amount  which  climbs  upward  until  the  quantity  per  capita  existing 

TABLE  I 

The  Estimated  Value  of  the  Supply  of  Active  Capital  in  the  Continental 
United  States,  in  Millions  of  Dollars 


Business 

Railroads 

Movable 

Census 
Year 

Total 

Buildings  and 
Fixed  Im- 
provements 

and  Other 
Public 
Utilities 

Machinery, 
Tools,  and 
Implements 

Livestock 

Fisheries 

1850 

2,757 

I,H3 

639 

399 

599 

7 

i860 

5,9oo 

2,160 

1,868 

665 

1,198 

9 

1870 

8,978 

2,975 

3,109 

1,206 

1,678 

10 

1880 

13,636 

4,n7 

5,386 

2,37-3 

i,735 

25 

1890 

19,298 

5,7oo 

8,366 

2,665 

2,538 

29 

1900 

24,783 

7,250 

10,926 

4,006 

3,i97 

34 

1910 

47,961 

13,301 

23,319 

5,995 

5,296 

50 

TABLE  II 

Quantity  of  Active  Capital  in  the  United  States 
(Outlying  possessions  excluded) 


Census  Year 

Total  Value  of  the 

Active  Capital 

Supply,  in 

Millions  of  Dollars 

Per  Capita 

Value  of 

Active  Capital 

Price  Index 

Index  of  Quantity 

of  Capital  per 

Capita 

1850 

2,757 
559oo 
8,978 
13,636 
19,298 
24,783 
47,96i 

$119 
188 

233 
272 

307 
326 

1    521 

139.2 

141  -3 

221 .6 

132.4 
H3-6 
101.7 
126.5 

85 

i860 

J33 

1870 

105         \ 

1880 

205 

1890 

270 

1900 

321 

1910 

412 

in  1850  is  more  than  quadrupled.  The  only  backward  step  shown  is 
in  the  decade  i860  to  1870,  and  this  was  due,  probably,  to  the  whole- 
sale destruction  of  capital  by  the  Civil  War,  a  blow  from  which  the 
Southern  States  had  only  begun  to  recover  in  1870.  The  more  or  less 
chaotic  conditions  of  the  South  in  1870  may  also  have  resulted  in 
some  incompleteness  in  the  Census  returns. 


432  INDUSTRIAL  SOCIETY 

162.    THE  BRIEF  REIGN  OF  THE  MACHINE1 

How  recent  in  the  world's  history  these  improvements  in  technical 
processes  really  are,  is  strikingly  illustrated  by  the  following  diagram: 

2000  B.C.  Birth  of  Christ  1500  A.D. 


Time  during  which  the  hand  spindle  was  the  only  form 
of  spindle  known. 

Spinning  wheel  also  known. 

Steam  has  been  applied  to  spinning. 


163.    WHY  ENGLAND  LED  IN  MACHINE  INDUSTRY2 

The  chief  factors  in  determining  the  order  of  the  development 
of  modern  industrial  methods  in  the  several  countries  may  be  classified 
as  natural,  political,  economic. 

a)  Natural. — (i)'The  structure  and  position  of  the  several  coun- 
tries.-— The  insular  character  of  Great  Britain,  her  natural  facilities 
for  procuring  raw  materials  of  manufacture  and  supplies  of  for- 
eign food  to  enable  her  population  to  specialise  in  manufacture, 
the  number  and  variety  of  easily  accessible  markets  for  her 
manufactures,  gave  her  an  immense  advantage.  Add  to  this  a 
temperate  climate,  excellent  internal  communication  by  river  (or 
canal),  and  an  absence  of  mountain  barriers  between  the  several 
districts.  These  advantages  were  of  greater  relative  importance 
before  steam  transport,  but  they  played  a  large  part  in  facilitating  the 
establishment  of  effective  steam  transport  in  England.  Extent  of 
seaboard  and  good  harbourage  have  in  no  small  measure  directed 
the  course  of  modern  industry,  giving  to  England,  Holland,  France, 
Italy  an  advantage  which  the  levelling  tendency  of  modern  machinery 
has  not  yet  been  able  to  counteract.  The  slow  progress  of  Germany 
until  recent  years,  and  the  still  slow  progress  of  Russia,  is  attributable 

1  Taken  by  permission  from  the  First  Report  of  the  Labor  Museum  at  Hull 
House,  Chicago,  1901-2,  p.  9. 

2  Adapted  by  permission  from  J.  A.  Hobson,  The  Evolution  of  Modern  Capital- 
ism, pp.  94-100.     (The  Walter  Scott  Publishing  Co.,  Ltd.,  191 2.) 


MACHINE  INDUSTRY  433 

more  to  these  physical  barriers  of  free  communication,  internal  and 
external,  than  to  any  other  single  cause  that  can  be  adduced.  In- 
herent resources  of  the  soil,  quality  of  land  for  agriculture,  the  prox- 
imity of  large  supplies  of  coal  and  iron,  and  other  requisites  of  the 
production  of  machinery  and  power  rank  as  important  determinants 
of  progress. 

(2)  Race  and  national  character. — Closely  related  to  climate  and 
soil,  these  qualities  of  race  are  a  powerful  directing  influence  in 
industry.  Muscular  strength  and  endurance,  yielding  in  a  temperate 
climate  an  even  continuity  of  vigorous  effort;  keen  zest  of  material 
comfort,  stimulating  invention  and  enterprise;  acquisitiveness,  and 
the  love  of  external  display;  the  moral  capacities  of  industry,  truth, 
orderly  co-operation;  all  these  are  leading  factors  determining  the 
ability  and  inclination  of  the  several  nations  to  adopt  new  industrial 
methods.  Moral  qualities  in  English  workmanship  have  indisputably 
played  a  large  part  in  securing  her  supremacy. 

b)  Political. — Statecraft  has  played  an  important  part  in 
determining  the  order  and  pace  of  industrial  progress.  The  possession 
of  numerous  colonies  and  other  political  attachments  in  different  parts 
of  the  world,  comprising  a  large  variety  of  material  resources,  gave  to 
England,  and  in  a  less  measure  to  France,  Holland,  Spain,  a  great 
advantage.  The  tyrannical  use  these  nations  made  of  their  colonies 
for  the  purpose  of  building  up  home  manufactures  enabled  them  to 
specialise  more  widely  and  safely  in  those  industries  to  which  the 
new  methods  of  production  were  first  applied. 

The  large  annexations  England  made  during  the  eighteenth  and 
early  nineteenth  centuries  gave  her  a  monopoly  of  many  of  the  finest 
markets  for  the  purchase  of  raw  materials  and  the  sale  of  manufactured 
goods.  The  large  derhand  thus  established  for  her  textile  and  metal 
wares  served  not  only  to  stimulate  fresh  inventions,  but  enabled  her  to 
utilise  many  improvements  which  could  only  be  profitably  applied 
in  the  case  of  large  industries  with  secure  and  expanding  markets. 

But  the  most  important  factor  determining  the  priority  of  England 
was  the  political  condition  of  continental  Europe  at  the  very  period 
when  the  new  machinery  and  motor-power  were  beginning  to  establish 
confidence  in  the  new  industrial  order.  When  Crompton's  mule,  Cart- 
wright's  power-loom,  Watt's  engines  were  transforming  the  industry 
of  England,  her  continental  rivals  had  all  their  energies  absorbed  in 
wars  and  political  revolutions. 

c)  Economic. — The  transformation  of  English  agriculture,  the 
growth  of  large  farms,  drove  great  numbers  of  English  peasants  into 


434  INDUSTRIAL  SOCIETY 

the  towns,  and  furnished  a  large  supply  of  cheap  labour  for  the  new 
machinery. 

Another  great  economic  advantage  which  assisted  England  was 
the  fact  that  she,  more  than  any  other  European  nation,  had  broken 
down  the  old  industrial  order,  with  its'  guilds,  its  elaborate  restrictions, 
and  conservative  methods.  Personal  freedom,  security  of  property, 
liberty  to  work  and  live  where  and  how  one  liked,  existed  in  England 
to  an  extent  unknown  on  the  Continent  before  the  French  Revolution. 

In  particular  the  cotton  trade,  which  was  in  the  vanguard  of  the 
movement,  being  of  recent  growth  and  settling  outside  the  guild 
towns,  had  never  known  such  restrictions,  and  therefore  lent  itself 
to  the  new  order  with  a  far  greater  facility  than  the  older  trades. 
Moreover,  England  was  free  from  the  innumerable  and  vexatious  local 
taxes  and  restrictions  prevalent  in  France  and  in  the  petty  govern- 
ments of  Germany. 

Lastly,  the  national  trade  policy  of  England  was  of  signal  advan- 
tage in  her  machine  development.  Her  early  protective  system  had, 
by  the  enlargement  of  her  carrying  trade  and  the  increase  of  her 
colonial  possessions,  laid  the  foundation  of  a  large  complex  trade  with 
more  distant  parts  of  the  world,  though  for  a  time  it  crippled  our 
European  commerce.  While  we  doubtless  sacrificed  other  interests 
by  this  course  of  policy,  it  must  be  generally  admitted  that  "English 
industries  would  not  have  advanced  so  rapidly  without  Protection." 
But  as  we  built  up  our  manufacturing  industries  by  Protection,  so  we 
undoubtedly  conserved  and  strengthened  them  by  Free  Trade — 
first,  by  the  remission  of  tariffs  upon  the  raw  materials  of  manufacture 
and  machine-making,  and  later  on  by  the  free  admission  of  foodstuffs, 
which  were  a  prime  essential  to  a  nation  destined  to  specialise  in  manu- 
facture. 

164.    THE  INDUSTRIES  BEST  FITTED  FOR  MACHINE 
INDUSTRY1 

The  following  are  some  of  the  principal  characteristics  of  an 
industry  which  determine  the  order,  extent,  and  pace  of  its  progress 
as  a  machine  industry: 

a)  Size  and  complexity  of  structure. — The  importance  of  the  several 
leading  textile  manufactures,  the  fact  that  some  of  them  were  highly 
centralised  and  already  falling  under  a  factory  system,  the  control  of 

1  Adapted  by  permission  from  J.  A.  Hobson,  The  Evolution  of  Modern  Capital- 
ism, pp.  90-92.     (The  Walter  Scott  Publishing  Co.,  Ltd.,  191 2.) 


MACHINE  INDUSTRY  435 

wealthy  and  intelligent  employers,  were  among  the  chief  causes 
which  enabled  the  new  machinery  and  the  new  motor  to  be  more 
quickly  and  successfully  applied  than  in  smaller,  more  scattered,  and 
less  developed  industries. 

b)  Fixity  in  quantity  and  character  of  demand. — Perfection  of 
routine  work  is  the  special  faculty  of  machine  production.  Where 
there  is  a  steady  demand  for  the  same  class  of  goods,  machinery  can 
be  profitably  applied.  Where  fashion  fluctuates,  or  the  individual 
taste  of  the  consumer  is  a  potent  factor,  machinery  cannot  so  readily 
undertake  the  work. 

c)  Uniformity  of  material  and  of  the  processes  of  production. — 
Inherent  irregularity  in  the  material  of  labour  is  adverse  to  machinery. 
For  this  reason  the  agricultural  processes  have  been  slow  to  pass  under 
steam  power,  especially  those  directly  concerned  with  work  upon  the 
soil,  and  even  where  steam-driven  machines  are  applied  their  econ- 
omy, as  compared  with  hand  labour,  is  less  marked  than  in  manu- 
facturing processes.  To  the  getting  of  coal  and  other  minerals  steam 
and  other  extra-human  power  have  been  more  slowly  and  less  effec- 
tively applied  than  in  dealing  with  the  matter  when  it  is  detached 
from  the  earth.  The  displacement  of  a  less  uniform  material,  wood, 
by  the  more  uniform  steel  for  building  structures,  railroad  cars,  barges, 
ships,  furniture,  etc.,  marks  a  great  advance  for  machine-production. 

d)  Durability  of  valuable  properties. — The  production  of  quickly 
perishable  articles,  being  of  necessity  local  and  immediate,  demands  a 
large  amount  of  human  service  which  cannot  economically  be  replaced 
or  largely  aided  by  machinery.  The  work  of  the  butcher  and  the 
baker  has  been  slow  to  pass  under  machinery.  Where  butchering 
has  become  a  machine-industry  to  some  extent,  the  direct  cause  has 
been  the  discovery  of  preservative  processes  which  have  diminished  the 
perishability  of  meat.  So  with  other  food  industries,  the  facility  of 
modern  means  of  transport  has  alone  enabled  them  to  pass  under  the 
control  of  machinery.  Until  quite  recently  cakes  and  the  finer 
forms  of  bakery  were  a  purely  local  and  handicraft  product. 

e)  Ease  or  simplicity  of  labour  involved. — Where  abundance  of 
cheap  labour  adequate  to  the  work  can  be  obtained,  and  particularly 
in  trades  where  women  and  children  are  largely  engaged,  the  develop- 
ment of  machinery  has  been  generally  slower.  This  condition  often 
unites  with  (b)  and  (c)  to  retain  an  industry  in  the  "domestic"  class. 
A  large  mass  of  essentially  "irregular"  work  requiring  a  certain 
delicacy  of  manipulation,  which  by  reason  of  its  narrowness  of  scope 


436  INDUSTRIAL  SOCIETY 

is  yet  easily  attained,  and  which  makes  but  slight  demands  upon  mus- 
cular force  or  intelligence,  has  remained  outside  machine-production. 
/)  Skilled  workmanship. — High  skill  in  manipulation  or  treatment 
of  material,  the  element  of  art  infused  into  handicraft,  gives  the  latter 
an  advantage  over  the  most  skilful  machinery,  or  over  such  machinery 
as  can  economically  be  brought  into  competition  with  it. 

See  also  252.     The  Decline  of  the  Handicrafts. 

253.     The  Economic  Advantages  of  Concentration. 
256.    The  Limits  of  Concentration  in  Modern  Business. 

C.     Some  Characteristic  Results  of  the  Machine  Process 
165.     STANDARDIZATION  AND  THE  MACHINE  PROCESS1 

The  modern  industrial  communities  show  an  unprecedented 
uniformity  and  precise  equivalence  in  legally  adopted  weights  and 
measures.  Something  of  this  kind  would  be  brought  about  by  the 
needs  of  commerce,  even  without  the  urgency  given  to  the  movement 
for  uniformity  by  the  requirements  of  the  machine  industry.  But 
within  the  industrial  field  the  movement  for  standardization  has 
outrun  the  urging  of  commercial  needs,  and  has  penetrated  every 
corner  of  the  mechanical  industries. 

As  a  matter  of  course,  tools  and  the  various  structural  materials 
used  are  made  of  standard  sizes,  shapes,  and  gauges.  When  the 
dimensions,  in  fractions  of  an  inch  or  in  millimetres,  and  the  weight, 
in  fractions  of  a  pound  or  in  grammes,  are  given,  the  expert  foreman 
or  workman,  confidently  and  without  reflection,  infers  the  rest  of 
what  need  be  known  of  the  uses  to  which  any  given  item  that  passes 
under  his  hand  may  be  turned. 

The  materials  and  moving  forces  of  industry  are  undergoing  a 
like  reduction  to  staple  kinds,  styles,  grades,  and  gauges.  Even 
such  forces  as  would  seem  at  first  sight  not  to  lend  themselves  to 
standardization,  either  in  their  production  or  their  use,  are  subjected 
to  uniform  scales  of  measurement;  as,  e.g.,  water-power,  steam, 
electricity,  and  human  labor.  The  latter  is  perhaps  the  least  amen- 
able to  standardization,  but,  for  all  that,  it  is  bargained  for,  delivered, 
and  turned  to  account  on  schedules  of  time,  speed,  and  intensity  which 
are  continually  sought  to  be  reduced  to  a  more  precise  measurement 
and  a  more  sweeping  uniformity. 

1  Adapted  by  permission  from  Thorstein  Veblen,  The  Theory  of  Business 
Enterprise,  pp.  8-14.     (Charles  Scribner's  Sons,  191 2.) 


MACHINE  INDUSTRY  437 

The  like  is  true  of  the  finished  products.  Modern  consumers  in 
great  part  supply  their  wants  with  commodities  that  conform  to 
certain  staple  specifications  of  size,  weight,  and  grade.  The  con- 
sumer (that  is  to  say,  the  vulgar  consumer)  furnishes  his  house,  his 
table,  and  his  person  with  supplies  of  standard  weight  and  measure, 
and  he  can  to  an  appreciable  degree  specify  his  needs  and  his  con- 
sumption in  the  notation  of  the  standard  gauge. 

From  this  mechanical  standardization  of  consumable  goods  it 
follows,  on  the  one  hand,  that  the  demand  for  goods  settles  upon 
certain  defined  lines  of  production  which  handle  certain  materials  of 
definite  grade,  in  certain,  somewhat  invariable,  forms  and  proportions; 
which  leads  to  well-defined  methods  and  measurements  in  the  processes 
of  production.  Besides  this,  the  standardization  of  goods  means  that 
the  interdependence  of  industrial  processes  is  reduced  to  more  definite 
terms  than  before  the  mechanical  standardization  came  to  its  present 
degree  of  elaborateness  and  rigor.  The  margin  of  admissible  varia- 
tion in  time,  place,  form,  and  amount  is  narrowed.  Materials,  to 
answer  the  needs  of  standardized  industry,  must  be  drawn  from  certain 
standard  sources  at  a  definite  rate  of  supply. 

Machine  production  leads  to  a  standardization  of  services  as  well 
as  of  goods.  So,  for  instance,  the  modern  means  of  communication 
and  the  system  into  which  these  means  are  organized  are  also  of  the 
nature  of  a  mechanical  process,  and  in  this  mechanical  process  of 
service  and  intercourse  the  life  of  all  civilized  men  is  more  or  less 
intimately  involved.  To  make  effective  use  of  the  modern  system  of 
communication  in  any  or  all  of  its  ramifications  (streets,  railways, 
steamship  lines,  telephone,  telegraph,  postal  service,  etc.)  men  are 
required  to  adapt  their  needs  and  their  motions  to  the  exigencies  of 
the  process  whereby  this  civilized  method  of  intercourse  is  carried  into 
effect.  The  service  is  standardized,  and  therefore  the  use  of  it  is 
standardized  also.  Schedules  of  time,  place,  and  circumstances  rule 
throughout.  The  scheme  of  everyday  life  must  be  arranged  with  a 
strict  regard  to  the  exigencies  of  the  process  whereby  this  range  of 
human  needs  is  served,  if  full  advantage  is  to  be  taken  of  this  system  of 
intercourse,  which  means  that,  in  so  far,  one's  plans  and  projects  must 
be  conceived  and  worked  out  in  terms  of  those  standard  units  which 
the  system  imposes. 

For  the  population  of  the  towns  and  cities,  at  least,  much  the 
same  rule  holds  true  of  the  distribution  of  consumable  goods.  So, 
also,  amusements  and  diversions,  much  of  the  current  amenities  of 


438  INDUSTRIAL  SOCIETY 

life,  are  organized  into  a  more  or  less  sweeping  process  to  which  those 
who  would  benefit  by  the  advantages  offered  must  adapt  their 
schedules  of  wants  and  the  disposition  of  their  time  and  effort.  The 
frequency,  duration,  intensity,  grade,  and  sequence  are  not,  in  the 
main,  matters  for  the  free  discretion  of  the  individuals  who  par- 
ticipate. 

166.    THE  TRANSFER  OF  THOUGHT,  SKILL,  AND 
INTELLIGENCE1 

Suppose  it  be  desired  to  drill  four  holes  in  a  number  of  plates,  so 
that  they  bear  a  certain  fixed  relation  to  the  edges  of  the  plate;  and 
suppose  the  operator  to  be  equipped  with  the  ordinary  drilling  ma- 
chine which  guides  the  drill  so  that  it  pierces  the  plate  squarely.  To 
drill  these  holes  in  one  plate,  with  any  degree  of  accuracy,  requires  a 
high  degree  of  skill  on  the  part  of  the  operator;  and  to  drill  any 
number  of  such  plates  so  that  the  spacing  of  the  holes  in  them  will 
correspond  closely  with  those  in  the  first  plate  requires  a  very  high 
degree  of  manual  skill,  considerable  time  per  plate,  and  is  a  very 
costly  operation. 

Suppose,  however,  a  skilled  workman  makes  a  so-called  "drilling 
jig"  in  which  the  plate  can  be  securely  clamped  by  set  screws  and  in 
which  all  the  plates  can  in  turn  be  clamped  in  exactly  the  same  posi- 
tion. The  plate  contains  four  holes,  which  have  been  very  carefully 
located  to  correspond  with  the  required  location  of  the  holes. 

Now  it  is  evident  that  almost  any  unskilled  person  can  drill  the 
plate,  when  so  held,  as  accurately  as  the  most  skilled  workman  can 
without  it.  Further,  he  cannot  drill  the  plate  inaccurately.  True,  he 
must  have  a  slight  amount  of  training  in  handling  the  drilling  machine, 
but  this  is  small  and  soon  acquired.  The  accuracy  of  the  work  no  longer 
depends  on  the  skill  of  the  operator  but  on  the  accuracy  of  His  tools. 

This  principle,  illustrated  above,  has  been  aptly  called  "The 
Transfer  of  Skill,"  and  it  is  to  be  especially  noted  that  this  principle 
has  nothing  to  do  with  division  of  labor,  though,  as  can  be  seen,  it 
allows  an  extension  of  the  same.  Nor  is  the  principle  inherently 
applicable  to  machines  alone;  it  can  be  and  is  applied  to  hand  methods. 
True,  most  machines  are  constructed  with  this  end  in  view,  the  drilling 
machine  mentioned  above,  for  instance,  having  this  characteristic 
in  so  far  as  guiding  the  drill  vertically  is  concerned. 

1  Adapted  by  permission  from  D.  S.  Kimball,  Principles  of  Industrial  Organ- 
ization, pp.  10-13.     (McGraw-Hill  Book  Co.  Inc.,  1913.) 


MACHINE  INDUSTRY  439 

It  is  evident  that  for  a  given  operation  the  more  skill  that  is  trans- 
ferred to  the  machine  the  less  is  required  in  the  operator.  When  nearly 
all  the  skill  has  been  so  transferred,  but  the  machine  still  requires  an 
attendant,  it  is  called  a  semi-automatic  machine.  Turret  lathes  are 
excellent  examples  of  this  class  of  machinery. 

In  drilling  the  plate  without  the  jig  the  skilled  mechanic  must 
expend  thought  as  well  as  skill  in  properly  locating  the  holes.  The 
unskilled  operator  need  expend  no  thought  regarding  the  location 
of  the  holes.  That  part  of  the  mental  labor  has  been  done  once  for 
all  by  the  toolmaker.  It  appears,  therefore,  that  a  transfer  of  thought 
or  intelligence  can  also  be  made  from  a  person  to  a  machine.  If  the 
quantity  of  parts  to  be  made  is  sufficiently  large  to  justify  the  expendi- 
ture, it  is  possible  to  make  machines  to  which  all  the  required  skill  and 
thought  have  been  transferred  and  the  machine  does  not  require 
even  an  attendant.  Such  machines  are  known  as  full  automatic 
machines.  Automatic  screw  machines  are  excellent  examples  of  a 
complete  transfer  of  skill  and  thought.  Care  should  be  taken  to  dis- 
tinguish clearly  between  transmission  of  intelligence,  as  illustrated  in 
drawings,  specifications,  and  written  or  spoken  communications  in 
general,  between  men  and  the  transfer  of  intelligence  or  thought  from 
a  skilled  man  to  a  machine.  These  principles,  transfer  of  skill  and 
transfer  of  thought,  lie  at  the  bottom  of  modern  industrial  methods. 
Under  former  and  simpler  methods  of  manufacture  the  machine  was 
an  aid  to  the  worker's  skill,  the  amount  of  skill  that  had  been  trans- 
ferred being  very  small.  In  the  new  machines  the  transfer  of  skill 
and  thought  may  be  so  great  that  little  or  none  of  these  are  required 
of  the  attendant  worker. 

[Note. — The  foregoing  illustrates  a  principle.  The  application 
of  this  principle  in  the  increasing  use  of  automatic  machinery  is  of 
wide  extent  and  tremendous  social  significance.  It  should  be  noticed, 
too,  that  there  is  occurring  a  transfer  of  thought,  skill,  and  intelligence 
to  management.     Scientific  management  is  a  phase  of  this  movement.] 


See  also  221.     Craft  Skill  and  the  Competitive  Struggle. 
167.    IMPERSONALITY  AND  THE  MACHINE  PROCESS.1 

The  machine  process  compels  a  more  or  less  unremitting  attention 
to  phenomena  of  an  impersonal  character  and  to  sequences  and  corre- 
lations not  dependent  for  their  force  upon  human  predilection  nor 

1  Adapted  by  permission  from  Thorstein  Veblen,  The  Theory  of  Business 
Enterprise,  p.  310.     (Charles  Scribner's  Sons,  1912.) 


440  INDUSTRIAL  SOCIETY 

created  by  habit  and  custom.  The  machine  throws  out  anthropo- 
morphic habits  of  thought.  It  compels  the  adaptation  of  the 
workman  to  his  work,  rather  than  the  adaptation  of  the  work  to 
the  workman.  The  machine  technology  rests  on  a  knowledge  of  imper- 
sonal, material  cause  and  effect,  not  on  the  dexterity,  diligence,  or 
personal  force  of  the  workman,  still  less  on  the  habits  and  propensities 
of  the  workman's  superiors.  Within  the  range  of  this  machine-guided 
work,  and  within  the  range  of  modern  life  so  far  as  it  is  guided  by 
the  machine  process,  the  course  of  things  is  given  mechanically, 
impersonally,  and  the  resultant  discipline  is  a  discipline  in  the  handling 
of  impersonal  facts  for  mechanical  effect.  It  inculcates  thinking  in 
terms  of  opaque,  impersonal  cause  and  effect,  to  the  neglect  of  those 
norms  of  validity  that  rest  on  usage  and  on  the  conventional  standards 
handed  down  by  usage.  Usage  counts  for  little  in  shaping  the 
processes  of  work  of  this  kind  or  in  shaping  the  modes  of  thought 
induced  by  work  of  this  kind. 

See  also  chapter  xi.     Impersonal  Relations. 

168.    THE  NEW  STRAIN  IN  INDUSTRY1 

What  are  the  special  forms  of  overstrain  found  in  modern  industry 
viewing  industrial  conditions,  as  was  our  premise,  from  the  physio- 
logical point  of  view  ?  In  a  brief  sketch  of  this  vast  field  it  will  be 
possible  to  single  out  only  a  very  few  features  for  comment.  We  can 
do  no  more  than  glance,  as  it  were,  at  some  of  the  innumerable 
processes  which  directly  or  indirectly  feed  the  machinery  of  the  world, 
supplying  man's  needs  and  luxuries. 

Of  those  elements  in  industry  which  are  most  characteristic  and 
which  make  the  greatest  demands  on  human  energies,  we  may  select 
the  following:  speed  and  complexity,  monotony,  piece-work,  and 
overtime.  Other  fatiguing  influences  in  machine  work,  such  as  noise 
and  the  mechanical  rhythms,  will  of  necessity  come  within  the  scope 
of  our  brief  analysis,  as  well  as  the  now  recognized  relation  between 
fatigue  and  the  incidence  of  industrial  accidents. 

The  fatiguing  effect  of  the  roar  of  machinery  is  chiefly  due  to  its 
influence  upon  the  faculty  of  attention.  Mental  fatigue  is  "char- 
acterized pre-eminently  by  a  weakening  of  the  powers  of  attention." 
Voluntary  attention  is  essentially  a  selective  process,  a  "  f ocalization 

1  Adapted  by  permission  from  Josephine  Goldmark,  Fatigue  and  Efficiency, 
passim.     (Charities  Publication  Committee,  191 2.) 


MACHINE  INDUSTRY  441 

and  concentration  of  consciousness"  upon  one  thing  or  a  few  from 
among  the  multiplicities,  physical  and  mental,  in  whose  midst  we  live. 
There  is  thus  in  attention  a  sensation  of  effort,  and  fatigue  of  atten- 
tion is  in  direct  proportion  to  the  continuance  of  the  efforts  and  the 
difficulty  of  sustaining  them.  Now,  under  the  influence  of  loud 
noise,  attention  is  distracted  and  the  difficulty  of  sustaining  it  in- 
creased. 

Thus  noise  not  only  distracts  attention  but  necessitates  a  greater 
exertion  of  intensity  or  conscious  application,  thereby  hastening  the 
onset  of  fatigue  of  the  attention.  A  quite  uncounted  strain  upon 
this  easily  fatigued  faculty  results  among  industrial  workers,  such 
as  girl  machine  operators,  when  the  deafening  intermittent  roar  of 
highly  speeded  machinery  adds  its  quota  to  the  tax  of  a  long  day's 
work.  The  roar  is  not  even  continuous  enough  to  sink  into  mo- 
notony. With  each  stoppage  and  starting  of  a  machine,  it  bursts 
out  irregularly. 

The  subject  of  noise  in  industrial  establishments  is  usually  dis- 
missed with  the  remark  that  the  workers  "get  used  to  it,"  and  doubt- 
less, in  many  occupations,  the  workers  themselves  are  scarcely,  or 
not  at  all,  conscious  of  any  increased  application  on  their  part  due  to 
the  noise.  But,  in  the  main,  the  process  of  getting  used  to  it  involves 
precisely  that  increased  intensity  of  nervous  effort,  that  "feeling 
of  being  coerced,"  of  which  Wundt  speaks  in  the  laboratory  experi- 
ments, and  which,  as  we  have  seen,  is  most  favorable  for  the  approach 
of  exhaustion. 

The  strain  of  machine  work  upon  the  faculty  of  attention  thus 
leads  to  the  gravest  consequences.  Another  subtly  fatiguing 
element  in  machine  work,  which  we  have  not  yet  examined,  is  due  to 
its  rhythm.  It  is  apparent  that  the  rhythm  of  any  power-driven 
machinery  is  fixed  and  mechanical,  depending  upon  its  construction 
and  its  rate  of  speed.  Now  it  is  true  also  that  human  beings  tend  to 
work  rhythmically,  and  when  the  individual's  natural  swing  or 
rhythmic  tendency  must  be  wholly  subordinated  to  the  machine's 
more  rapid  mechanical  rhythm,  fatigue  is  likely  to  ensue. 

The  increase  of  diseases  of  the  nervous  system  among  working 
people  in  the  last  decade  is  a  fact  that  is  now  firmly  established  by 
extensive  and  a  carefully  conducted  statistical  inquiry.  Whatever 
different  causes  of  neurasthenia  may  be  brought  forward  by  different 
authors  since  Beard  depicted  its  general  features,  there  is  one  point 
on  which  all  are  agreed;   namely,  that  the  modern  organization  of 


442  INDUSTRIAL  SOCIETY 

industry  with  all  its  factors  and  sequels  is  a  most  prolific  source  of 
neurasthenia. 

Intemperance,  debauchery,  and  improvidence  are  the  chief 
blemishes  on  the  character  of  the  factory  work  people,  and  those  evils 
may  easily  be  traced  to  habits  formed  under  the  present  system, 
and  springing  from  it  almost  inevitably.  On  all  sides  it  is  admitted 
that  indigestion,  hypochondriasis,  and  languor  affect  this  class  of  the 
population  very  widely.  After  twelve  hours  of  monotonous  labour 
and  confinement,  it  is  but  too  natural  to  seek  for  stimulants  of  one 
kind  or  another;  but  when  we  superadd  the  morbid  states  above 
alluded  to,  the  transition  to  spirits  is  rapid  and  perpetual. 


See  also  212.  The  Hazardous  Nature  of  Modern  Industry. 

213.  Causes  and  Volume  of  Industrial  Accidents. 

216.  Fatigue. 

218.  An  Outline  of  the  Case  against  Long  Hours. 

219.  Child  Labor. 

169.    THE  MACHINE  AND  THE  LABORER1 

In  considering  the  influence  of  machinery  upon  the  quality  of 
labor,  i.e.,  skill,  duration,  intensity,  etc.,  we  have  first  to  meet  two 
questions:  What  are  the  qualities  in  which  machinery  surpasses 
human  labor?  What  are  the  kinds  of  work  in  which  machinery 
displaces  men  ?  Now,  since  the  whole  of  industrial  work  consists  in 
moving  matter,  the  advantage  of  machinery  must  consist  in  the  pro- 
duction and  disposition  of  motive  power.  The  general  economies  of 
machinery  are  two:  (1)  the  increased  quantity  of  motive  force  it  can 
apply  to  industry;  (2)  greater  exactitude  in  the  regular  application  of 
motive  force  (a)  in  time — the  exact  repetition  of  the  same  acts  at 
regulated  intervals  or  greater  evenness  in  continuity;  (b)  in  place — 
exact  repetition  of  the  same  movements  in  space.  All  the  advantages 
imputed  to  machinery  in  the  economy  of  human  time,  the  utilization 
of  waste  material,  the  display  of  concentrated  force,  or  the  delicacy 
of  manipulation  are  derivable  from  these  two  general  economies. 
Hence  it  follows  that  wherever  the  efficiency  of  labor-power  depends 
chiefly  upon  the  output  of  muscular  force  in  motive  power,  or  pre- 
cision in  the  regulation  of  muscular  force,  machinery  will  tend  to  dis- 
place human  labor.    Assuming,  therefore,  that  displaced  labor  finds 

1  Adapted  by  permission  from  J.  A.  Hobson,  "The  Influence  of  Machinery," 
Political  Science  Quarterly,  VIII  (1893),  11 1-23. 


MACHINE  INDUSTRY  443 

other  employment,  it  will  be  transferred  to  work  where  machinery 
has  not  the  same  advantage  over  human  labor,  that  is  to  say,  to  work 
where  the  muscular  strain  or  the  need  for  regularity  of  movement  is 
less.  At  first  sight  it  will  thus  seem  to  follow  that  every  displace- 
ment of  labor  by  machinery  will  bring  an  elevation  in  the  quality  of 
labor,  that  is,  will  increase  the  proportion  of  labor  in  employments 
which  tax  the  muscles  less  and  are  less  monotonous. 

One  direct  result  "of  the  application  of  an  increased  proportion  of 
labor-power  to  the  kinds  of  work  which  are  less  "muscular"  and  less 
"automatic"  in  character,  will  be  a  tendency  toward  greater  division 
of  labor  and  more,  specialization  in  these  employments.  Now  the 
economic  advantages  of  increased  specialization  can  be  obtained  only 
by  increased  automatic  action.  Thus  the  routine  or  automatic  char- 
acter which  constituted  the  monotony  of  the  work  in  which  machinery 
displaced  these  workers  will  now  be  imparted  to  the  higher  grades 
of  labor  in  which  they  are  employed,  and  these  in  their  turn  will  be 
advanced  towards  a  condition  which  will  render  them  open  to  a  new 
invasion  of  machinery. 

Nor  is  it  shown  that  the  introduction  of  machine  production  tends 
to  diminish  the  physical  strain  upon  the  worker.  As  regards  those 
workers  who  pass  from  ordinary  manual  work  to  the  tending  of 
machinery,  there  is  a  great  deal  of  evidence  to  show  that  their  new 
work  taxes  their  physical  vigor,  quite  as  severely  as  the  old  work. 
When  any  muscular  or  physical  effort  is  required,  it  is  pretty  evident 
that  an  increased  duration  or  a  greater  continuity  in  the  slighter 
effort  may  tax  the  body  quite  as  severely  as  the  less  frequent  applica- 
tion of  a  much  greater  bodily  force.  There  can  be  no  question  that  in  a 
competitive  industrial  society  there  exists  a  tendency  to  compensate 
for  any  saving  of  muscular  or  other  physical  effort  afforded  by  the 
intervention  of  machinery,  in  two  ways:  first,  by  "forcing  the  pace" — 
compelling  the  worker  to  tend  more  and  more  machines,  and  to 
increase  the  strain,  if  not  upon  the  muscles,  then  upon  the  nerves; 
secondly,  by  extending  the  hours  of  labor. 

Now  to  come  to  the  question  of  "monotony."  Is  the  net  tendency 
of  machinery  to  make  labor  more  or  less  monotonous,  to  educate  the 
worker  or  to  brutalize  him?  Does  labor  become  more  intellectual 
under  the  machine  ?  Professor  Alfred  Marshall,  who  has  thoughtfully 
discussed  this  question,  inclines  upon  the  whole  in  favor  of  machinery. 
It  takes  away  manual  skill,  but  it  substitutes  higher  or  more  intel- 
lectual forms.     "The  more  delicate  the  machine's  power,  the  greater 


444  INDUSTRIAL  SOCIETY 

is  the  judgment  and  carefulness  which  is  called  for  from  those  who 
see  after  it."  Since  machinery  is  daily  becoming  more  and  more 
delicate,  the  tending  of  machinery  is  becoming  more  and  more 
intellectual.  The  judgment  of  Mr.  Cooke  Taylor,  in  the  conclusion 
of  his  admirable  work,  The  Modern  Factory  System,  is  the  same. 

The  question  of  the  net  intellectual  effects  of  machinery  is  not  one 
which  admits  of  positive  answer.  It  would  be  open  to  one  to  admit 
with  Mr.  Taylor  that  the  operatives  were  growing  more  intellectual 
and  that  their  contact  with  machinery  exercises  certain  educative 
influences,  but  to  deny  that  the  direct  results  of  machinery  upon  the 
workers  were  favorable  to  a  wide  cultivation  of  intellectual  powers, 
as  compared  with  various  forms  of  freer  and  less  specialized  manual 
labor.  The  intellectualization  of  the  town  operatives  (assuming 
the  process  to  be  taking  place)  may  be  attributable  to  the  thousand 
and  one  other  influences  of  town  life  rather  than  to  machinery,  save 
indirectly  so  far  as  the  modern  industrial  center  is  itself  the  creation  of 
machinery.  It  is  not,  I  think,  possible  at  present  to  offer  any  clear 
or  definite  judgment.  But  the  following  distinctions  seem  to  have 
some  weight  in  forming  our  opinion. 

The  growth  of  machinery  has  acted  as  an  enormous  stimulus 
to  the  study  of  natural  laws.  A  larger  and  larger  proportion  of  human 
effort  is  absorbed  in  processes  of  invention,  in  the  manipulation  of 
commerce  on  an  increasing  scale  of  magnitude  and  complexity,  and 
in  such  management  of  machinery  and  men  as  requires  and  educates 
high  intellectual  faculties  of  observation,  judgment,  and  speculative 
imagination.  Of  that  portion  of  workers  who  may  be  said,  within 
limits,  to  control  machinery,  there  can  be  no  question  that  the  total 
effect  of  machinery  has  been  highly  educative.  Some  measure  of  these 
educative  influences  descends  even  to  the  "hand"  who  tends  some 
minute  portion  of  machinery. 

.  So  also  allowance  should  be  made  for  the  skilled  work  of  making 
and  repairing  machinery.  The  engineer's  shop  is  becoming  every 
year  a  more  and  more  important  factor  in  the  equipment  of  a  factory 
or  mill.  But  though  "breakdowns"  are  essentially  erratic  and  must 
always  afford  scope  for  ingenuity  in  their  repair,  even  in  the  engineer's 
shop  there  is  the  same  tendency  for  machinery  to  undertake  all  work 
of  repair  which  can  be  brought  under  routine.  So  the  skilled  work 
in  making  and  repairing  machinery  is  continually  being  reduced  to  a 
minimum  and  cannot  be  regarded,  as  Professor  Nicholson  is  disposed 
to  regard  it,  as  a  factor  of  growing  importance  in  connection  with 


MACHINE  INDUSTRY  445 

machine  production.  The  more  machinery  is  used,  the  more  skilled 
work  of  making  and  repairing  will  be  required,  it  might  seem-.  But 
the  rapidity  with  which  machinery  is  invading  these  very  functions 
turns  the  scale  in  the  opposite  direction,  at  any  rate  so  far  as  the 
making  of  machinery  is  concerned. 

Finally  it  should  be  borne  in  mind  that  in  several  large  industries 
where  machinery  fills  a  prominent  place  the  bulk  of  the  labor  is  not 
directly  governed  by  the  machine.  This  fact  has  already  received 
attention  in  relation  to  railway  workers.  The  character  of  the 
machine  certainly  impresses  itself  upon  these  in  different  degrees,  but 
in  most  cases  there  is  a  large  amount  of  detailed  freedom  of  action 
and  scope  for  individual  skill  and  activity. 

Making  allowance,  then,  for  the  intelligence  arid  skill  used  in  the 
invention,  application,  management,  and  repair  of  machinery,  what 
are  we  to  say  of  the  labor  of  him  who,  under  the  minute  subdivision 
enforced  by  machinery,  is  obliged  to  spend  his  working  life  in  tending 
some  small  portion  of  a  single  machine,  the  whole  work  of  which  is  to 
push-  some  single  commodity  a  single  step  along  the  journey  from 
raw  material  to  consumptive  good  ? 

His  work,  it  is  urged,  calls  for  " judgment  and  carefulness." 
So  did  his  work  in  manual  labor  before  the  machine  took  it  over.  His 
"judgment  and  carefulness"  are  now  confined  within  narrower  limits 
than  before.  The  responsibility  of  the  individual  worker  is  greater, 
precisely  because  it  is  narrowed  down  so  as  to  be  related  to  and 
dependent  on  a  number  of  other  operatives  in  other  parts  of  the  same 
machine  with  whom  he  has  no  direct  personal  concern.  Such  realized 
responsibility  is  an  element  in  education,  moral  and  intellectual. 
But  this  responsibility  is  a  direct  result  of  the  minute  subdivision. 
It  is,  I  think,  questionable  whether  the  vast  majority  of  machine 
workers  get  any  considerable  education  from  the  fact  that  the  machine 
in  conjunction  with  which  they  work  represents  a  huge  embodiment 
of  the  delicate  skill  and  invention  of  many  thousands  of  active  minds, 
though  some  value  may  be  accorded  to  Mr.  Cooke  Taylor's  con- 
tention that  "the  mere  exhibition  of  the  skill  displayed , and  the 
magnitude  of  the  operations  performed  in  factories  can  scarcely  fail 
of  some  educational  effect."  Professor  Shield  Nicholson  expresses 
himself  more  dubiously  on  the  educational  value  of  the  machine: 
"Machinery  of  itself  does  not  tend  to  develop  the  mind  as  the  sea  and 
mountains  do,  but  still  it  does  not  necessarily  involve  deterioration  of 
general  mental  ability." 


446  INDUSTRIAL  SOCIETY 

The  work' of  tending  machinery  is  not  of  course  to  be  regarded 
as  absolutely  automatic.  To  a  certain  limited  extent  the  "tender" 
of  machinery  rules  as  well  as  serves  the  machine:  in  seeing  that  his 
portion  of  the  machine  works  in  accurate  adjustment  to  the  rest,  the 
qualities  of  care,  judgment,  and  responsibility  are  evoked.  A  great 
part  of  modern  inventiveness,  however,  is  engaged  in  devising  auto- 
matic checks  and  indicators  for  the  sake  of  dispensing  with  human 
skill  and  reducing  the  spontaneous  or  thoughtful  elements  of  tending 
machinery  to  a  minimum. 

So  far  as  the  man  follows  the  machine  and  has  his  work  determined 
for  him  by  mechanical  necessity,  the  educative  pressure  of  the  latter 
force  must  be  predominant.  Machinery  like  everything  else  can  only 
teach  what  it  practices.  Order,  exactitude,  persistence,  conformity 
to  unbending  law — these  are  the  lessons  which  must  emanate  from 
the  machine.  They  have  an  important  place  as  elements  in  the  forma- 
tion of  intellectual  and  moral  character.  But  of  themselves  they 
contribute  a  one-sided  and  very  imperfect  education.  Machinery 
can  exactly  reproduce;  it  can,  therefore,  teach  the  lesson  of  the  exact 
reproduction,  an  education  of  quantitative  measurements.  The 
defect  of  machinery,  from  the  educative  point  of  view,  is  its  absolute 
conservatism.  The  law  of  machinery  is  a  law  of  statical  order, 
that  everything  conforms  to  a  pattern,  that  present  actions  precisely 
resemble  past  and  future  actions.  Now  the  law  of  human  life  is 
dynamic,  requiring  order,  not  as  valuable  in  itself,  but  as  the  condition 
of  progress.  The  law  of  human  life  is  that  no  experience,  no  thought, 
or  feeling  is  an  exact  copy  of  any  other.  Therefore,  if  you  confine 
a  man  to  expending  his  energy  in  trying  to  conform  exactly  to  the 
movements  of  a  machine,  you  teach  him  to  abrogate  the  very  principle 
of  life.  Variety  is  the  very  essence  of  life  and  machinery  is  the  enemy 
of  variety.  This  is  no  argument  against  the  educative  uses  of 
machinery,  but  only  against  the  exaggerations  of  these  uses.  If  a 
workman  expend  a  reasonable  portion  of  his  energy  in  following  the 
movements  of  a  machine,  he  may  gain*  a  considerable  educational 
value;  but  he  must  also  have  both  time  and  energy  left  to  culti- 
vate the  spontaneous  and  progressive  arts  of  life. 

It  is  often  urged  that  the  tendency  of  machinery  is  not  merely 
to  render  monotonous  the  activity  of  the  individual  worker,  but  to 
reduce  the  individual  differences  in  workers.  This  criticism  finds 
expression  in  the  saying:  "All  men  are  equal  before  the  machines." 
So  far  as  machinery  actually  shifts  upon  natural  forces  work  which 


MACHINE  INDUSTRY  447 

otherwise  would  tax  the  muscular  energy,  it  undoubtedly  tends  to  put 
upon  a  level  workers  of  different  muscular  capacity.  Moreover, 
by  taking  over  work  which  requires  great  precision  of  movement,  there 
is  a  sense  in  which  it  is  true  that  machinery  tends  to  reduce  the 
workers  to  a  common  level  of  skill,  or  even  of  un-skill. 

But  this  is  by  no  means  all  that  is  signified  by  the  "equality  of 
workers  before  the  machine."  It  is  the  adaptability  of  the  machine 
to  the  weaker  muscles  and  intelligence  of  women  and  children  that  is 
perhaps  the  most  important  factor.  The  machine  in  its  development 
tends  to  give  less  and  less  prominence  to  muscle  and  high  individual 
skill  in  the  mass  of  workers,  more  and  more  to  certain  qualities  of 
body  and  mind  which  not  only  differ  less  widely  in  different  men, 
but  in  which  women  and  children  are  more  nearly  on  a  level  with 
men. 

Those  very  qualities  of  care  and  judgment,  of  detailed  attention, 
of  regularity  and  patience,  which,  as  we  saw,  are  characteristic  of 
machine  work,  are  common  human  qualities,  in  the  sense  that  they 
are  within  the  capacity  of  all  and  that  even  in  the  degree  of  their 
possession  and  practice  there  is  less  difference  between  the  most  highly 
trained  mechanic  and  the  raw  "half-timer"  than  in  the  possession 
and  practice  of  such  powers  as  machinery  has  superseded.  It  must, 
I  think,  be  recognized  that  machinery  does  exercise  a  certain  equaliz- 
ing effect  by  assigning  a  larger  and  larger  relative  importance  to 
those  faculties  which  are  specific  as  compared  with  those  which 
are  individual.  The  antagonism  between  machinery  and  art  in 
this  respect  is  fundamental  and  irreconcilable.  So  long  and  so  far 
as  the  public  continue  to  sink  their  individual  differences  as  con- 
sumers and  employ  their  expanding  powers  of  purchase  in  demanding 
increased  quantities  of  the  same  kinds  of  consumptive  goods,  ma- 
chinery, with  its  economic  faculty  of  exact,  cheap,  and  rapid  repro- 
duction, will  gain  an  increasing  control  over  the  processes  of 
production.  When  the  public  becomes  more  individualistic  in  its 
consumption,  in  demanding  greater  variety  and  adaptability  to 
individual  taste,  instead  of  immense  quantity,  this  new  character  of 
consumption  will  reduce  the  advantages  enjoyed  by  machinery,  and 
will  operate  as  an  increased  demand  for  art  in  the  sense  of  individual 
effort  of  production. 


See  also  210.    The  Influence  of  Machinery  upon  Employment. 


448  INDUSTRIAL  SOCIETY 

170.     TECHNICAL  INVENTIONS  AND   THE   CAPITALISTIC 

SPIRIT1 

Technical  improvements  in  our  day  have  developed  beyond  the 
dreams  of  man.  They  have  liberated  applied  science  from  the 
organized,  living  forces  of  nature,  so  that  it  can  now  utilize  the  energy 
which  the  sun  has  stored  up  deep  down  in  the  earth.  Applied  science 
no  longer  looks  to  men  of  flesh  and  blood  or  to  the  fields  and  woods  for 
aid  in  making  progress;  it  relies  on  dead  matter  and  mechanical 
power  for  its  achievement.  What  is  the  result  ?  Technical  improve- 
ments know  no  bounds;  they  make  possible  what  was  inconceivable 
before;  they  pile  up  Pelion  on  Ossa  and  create  the  universe  anew. 

Nor  must  we  forget  the  many-sidedness  of  technical  knowledge. 
Every  day  produces  something  new,  and  so  creates  a  need  for  a  new 
form  of  organization.  That  only  expands  the  possibilities  of  the 
capitalistic  spirit. 

As  technical  knowledge  advances  it  influences  the  will  power  of 
modern  man  in  his  economic  activities.  But  it  does  more.  It  also 
influences,  nay,  often  enough  revolutionises,  his  thoughts. 

To  begin  with,  it  gives  that  thought  a  goal  and  a  purpose;  which 
is  another  way  of  saying  that  it  stirs  and  develops  rationalism  in  him; 
and  rational  thinking,  as  we  know,  is  an  element  of  the  capitalist 
spirit.  The  influence  of  technical  improvements  on  the  growth  of 
economic  rationalism  in  every  age  has  already  been  noticed  by  many 
writers.  Every  new  invention,  as  one  authority  puts  it,  brings  man 
into  contact  with  reality,  and  by  so  doing  crushes  the  traditional 
habits  in  his  character,  which,  as  we  have  noted  above,  are  rooted 
deep  in  his  being.  So  long  as  the  inventions  appear  at  rare  intervals, 
their  power  to  influence  man's  natural  conservatism  will  not  be  great. 
It  will  be  merely,  as  it  were,  a  scratch  on  the  surface,  and  before  long 
all  trace  of  it  will  have  vanished.  But  as  soon  as  inventions  come 
thick  and  fast,  as  has  been  the  case  since  the  opening  of  the  modern 
era,  then  their  effect  is  more  lasting.  Constant  changes  in  technical 
processes  cannot  but  influence  the  state  of  mind  of  those  concerned 
with" them.  But  when  the  changes  are  themselves  due,  as  is  the  case 
with  inventions  in  our  own  day,  to  organized  scientific  thinking,  their 
influence  on  the  psychology  of  men  is  even  stronger  and  more  lasting. 

All  earlier  technical  advances,  remarkable  though  they  were, 
were  empiric  in  character;  they  sprang  from  the  personal  experience 

1  Adapted  by  permission  from  Werner  Sombart,  The  Quintessence  of  Capitalism, 
pp.  322-31.     (E.  P.  Dutton  &  Co.,  1915.) 


MACHINE  INDUSTRY  449 

of  generations  of  masters,  handed  down  from  one  man  to  another. 
Those  engaged  in  an  industry  knew  all  the  "tricks  of  the  trade,"  and 
contented  themselves  with  them.  The  experience  which  had  accumu- 
lated in  the  past  was  preserved  for  the  future.  But  from  the  seven- 
teenth century  onward  natural  science  began  to  make  its  influence 
felt  in  supplanting  the  gathered  experience  of  ages  as  the  soil  from 
which  inventions  sprang  up.  Henceforth  new  methods  came  to  be 
used,  not  because  one  man  who  had  acquired  them  by  way  of  experi- 
ence showed  the  way,  but  because  anyone  interested  could  learn 
the  underlying  technical  laws  and  be  assured  of  success  if  he  con- 
formed to  them.  Before,  men  worked  according  to  rule  of  thumb; 
now  they  looked  to  laws,  the  explanation  and  application  of  which 
were  the  work  of  rational  thinking. 

Thought  in  economic  activities,  then,  becomes  more  definite  and 
conscious,  in  other  words,  more  rational;  and  modern  technical  science 
has  tended  to  make  it  so.  But  it  has  also  helped  to  make  it  more 
exact  and  punctual,  by  providing  the  necessary  machinery  for  meas- 
uring quantities,  more  especially  for  measuring  time. 

Clocks  have  played  a  very  important  part  in  the  mental  history 
of  the  business  man.  Pendulum  clocks  are  said  to  have  been  invented 
in  the  tenth  century.  Now,  the  exact  measurement  of  time  became 
possible  only  when  the  necessary  instruments  were  available,  just 
as  exact  calculations  in  terms  of  money  became  possible  only  when 
technical  progress  was  able  to  provide  a  reliable  currency. 

Punctual  business  likewise  owes  much  to  the  gradual  perfection  of 
technical  processes.  Exact  calculations  as  to  the  delivery  of  goods 
presuppose  a  reliable  system  of  production;  and  it  is  not  too  much  to 
say  that  modern  means  of  transport  have  made  modern  commerce 
into  a  sort  of  huge  automatic  machine.  Calculations  of  all  kinds, 
therefore,  were  to  a  large  extent  made  possible  by  technical  progress. 
So  was  the  hustle  of  the  modern  business  man.  Would  all  this  haste 
be  conceivable  without  railways,  telegraphs,  and  telephones  ?  There 
are,  of  course,  other  reasons  also  for  the  breathlessness  of  modern 
business,  but  ultimately  it  is  due  to  technical  progress,  which  intensifies 
it  and  makes  it  universal. 

Technical  progress  can  also  be  held  accountable  for  the  particular 
way  in  which  the  modern  business  man  looks  at  the  world.  Every- 
thing for  him  is  purely  quantitative.  No  doubt  this  is  due  largely  to 
the  habit  of  appraising  all  things  in  terms  of  money.  But  it  is  not  to 
be  forgotten  that  what  specially  characterizes  modern  science  is  the 


450  INDUSTRIAL  SOCIETY 

same  tendency  of  laying  stress  on  quantity  to  the  neglect  of  quality. 
The  words  of  Kant  are  significant.  Only  when  you  can  express  any 
natural  phenomenon  by  a  mathematical  formula  are  you  entitled  to 
speak  of  a  law  of  nature. 

Nor  is  this  all.  Technical  progress  must  also  be  held  responsible 
for  another  characteristic  of  our  age — that  we  value  material  things  far 
too  highly.  We  have  grown  rich  quickly;  we  have  come  to  regard 
peace  as  a  certainty;  and  technical  progress  has  shielded  us  from  dread 
plagues  and  cholera.  Is  it  surprising,  then,  that  all  idealistic  tenden- 
cies have  been  pushed  into  the  background  by  man's  lower  instincts — 
undisturbed  enjoyment  of  pleasures  and  the  craving  for  creature  com- 
forts ?    We  are  like  a  herd  of  cattle  peacefully  grazing  in  the  meadow. 

The  overestimation  of  material  things  has  had  this  result  on  the 
capitalist  undertaker,  that  it  has  spurred  him  on  to  obtain  the  means 
of  becoming  rich.  In  other  words,  it  has  stirred  up  his  acquisitive- 
ness. The  pursuit  of  the  dollars  is  not  so  imaginary  as  some  million- 
aire philosophers,  writing  from  their  high  tower  of  princely  wealth, 
would  have  us  believe.  On  the  contrary,  it  is  one  of  the  mightiest 
motive  powers  in  our  modern  economy;  and  the  intense  greed  of 
gain,  generated,  as  we  have  just  observed,  by  the  progress  of  technical 
science,  is  one  element  in  the  composition  of  the  soul  of  the  modern 
business  man.  That  this  profit-chasing  is  now  bereft  of  any  shame 
that  attached  to  it  of  old,  that  we  no  longer  think  it  dishonorable 
for  anyone  to  engage  in  dollar-hunting,  that  we  mix  freely  with 
people  of  whom  we  know  that  to  make  money  is  their  sole  aim  in  life — 
all  this  has  only  tended  to  cultivate  this  aspect  of  the  capitalist 
spirit  still  more,  and  the  impetus  came  from  the  new  trend  of  things 
produced  by  advances  in  technical  knowledge. 

Another  effect  of  our  keen  appreciation  of  technical  improve- 
ments and  our  overvaluation  of  their  results  has  been  to  intensify 
the  love  of  profit  in  the  capitalist  undertaker  in  yet  another  way. 
It  has  heightened  his  interest  in  the  technical  side  of  business  and 
manufacture.  We  have  already  noted  it  as  a  characteristic  of  modern 
economic  activities  that  man  is  constantly  making  things,  almost 
senselessly  increasing  them;  and  that  the  only  explanation  of  the 
phenomenon  (if,  indeed,  there  is  an  explanation  at  all)  is  to  be  found 
in  a  certain  childish  pleasure  in  technical  perfection.  And  can  we 
conceive  of  such  delight  except  in  a  technical  age  ? 

One  other  point.  We  have  already  seen  that  the  bourgeois  of 
our  age  is  utterly  careless  of  man's  fate.     We  noted  how  man  is  no 


MACHINE  INDUSTRY  45 1 

longer  the  central  fact  of  economic  activities  and  economic  thought. 
It  is  only  the  procedure  that  matters — production,  transport,  price- 
formation.  In  a  word,  Fiat  productio  et  per  eat  homo.  How  are  we 
to  account  for  this  tendency,  if  not  by  tracing  it  to  the  changes  which 
technical  progress  has  brought  about?  Technology  has  liberated 
the  work  of  production  from  the  control  of  man.  Before,  we  needed 
the  living  organism  to  regulate  production;  we  now  direct  it  by 
mechanical  means. 

The  natural  world,  with  its  fullness  of  life,  has  been  shattered 
to  atoms;  on  its  ruins  an  artificial  world  of  dead  matter  has  been 
erected  by  human  ingenuity.  And  this  is  true  for  the  economic  sphere 
as  for  that  of  technical  science.  Technical  improvements  have  had  the 
effect  of  changing  the  face  of  the  globe,  and  our  whole  view  of  the 
universe  has  changed  in  consequence.  The  more  technical  science 
tended  to  make  man  of  less  and  less  importance  in  the  process  of  pro- 
duction, the  more  he  was  thrown  into  the  background,  not  only  so  far 
as  economic  activities  were  concerned,  but  also  in  the  whole  sphere  of 
human  thought  and  action. 

D.     Indirect  Costs  and  Social  Control 
171.    ELEMENTS  OF  COSTS1 

Production  costs  are  classified  into  three  principal  divisions,  known 
as  the  elements  of  costs:  (1)  material;  (2)  labor;  (3)  expense.  These 
may  be  subdivided  into: 

Direct 


(1)  Material  . 

[  Indirect 

/  \  T   1  /  Direct  or  productive 

\  Indirect  or  non-productive 

(3)  Expense  {  j*^ 

Direct  charges. — "Direct  charges"  is  that  element  of  cost  that 
enters  into,  and  can  be  charged  directly  to,  the  product. 

The  cost  of  the  substance  out  of  which  the  product  is  made  is  the 
direct  material  charge;  the  cost  of  the  labor  applied  directly  to  the 
productive  process  is  the  direct  labor  charge;  and  any  other  expense 
that  can  be  charged  directly  to  an  order,  job,  or  process  may  be 

1  Adapted  by  permission  from  J.  L.  Nicholson,  Cost  Accounting,  pp.  24-32. 
(The  Ronald  Press  Co.,  1913.) 


45  5  INDUSTRIAL  SOCIETY     , 

included  as  a  direct  charge  under  the  caption  "direct  expense. "  The 
expense  of  workmen  in  traveling  to  and  from  a  job,  as  well  as  their 
hotel  expenses  while  engaged  out  of  town  on  a  particular  job,  are 
examples  of  direct  expenses. 

Indirect  charges. — Indirect  material  consists  of  such  material 
as  factory  supplies,  which,  while  used  in  processes,  either  does  not 
enter  into  the  product  itself,  or  else  enters  in  such  a  way  as  not  to  be 
chargeable  conveniently  to  any  particular  article. 

Indirect  or  non-productive  labor  is  that  used  in  repairing,  handling, 
supervision,  etc. — in  short,  any  labor  not  expended  directly  on  the 
article  or  process  itself. 

Indirect  expense  as  used  here  refers  only  to  those  expenses  incurred 
in  the  manufacturing  end  of  the  business  which  are  properly  a  part 
of  the  cost  of  production;  e.g.,  supervision,  repairs,  light,  power, 
depreciation,  etc. 

Items  composing  the  indirect  charges. — The  following  list  shows 
some  of  the  more  constant  items  which  compose  the  indirect  charges. 
The  classification  will  vary  in  almost  every  factory,  but  the  items 
listed  almost  invariably  appear. 

Indirect  material  Insurance 

Oil  Interest 

Supplies  Depreciation 
Freight  and  express  inward,  when  not  Maintenance 

charges  to  direct  material  cost  Repairs 

Indirect  labor  Power  or  power  plant 

Supervision  Light 

Inspection  Heat 

Experimental  work  Small  tools 

Rent  Wastes  of  material,  shrinkage  of 
Taxes  weight,  defective  work 

Production  costs  and  selling  costs. — A  clear  distinction  must  be 
maxle  between  production  costs  and  selling  costs.  The  latter  include 
the  selling  expenses,  such  as  advertising,  commissions,  salaries,  etc., 
which  are  necessary  elements  in  determining  the  price  for  which  an 
article  may  sell,  but  have  no  direct  bearing  on  the  cost  of  producing 
the  article  itself.  The  cost  of  production  ends  when  the  finished  stock 
is  ready  for  sale. 

The  expenses  that  arise  from  advertising,  commissions,  salaries 
of  officers,  etc.,  are  known  as  commercial  or  selling  and  administra- 
tive expenses. 


MACHINE  INDUSTRY 


453 


The  segregation  of  administrative  expenses,  as  a  distinct  class,  is 
sometimes  a  matter  of  convenience.  In  the  majority  of  cases  the  time 
of  the  administrative  force  is  spent  in  supervising  the  selling  organiza- 
tion, in  solving  problems  of  production,  and  in  looking  after  the 
finances  of  the  business.  Therefore,  administrative  expense  is  partly 
a  production  cost,  and  partly  a  selling  cost.  The  purposes  of  cost- 
finding  are  best  served  by  separating  expenses  of  such  a  nature  from 
those  expenses  which  arise  from  production  proper  and  its  direct 
supervision. 

Relation  of  cost  elements  to  selling  price. — The  sum  of  the  direct 
material  and  labor  cost  is  known  as  the  "prime  cost."  This,  com- 
bined with  the  indirect  costs,  gives  the  final  "factory  cost."  The 
total  of  the  selling  and  administrative  expenses,  plus  the  factory  cost, 
shows  the  cost  of  making  and  marketing  the  article;  and  this  total — 
plus  the  profit — gives  the  actual  selling  price. 


Profit 

25 

Selling 

Selling  and 
Administra- 
tive Expense 
25 

Total  Cost 

To  Sell 

150 

Price 
175 

Indirect 

Costs 

50 

Final 
Factory- 
Cost 
125 

Direct 
Labor 

50 

Prime 

Cost 

75 

Direct 

Material 
25 

This  relation  of  the  different  elements  may  be  illustrated  by  the 
diagram  shown  above,  which,  in  the  light  of  what  has  been  said,  is 
self-explanatory. 


454  INDUSTRIAL  SOCIETY 

172.    COSTS  IN  MACHINE  INDUSTRY1 

The  principle  of  apportioning  the  indirect  costs  according  to 
ability  to  pay  is  not  peculiar  to  the  transportation  business.  It  can  be 
traced  through  numerous  other  industries.  A  very  good  analogy  is 
that  of  the  packing  business.  The  original  purpose  of  slaughtering- 
houses  was  to  supply  meat.  The  margin  between  the  price  of  cattle 
and  the  price  of  meat  had  to  be  sufficiently  large  to  pay  for  the  cost 
of  killing  and  packing.  These  costs  included  two  items,  the  cost  of 
handling  each  particular  animal  plus  a  portion  of  the  "overhead." 
In  the  development  of  the  industry  it  was  found  that  refuse  matter 
could  be  manufactured  into  fertilizer,  which  in  the  market  would 
bring  a  price  somewhat  higher  than  the  added  cost  resulting  from 
its  production.  Even  though  each  unit  of  fertilizer  did  not  pay  as 
much  toward  overhead  charges  as  each  unit  of  meat  did,  no  injustice 
was  done  to  the  purchasers  of  meat.  On  the  contrary,  they  might 
profit  by  the  production  of  the  fertilizer,  because  the  total  overhead 
expense  to  be  distributed  upon  the  several  units  of  meat  was  reduced 
by  the  amount  contributed  by  the  fertilizer  department,  thereby 
enabling  the  packer  to  reduce  the  price  of  meat.  Likewise,  other 
by-products  came  to  be  manufactured  and  each  of  them  bore  a  part 
of  the  indirect  costs,  thereby  decreasing  the  amount  that  the  original 
product  had  to  bear,  and  thereby  aiding  in  its  production. 

What  has  been  said  about  the  packing  business  holds  also  in  the 
case  of  the  petroleum  industry  and  many  others.  Whenever  a  by- 
product can  be  manufactured,  it  is  an  aid  to  the  industry  engaged  in  its 
production  if  it  contributes  even  a  little  to  the  meeting  of  the  indirect 
costs. 

W.  M.  Acworth  brings  out  an  analogy  between  rail  transportation 
and  the  production  of  electricity  so  convincing  that  it  is  well  worth 
quoting  in  full.  "The  business  of  electric  supply  is  usually  a  monop- 
oly, and  in  this  country  [i.e.,  England]  it  is  more  often  than  not  in 
public  hands,  yet  electric  undertakings  usually  make  charges  more 
widely  differential  than  an  ordinary  railway.  A  typical  charge  is 
5^.  per  unit  for  electricity  used  for  lighting  purposes;  id.  per  unit 
for  electricity  used  for  power  purposes.  From  the  commercial 
standpoint  the  $d.  for  lighting  is  fixed  as  the  maximum  which  com- 
petition and  other  illuminants  will  permit;  and  id.  is  a  charge  made 
to  induce  users  of  steam  power,  gas-engines,  and  the  like  to  adopt 

1  Taken  by  permission  from  J.  F.  Strombeck,  Freight  Classification,  pp.  21-24. 
(Houghton  Mifflin  Co.,  19 12.) 


MACHINE  INDUSTRY  455 

electricity  as  a  substitute.  As  a  matter  of  equity  the  case  is  this: 
The  electric  undertaking  was  established  primarily  to  supply  light. 
It  involves  large  capital  cost  for  short-lived  machinery  and  mains. 
Plant  and  staff  must  be  capable  of  dealing  with  maximum  demand, 
and  this  demand — 'the  peak  of  the  load,'  as  it  is  commonly  called — 
only  comes  for  about  two  hours  of  the  day,  and  that  during  the 
winter  months  of  the  year.  For  about  twenty  hours  of  the  twenty- 
four,  the  bulk  of  the  plant  is  idle;  but  interest,  depreciation,  and 
standing  charges  are  running  on  all  the  time.  Such  service  cannot 
but  be  expensive  to  give.  There  is,  however,  a  way  to  make  it  less 
expensive.  If  consumers  can  be  induced  by  the  low  price  of  id.  per 
unit  to  take  electricity  for  power,  they  will  use  it  in  the  daytime,  to 
some  extent  even  in  the  dead  of  night,  when  the  machinery  would 
otherwise  be  idle.  The  id. — ex  hypothesi  the  highest  rate  the  traffic 
will  bear — will  more  than  cover  the  extra  cost  of  fuel,  and  will  help  to 
dilute  the  general  expenses  of  the  undertaking.  So  far  from  the  low 
differential  rate  being  an  injury  to,  or  made  at  the  expense  of,  the  con- 
sumers of  light,  the  contrary  is  the  case.  The  standing  charges — the 
great  bulk  of  the  whole — instead  of  being  charged  on,  say,  1,000,000 
units,  are  now  spread  over  6,000,000,  and  the  cost  of  supply  per  unit 
is  proportionally  decreased.  The  increase  of  the  low-charged  power 
customers  is  the  only  means  by  which  the  lighting  customers  can  hope 
to  see  the  charges  made  to  them  reduced." 

And  still  another  analogy  might  be  offered.  A  manufacturer  is 
selling  his  output  in  the  domestic  market  at  a  fixed  price,  which  nets 
him  a  fair  return  on  his  investment.  The  demands  of  the  home  market 
are  not  sufficient  to  enable  him  to  run  his  factory  at  more  than  three- 
fourths  its  capacity.  He  finds  that  provided  he  reduces  the  price 
somewhat  he  can  secure  a  foreign  order  which  will  enable  him  to  operate 
his  plant  at  its  full  capacity.  This  reduced  price  covers  all  the  direct 
expenses  connected  with  filling  the  order,  and  leaves  a  small  margin 
to  be  applied  to  the  indirect  costs  of  the  business.  It  is  good  policy 
for  him  to  accept  that  order.  This  is  exactly  the  same  principle  on 
which  carriers  give  low  rates  to  cheap  commodities  to  encourage 
their  movement.  A  low-value  commodity  which  cannot  bear  the 
regular  rate  is  to  the  carrier  in  the  same  relation  as  the  foreign  order 
is  to  the  manufacturer.  And  further,  no  one  can  say  that  the  domestic 
purchaser  pays  a  higher  price  on  his  goods  so  that  the  foreign  order 
may  be  filled  at  a  reduced  price.  The  domestic  purchaser  does 
not  only  not  bear  part  of  the  burden  of  the  foreigner,  but  on  the 


456 


INDUSTRIAL  SOCIETY 


contrary  he  may  be  benefited  by  that  sale  in  that  the  additional 
earnings  will  enable  a  reduction  in  the  domestic  price. 

173.    THE  IMPORTANCE  OF  ADDED    BUSINESS  IN  MACHINE 

INDUSTRY1 

[Note. — In  the  railroad  industry  indirect  costs  are  a  very  large 
part  of  the  total  costs.  One  writer  estimates  that  the  following 
statement  of  the  case  is  fairly  typical.  The  "fixed  charges"  are  of 
course  all  indirect  costs.  The  different  parts  of  "  operating  expenses  " 
are  made  up  of  direct  and  indirect  costs  in  varying  proportions,  as 
shown  in  the  table.  The  figures  of  Column  III,  showing  the  percentage 
of  total  expenses  chargeable  to  each  specified  class  of  expenditures, 
are  divided  in  such  a  way  as  to  indicate  how  much  in  each  instance 
must  be  paid  out  regardless  of  the  volume  of  traffic  (Column  I)  and 
how  much  bears  a  relation  to  the  volume  of  traffic  (Column  II). 
Dividend  payments  are  not  considered  in  this  table. 


I 

II 

III 

Independent  of 

Volume  of 

Traffic 

Dependent  on 

Volume  of 

Traffic 

Total 

Fixed  charges 

25 

O 

25 

General  operating  expenses 

3 
IO 

7 
14 

O 
6 

7 
28 

3 
16 

14 
42 

Maintenance  of  way  and  structures .  .  . 
Maintenance  of  equipment 

Conducting  transportation 

Total  operating  expenses 

34 

4i 

75 

Total 

59 

4i 

The  selection  taken  from  Wellington  does  not  make  use  of  precisely 
the  foregoing  figures,  but  it  is  founded  on  the  same  general  considera- 
tions and  shows  why  it  is,  in  such  businesses,  that  seemingly  trifling 
changes  in  prices  or  in  volume  of  business  make  very  great  changes  in 
the  rate  of  profit.] 

We  will  assume  the  case  of  a  fairly  prosperous  line  of  the  second 
grade  whose  income  and  outgo  we  shall  find  distributed  in  something 
like  the  following  manner: 

1  Taken  by  permission  from  A.  M.  Wellington,  The  Economic  Theory  of 
Railway  Location,  pp.  111-12.     (John  Wiley  &  Sons,  Inc.,  1891.) 


MACHINE  INDUSTRY  457 

Per  Cent  Per  Mile 

Gross  revenue 100.  o  $7,000 


Operating  expenses,  unaffected  by  either  alignment  or 

volume  of  traffic  (50  per  cent  of  operating  expenses)      33.3  2,333 

Operating  expenses,  increasing  directly  with  consider- 
able changes  in  alignment  or  volume  of  traffic,  but 
not  with  trifling  changes  (40  per  cent) 26. 7  1,867 

Operating  expenses,  increasing  directly  with  the  less 

important  changes  in  alignment  or  traffic  (10  per        6.7  467 

cent) 


Total  of  nominal  operating  expenses 66. 7  $4,667 

Add  to  the  latter  the  rental  or  interest  charge  (6  per 
cent  on  $30,000  per  mile,  assumed  cash  cost  of 
road  and  plant) 25.7  1,800 


Total  cash  cost  of  producing  the  transporta- 
tion sold 92.4  $6,467 


Surplus  available  for  dividends,  being  the  business 

profit  resulting  from  operation 7.6  $    533 

Let  us  now  see  the  effect  of  increasing  or  decreasing  the  gross 
revenue  10  per  cent,  as  it  is  frequently  possible  to  do  (one  might 
perhaps  more  fairly  say  by  probable  differences  of  alignment  alone). 
We  have,  if  it  has  been  increased: 

Per  Cent  Per  Mile 

Gross  revenue 1 10 . o         $7,700 


Operating  expenses  unaffected  by  either  alignment  or 

volume  of  traffic  remain  at 33.3  2,333 

Operating  expenses  increasing  directly  with  considerable 
changes  in  traffic,  but  not  with  trifling  changes, 
remain  at 26. 7  1,867 

Operating  expenses  increasing  directly  with  less  important 
changes  in  alignment  or  traffic  increase  10  per  cent 
and  become 7.4  514 


Total  of  normal  operating  expenses 67.4         $4,714 

Add  to  these  the  fixed  rental  or  interest  charge  which 

remains  at 25.7  1 ,800 


Total  cash  cost  of  producing  the  transportation  sold 

becomes 93 . 1         $6,514 


Surplus  available  for  dividends  becomes 16.9         $1,186 


458  INDUSTRIAL  SOCIETY 

The  surplus  available  for  dividends  is  more  than  doubled.  On 
the  other  hand,  if  there  has  been  10  per  cent  loss  of  traffic  the 
expenses  are  a  little  over  the  receipts,  and  the  road  is  on  the  way  to 
a  receivership. 

174.    SIMPLE  VERSUS  COMPLEX  INDUSTRY 

It  has  become  the  fashion  to  refer  to  industry  prior  to  the  industrial 
revolution,  particularly  that  of  the  fourteenth  and  fifteenth  centuries, 
as  simple  industry,  whereas  the  industry  of  today  is  termed  complex. 
Let  us  see  precisely  what  is  involved  in  this  antithesis. 

The  outstanding  features  of  industry  of  the  fourteenth  and 
fifteenth  centuries  were  these:  It  was  small-scale  industry;  both 
worker  and  master,  even  those  of  limited  intelligence,  could  survey 
and  understand  the  processes  involved.  Markets  were  of  small 
scale,  with  respect  both  to  space  area  and  to  time  area,  and  simple 
commercial  organization  would  suffice.  It  was  tool  industry,  so  that 
the  technique  involved  was  simple  and  understandable.  The  social 
structure  was  relatively  simple.  Industrial  control  was  primarily 
local,  and  society  lacked  its  modern  interdependence.  A  man  of 
but  ordinary  intelligence  and  training  could  appreciate  with  some 
accuracy  his  relationship  to  the  rest  of  organized  society.  It  was 
industry  where  the  total  costs  were  almost  entirely  direct  costs, 
so  that  the  master  could  know,  and  would  know  without  the  necessity 
of  a  complex  accounting  system,  his  costs  of  operation.  It  was 
industry  where  the  initial  capital  outlay  involved  was  exceedingly 
small. 

Very  different  things  are  true  of  our  modern  complex  industry. 
It  is  large-scale  industry,  so  that  practically  no  one  in  a  great  organiza- 
tion can  know  the  details  of  all  the  processes  involved.  The  market 
area,  both  time  and  space,  is  tremendous  and  the  commercial  organi- 
zation of  society  correspondingly  intricate,  complex,  and  difficult  to 
understand.  It  is  machine  industry  as  opposed  to  tool  industry  with 
all  that  this  involves  in  intricacy  of  processes,  in  difficulty  of  the 
determination  of  costs,  and  in  the  complexities  of  social  control. 
It  is  a  complex  interdependent  society,  so  that  even  the  most  intelli- 
gent master  has  difficulty  in  fully  appreciating  his  relationship  to  the 
rest  of  society.  It  is  an  industry  where  a  large  part  of  the  total  cost 
is  made  up  of  supplementary  cost,  so  that  pressure  is  brought  upon 
the  manager  to  retain  his  present  volume  of  business  and  to  develop 
new  business  under  conditions  where  competition  is  no  longer  satis- 


MACHINE  INDUSTRY  459 

factory  as  the  law  of  trade;   and  finally,  it  is  industry  where  large 
initial  capital  outlay  is  required. 

Some  of  the  consequences  of  the  transition  from  simple  to  com- 
plex industry  may  be  put  as  follows: 

1.  Capital  is  not  as  mobile  as  in  the  mediaeval  period.  The 
railroad  industry  furnishes  an  extreme  illustration  of  this  fact. 
This  industry  is  pre-eminently  an  industry  of  much  fixed,  specialized 
capital.  Tracks,  locomotives,  cars,  etc.,  require  tremendous  outlay, 
and  when  these  instruments  have  been  called  into  being  they  can  be 
used  only  for  the  one  purpose.  Social  capital  has  been  committed 
to  the  enterprise  in  a  way  that  is  irrevocable.  In  both  the  railway 
and  in  other  businesses  not  merely  fixed  capital  but  the  expensive  and 
intricate  organization,  both  industrial  and  commercial,  make  changes 
difficult  unless  one  is  willing  to  incur  heavy  costs.  Under  the  regime 
of  simple  industry,  processes  were  simple  and  little  capital  was 
required  for  any  new  business  venture.  If  the  venture  proved 
unsuccessful,  the  enterpriser  could  shift  fairly  readily  to  some  other 
line  of  activity.  His  loss  of  capital  in  the  old  enterprise  would  not 
be  great  nor  would  his  capital  requirements  in  the  new  enterprise  be 
unduly  large.  It  is  self-evident  that  a  very  different  situation  obtains 
in  complex  industry. 

2.  In  complex  industry  a  large  part  of  the  costs  of  operation  is 
without  any  very  definite  relation  to  the  volume  o£  the  business 
transacted.  The  preceding  selection  showed  the  importance  of 
added  business  under  such  circumstances.  There  are  circumstances 
where  the  figures  used  in  this  selection  would  be  an  understatement 
of  the  case.  This  being  true,  it  is  not  difficult  to  understand  why  the 
railroad  manager  who  will  develop  new  business  is  eagerly  sought 
after;  nor  is  it  difficult  to  see  the  justification  of  building  branch  lines 
which  are  not  in  themselves  profitable,  but  which  bring  in  a  little 
more  traffic  for  a  long  haul  on  the  parent  line.  From  the  manager's 
point  of  view,  it  is  clear  that  he  should  give  low  rates  on  cheap  and 
bulky  commodities  in  order  to  induce  them  to  move  and  thus  increase 
the  volume  of  his  business.  Thus  the  significance  of  the  principle 
of  " charging  what  the  traffic  will  bear"  is  apparent,  as  is  also  the 
interest  of  the  public  in  reduced  rates  as  business  develops.  Failure 
to  reduce  rates  under  such  circumstances  might  mean  excessive 
profits  for  a  public  utility. 

3.  This  is  perhaps  only  another  way  of  saying  that  under  com- 
plex industry  the  relation  between  total  cost  of  production  and  the 


460  INDUSTRIAL  SOCIETY 

price  of  the  product  may  be  neither  clear  nor  definite.  Total  cost  in 
machine  industry  may  be  divided  into  two  parts:  (a)  those  costs 
specifically  incurred  for  a  given  unit  of  business  and  which  are  vari- 
ously known  as  prime  costs,  direct  costs,  or  variable  costs;  (b)  those 
costs  which  are  largely  independent  of  the  volume  of  the  business  and 
which  have  been  called  supplementary  costs,  indirect  costs,  over- 
head costs,  or  constant  costs.  The  preceding  paragraph  showed  that 
it  pays  to  get  business  at  a  price  which  is  below  total  cost,  provided 
that  price  is  above  prime  cost.  In  addition  to  this  situation,  there 
are  plenty  of  cases  where  it  will  be  wise  for  the  manager  of  a  complex 
industry  to  continue  his  business  even  though  the  price  received  for 
his  product  does  not  suffice  to  cover  even  the  prime  cost.  For 
example,  it  has  been  asserted  that  a  certain  railroad  has  throughout 
its  history  hauled  coal  at  less  than  prime  cost  because  the  railroad 
believed  that  this  was  the  policy  it  must  follow  in  order  to  develop 
manufacturing  industries  along  its  lines,  and  thus  secure  the  traffic 
and  profits  involved  in  the  hauling  of  manufactured  goods.  Another 
example  may  be  found  in  the  case  of  a  manufacturer  who  believes 
that  by  a  short  war  he  may  drive  one  or  more  of  his  competitors  out 
of  the  field,  and  who  accordingly  cuts  his  price  below  even  prime  cost. 
Of  course  this  cannot  be  expected  to  continue  as  a  permanent  policy. 
Another  and  a  somewhat  more  subtle  case  is  to  be  found  when  the 
price  is  to  be  cut  below  prime  cost  in  order  to  develop  added  business 
of  the  same  type.  The  logic  of  this  situation  lies  in  the  fact  that  the 
increased  volume  of  business  may  result  in  a  different  proportioning 
of  the  prime  and  supplementary  costs  through  the  introduction  of 
special  facilities  for  handling  this  new  business.  The  consequence 
is  that  the  price  which  was  formerly  below  prime  cost  is  now  higher 
than  prime  cost  because  the  prime  cost  (per  unit)  has  fallen. 

4.  It  is  difficult  for  the  manager  to  have  complete  knowledge  of 
the  factors  involved.  On  the  organization  (both  commercial  and 
industrial)  sides  of  his  work,  this  is  readily  seen.  The  pressure  for 
added  business  generally  brings  about  a  steady  increase  in  the  scale 
of  operations  so  that  personal  supervision  and  control  are  no  longer 
sufficient.     Impersonal  devices  must  be  called  to  the  rescue. 

Of  these  impersonal  devices,  accounting,  and  especially  cost- 
accounting,  stands  out  prominently.  Cost-accounting  in  simple 
industry  would  not  be  a  difficult  matter.  It  would  involve  no 
intricate  computations.  In  complex  industry,  however,  the  cost- 
accountant  must  grapple  with  both  direct  and  indirect  costs.     He 


MACHINE  INDUSTRY  461 

must  find  methods  of  distributing  the  indirect  costs  over  the  units 
produced.  If  this  is  well  done,  it  will  be  of  great  value,  not  merely 
with  respect  to  finding  what  costs  have  been,  but  also  with  respect  to 
determining  what  costs  ought  to  be. 

Mr.  F.  M.  Simons  has  outlined  the  functions  of  cost-accounting 
carried  on  within  a  plant  as  follows: 

1.  The  records  provide  for  following  the  material  from  the  raw  state  until 
it  is  finished  product  and  showing  the  actual  costs  of  every  act,  direct  or 
indirect,  in  the  productive  process. 

2.  A  system  of  reports  sets  forth  this  information  in  such  a  way  as  to  be 
available  for  one  or  more  of  the  following  uses: 

a)  The  records  account  for  all  expenditures. 

b)  The  records  enable  technical  men  to  make  comparisons  which  may 
lead  to  scientific  or  technical  progress. 

c)  The  records  furnish  data  which  guide  the  company  in  its  policies  and 
methods  with  respect  to 

(1)  Estimating  and  bidding  in  other  work. 

(2)  Price-fixing. 

(3)  Selecting  best  line  to  make. 

(4)  Making  up  new  lines. 

(5)  Deciding  whether  to  make  or  buy. 

d)  The  records  make  possible  the  development  of  more  complete  execu- 
tive control  by 

(1)  Comparison  of  actual  costs  with  ideal  standards. 

(2)  Discovery  and  explanation  of  wastes. 

(3)  Checking  up  performance  of  standards  in  use. 

e)  The  records  make  possible  the  comparison  of  different  periods  of 
production  to  show  the  significance  of 

(1)  Internal  changes  which  have  been  made. 

(2)  External  changes  beyond  the  control  of  the  company  but  bearing 
on  the  future  of  the  industry. 

5.  Competition  is  not  a  satisfactory  "law  of  trade"  in  complex 
industry,  and  the  incentives  to  combination  are  exceedingly  strong. 
The  railroad  industry  again  gives  an  excellent  illustration: 

If  once  a  rate  war  breaks  out  there  seems  to  be  no  stopping-place. 
The  field  cannot  be  abandoned,  for  the  instrument  can  produce 
nothing  but  transportation,  and  a  large  part  of  the  charges  (e.g., 
interest  on  bonds)  would  accumulate  even  if  not  a  train  moved.  If 
traffic  falls  off,  costs  will  not  fall  proportionately.  It  follows,  then, 
that  a  manager  may  go  on  for  long  periods  "producing  transportation" 
and  collecting  a  rate  which  does  not  cover  his  total  cost  per  unit, 


462  INDUSTRIAL  SOCIETY 

provided  the  rate  covers  added  cost  per  unit  or  more.  As  has  been 
seen,  he  may  produce  at  less  than  added  cost  per  unit.  In  addition, 
since  the  costs  are  largely  joint  costs,  it  may  be  impossible  to  know 
definitely  until  after  it  is  all  over  just  where  the  line  between  "paying" 
and  "losing"  business  is  (a  situation  particularly  true  in  the  earlier 
days  of  our  railroads).  It  is  not  surprising  that  we  have  "  Cut- throat 
Competition"  under  such  circumstances. 

Competition  does  not  necessarily  mean  the  "  survival  of  the  fittest" 
in  this  industry.  A  bankrupt  road,  which  has  been  repudiating 
some  of  its  fixed  charges  and  which  is  willing  to  skimp  its  maintenance 
for  years;  or  a  round-about  road,  subsisting  largely  on  local  traffic 
and  hauling  the  added  through  traffic  at  a  ridiculously  Jow  rate,  may 
be  more  than  a  match  for  the  solvent,  direct  route — as  witness  the 
differentials,  many  of  which  are  allowed  "weaker"  roads  to  induce 
them  to  stop  fighting  the  "stronger"  ones.  The  ancient  assumption 
that  competition  was  a  proper  "law  of  trade,"  whatever  that  may 
mean,  was  based  upon  the  assumption  of  a  "normal"  in  which  com- 
petitive forces  had  worked  themselves  into  a  state  of  equilibrium. 
Up  to  the  present  time  machine  industry  has  developed  so  rapidly 
that  a  "normal"  has  never  been  attained.  The  railway  of  today 
differs  from  that  of  1830  as  much  as  the  early  railway  differed  from 
the  turnpike.  On  both  the  mechanical  and  the  business  sides, 
industry  has  undergone  through  constant  development  what  has 
amounted  to  almost  a  revolution  every  few  decades.  As  a  conse- 
quence, the  competitive  equilibrium  has  been  and  seems  likely  to  be 
of  little  significance  in  complex  industry. 

6.  Problems  connected  with  the  social  control  of  industrial  affairs 
are  very  complex  and  baffling  in  machine  industry.  It  is  not  merely 
that  we  "  do  not  know."  We  do  not  know  that  we  do  not  know.  Our 
measures  of  control  are  largely  based  upon  the  hypotheses  of  simple 
industry.  Through  social  inheritance  the  popular  mind  has  been 
firmly  established  in  the  dogma  of  the  infallibility  of  competition 
under  any  and  all  circumstances,  so  that  our  formal  social  control 
is  organized  on  the  assumption  that  price  should  correspond  with 
cost  and  that  this  will  come  about  when  the  "normal"  has  been 
worked  out. 

The  situation  is  far  from  hopeless,  however.  We  are  doing  much 
to  improve  our  knowledge  of  the  essential  facts  of  the  case,  and  here 
both  technical  schools  and  cost-accounting  are  rendering  and  will 
continue  to  render  good  service.    Then,  too,  we  are  gradually  coming 


MACHINE  INDUSTRY  463 

to  a  proper  realization  of  the  shortcomings  of  "free"  competition  as 
the  law  of  trade  in  complex  industry,  and  are  coming  to  rely  more  and 
more  upon  formal  social  control  in  the  guise  of  state  action  laying 
down  the  rules  of  the  game  under  which  our  industrial  operations 
must  be  performed.  And  we  are  making  increasing  use  of  informal 
social  control.  We  are  striving  to  develop  codes  of  ethics  and  to 
bring  home  to  the  individual  a  sense  of  personal  responsibility. 

175.     COMPLEX  INDUSTRY  IS  DIFFICULT  TO  REGULATE1 

Whatever  might  be  the  outcome  of  government  regulation  in 
this  respect,  there  can  be  no  doubt  of  the  immense  difficulty  of  just 
and  efficient  regulation  of  the  prices  or  the  profits  of  industrial 
combinations. 

Consider  for  a  moment  the  nature  of  the  task  which  would  con- 
front such  an  administrative  body.  In  the  first  place,  it  would  have 
to  possess  at  all  times  detailed  information  regarding  all  the  concerns 
under  its  jurisdiction.  It  could  not  rest  content  with  making  special 
investigations  from  time  to  time  on  its  own  initiative  or  on  complaint. 
Railroad  rates  and  the  charges  of  public-service  corporations  are 
ordinarily  comparatively  stable,  and  properly  so;  but  the  prices  of 
many  other  commodities,  if  not  of  most,  are  necessarily  variable. 
The  costs  of  materials  may  change  greatly  and  rapidly.  The  condi- 
tions of  demand  are  changeable.  Grave  injury  might  be  done  to 
the  public  during  the  time  required  for  securing  information  on  which 
to  base  action  if  such  information  were  not  continuously  in  the  posses- 
sion of  the  regulating  authority.  Even  annual  reports  would  not 
usually  be  adequate;  quarterly  or  monthly  data  would  be  re- 
quired. 

In  the  second  place,  the  amount  of  detail  involved  would  be 
enormous.  A  proper  fixing  of  prices  would  require  complete  knowl- 
edge of  the  costs  of  production  and  of  the  amount  of  investment. 
In  order  to  make  sure  of  obtaining  accurate  information,  the  govern- 
ment would  have  to  prescribe  the  methods  of  accounting.  It  would 
be  impossible  to  prescribe  uniform  methods,  as  is  done  by  the  Inter- 
state Commerce  Commission  in  the  case  of  the  railroads.  The 
bewildering  variety  of  conditions  in  the  different  industries  would 
have  to  be  provided  for.  On  the  basis  of  accounting  methods  thus 
prescribed,  detailed  reports  would  have  to  be  made  to  the  government 

1  Taken  by  permission  from  E.  D.  Durand,  The  Trust  Problem,  pp.  51-55. 
(Harvard  University  Press,  1915.) 


464  INDUSTRIAL  SOCIETY 

and  these  would  have  to  be  scrutinized  and  studied  with  utmost 
care.  The  federal  government  particularly  would  have  to  employ  a 
vast  corps  of  expert  accountants,  statisticians,  and  specialists  familiar 
with  the  peculiar  conditions  in  the  different  industries. 

The  difficulties  of  cost-accounting  are  so  great  that  many  even  of 
the  largest  business  concerns  have  found  it  impossible  to  ascertain 
the  costs  of  their  products  on  scientific  principles,  or  at  any  rate  have 
considered  it  not  worth  while  to  incur  the  necessary  expenses  for 
that  purpose.  The  business  concern  can  get  along  without  accurate 
knowledge  of  its  own  costs.  Its  prime  interest  is  in  demand  and 
in  profits.  The  government,  however,  in  fixing  prices,  must  know 
all  about  costs — both  operating  costs  and  capital  charges.  They  are 
the  very  things  which  primarily  determine  the  reasonableness  of 
prices.  The  limiting  of  profits  would  require  somewhat  less  detailed 
information  than  the  limiting  of  prices,  but  would  still  require  a  vast 
mass  of  data. 

In  the  third  place,  the  determination  of  costs  and  of  investment 
for  the  purpose  of  fixing  prices  or  profits  would  involve  immensely 
difficult  problems  of  judgment.  The  judgment  of  the  regulating  body 
would  be  constantly  challenged  by  the  combinations,  and  the  probable 
result  would  be  endless  litigation.  The  proper  allowance  for  deprecia- 
tion and  obsolescence,  the  proper  apportionment  of  overhead  charges 
among  different  products  and  services,  the  proper  methods  of  valu- 
ing the  different  elements  of  investment — these  and  similar  matters 
would  have  to  be  passed  upon  by  the  regulating  authority.  Such 
problems  are  difficult  enough  as  they  confront  the  Interstate  Com- 
merce Commission,  which  has  to  deal  with  one  kind  of  business  only. 
They  would  be  far  more  difficult  for  a  body  dealing  with  multifarious 
combinations  in  widely  differing  industries. 

Even  if  the  regulating  authority  should  succeed  in  working  out  a 
satisfactory  determination  of  costs  of  production  and  value  of  invest- 
ment, it  would  still  be  beset  with  troubles  in  fixing  prices  or  limiting 
profits.  Demand  for  goods  is  variable  even  in  non-competitive 
industries.  Even  if  the  combinations  should  be  protected  against 
competition  from  domestic  concerns,  foreign  concerns  would  have 
to  be  reckoned  with.  Unchanging  prices  or  prices  bearing  an  unchan- 
ging relation  to  costs  would  not  be  practicable  in  mining,  manufactur- 
ing, and  mercantile  business.  A  combination  might  at  times  be 
justified  in  reducing  prices  and  consequently  profits  below  a  normal 
level  in  order  to  stimulate  demand  and  keep  its  force  employed,  or  in 


MACHINE  INDUSTRY  465 

order  to  meet  foreign  competition.  The  government  would  have 
then  to  determine  to  what  limit  prices  or  profits  could  sub- 
sequently be  advanced  in  order  to  offset  these  reductions.  In  other 
words,  the  government  would  be  dealing  with  a  constantly  changing 
problem  of  demand,  just  as  the  manager  of  any  private  business 
does. 

Particularly  difficult  would  be  the  fixing  of  proper  prices  for 
products  produced  at  joint  cost.  Take  petroleum,  for  example.  A 
wide  variety  of  commodities  are  derived  from  the  one  raw  material, 
crude  oil.  Some  of  these  are  in  so  little  demand  that  they  must  be  sold 
for  less  than  the  price  of  crude  oil  itself.  Others  are  in  great  demand 
and  can  be  sold  for  high  prices.  It  is  impossible  to  use  cost  as  a 
basis  for  determining  prices  of  the  specific  products.  The  relative 
demand  for  the  several  products  varies  from  day  to  day.  For  a 
regulating  body  to  determine  the  proper  relationship  of  the  prices  of 
these  joint  products  is  virtually  impossible.  This  and  several  other 
important  industries  would  have  to  be  regulated,  if  at  all,  by  limiting 
profits  rather  than  prices. 

It  is  sometimes  suggested  that  the  same  problem  of  joint  costs 
confronts  the  Interstate  Commerce  Commission  with  respect  to  the 
relative  freight  rates  on  different  commodities.  It  should  be  noted, 
however,  that  after  making  due  allowance  for  actual  and  measurable 
differences  in  the  cost  of  transporting  different  commodities,  the 
Commission  could,  without  actually  destroying  railroad  business,  fix 
precisely  the  same  rate  per  unit  for  every  class  of  commodities.  Such 
a  policy  is  by  no  means  unthinkable  and  might  be  better  than  the 
often  extraordinary  differences  which  now  exist.  For  petroleum 
products,  on  the  other  hand — and  the  same  is  true  of  a  great  many 
other  products  produced  under  joint  cost — flat  prices  would  be 
absolutely  impossible.  Furthermore,  it  cannot  be  said  that  the 
Interstate  Commerce  Commission  has  satisfactorily  solved  the  prob- 
lem of  fixing  relative  rates  on  different  commodities.  It  has  in 
fact  left  that  problem  almost  untouched,  and  if  it  ever  does  enter 
seriously  upon  it  the  Commission  may  find  difficulties  practically 
insuperable. 

One  could  continue  almost  indefinitely  setting  forth  the  com- 
plexities and  difficulties  of  government  regulation  of  the  prices  and 
profits  of  combinations.  Most  people  feel  that  for  the  government 
actually  to  fix  definite  prices  for  a  multitude  of  industries,  or  even  to 
limit  their  profits  specifically,  would  be  impracticable. 


466  INDUSTRIAL  SOCIETY 

176.    CAN  WE  CONTROL  THE  GENIE?1 

All  this  brings  us  clearly  face  to  face  with  a  very  serious  problem — 
whether  we  possibly  can  control  the  great  political  forces  which 
economic  forces  have  created.  For  the  whole  political  and  moral 
evolution  was  inherent  in  the  machines  that  replaced  the  hand  labor 
of  former  times.  You  would  not  have  had  the  trusts  in  a  regime  of 
hand  labor;  you  would  not  have  had  the  enormous  mills  that  united 
to  form  the  trusts.  It  is  the  machine  that  has  made  the  size  of  a  mill 
so  important  and  has  made  it  impossible  for  any  but  the  big  one  to 
survive.  The  fact  that  only  a  few  did  survive  first  caused  those  few 
to  compete  so  vigourously  with  each  other  that  they  made  almost 
no  profits,  then  enabled  them  to  save  their  profits  by  consolidating, 
and  finally  incited  them  to  seek,  besides  legitimate  profits  to  which 
they  had  a  perfect  right,  an  income  not  founded  in  justice  and  one  to 
which  a  harsh  term  may  correctly  be  applied.  It  is  fair  to  say  that 
this  whole  enormous  transformation,  which  runs  through  the  plan  of 
modern  industry  and  through  the  relations  of  employers  and  employed, 
which  enters  into  and  perverts  our  political  life,  and  even  lowers  the 
moral  tone  of  society,  was  inherent  in  the  original  steam  engine 
which  Watt  manufactured  in  England  more  than  a  century  and  a 
quarter  ago.  It  was  all  brewing  in  that  teakettle  which  as  a  boy  he 
sat  and  watched,  noting  the  force  of  the  steam  as  it  raised  the  lid  and 
let  it  fall.  He  saw  that  the  force  might  be  put  to  great  account  in 
driving  such  primitive  machinery  as  he  knew  of;  but  he  was  far  from 
foreseeing  the  transforming  effects  of  the  innumerable  machines  which 
his  engines  were  destined  to  make  available.  No  one  for  a  hundred 
years  thereafter  realized  their  full  economic  and  political  conse- 
quences. 

From  that  economic  application  of  physical  force  influences  have 
followed  which  have  put  an  end  to  small  industry  and  to  the  old 
type  of  democracy.  Can  we  save  our  democracy  under  a  new  form  ? 
Can  we  control  the  genie  that  has  come  out  of  the  box  we  have 
opened?  That  depends  on  the  question  whether,  as  a  people,  we 
can  regulate  and  guide  the  gigantic  forces  that  have  come  into 
activity. 

1  Adapted  by  permission  from  J.  B.  Clark,  The  Problem  of  Monopoly,  pp.  21-23. 
(Columbia  University  Press,  1904.) 


MACHINE  INDUSTRY  467 

177.    THE  BRUTE1 

Through  his  might  men  work  their  wills. 

They  have  boweled  out  the  hills 

For  food  to  keep  him  toiling  in  the  cages  they  have  wrought; 

And  they  fling  him,  hour  by  hour, 

Limbs  of  men  to  give  him  power; 

Brains  of  men  to  give  him  cunning;  and  for  dainties  to  devour 

Children's  souls,  the  little  worth;  hearts  of  women,  cheaply  bought: 

He  takes  them  and  he  breaks  them,  but  he  gives  them  scanty  thought. 

For  about  the  noisy  land, 

Roaring,  quivering  'neath  his  hand, 

His  thoughts  brood  fierce  and  sullen  or  laugh  in  lust  of  pride 

O'er  the  stubborn  things  that  he 

Breaks  to  dust  and  brings  to  be. 

Some  he  mightily  establishes,  some  flings  down  utterly. 

There  is  thunder  in  his  stride,  nothing  ancient  can  abide, 

When  he  hales  the  hills  together  and  bridles  up  the  tide. 

Quietude  and  loveliness, 

Holy  sights  that  heal  and  bless, 

They  are  scattered  and  abolished  where  his  iron  hoof  is  set; 

When  he  splashes  through  the  brae 

Silver  streams  are  choked  with  clay, 

When  he  snorts  the  bright  cliffs  crumble  and  the  woods  go  down  like 

hay; 
He  lairs  in  pleasant  cities,  and  the  haggard  people  fret 
Squalid  'mid  their  new-got  riches,  soot-begrimed  and  desolate. 

They  who  caught  and  bound  him  tight 

Laughed  exultant  at  his  might, 

Saying,  "Now  behold,  the  good  time  comes  for  the  weariest  and  the 

least! 
We  will  use  this  lusty  knave : 
No  more  need  for  men  to  slave: 

We  may  rise  and  look  about  us  and  have  knowledge  ere  the  grave." 
But  the  Brute  said  in  his  breast,  "Till  the  mills  I  grind  have  ceased, 
The  riches  shall  be  dust  of  dust,  dry  ashes  be  the  feast! 

"On  the  strong  and  cunning  few 
Cynic  favors  I  will  strew; 

1  Taken  by  permission  from  W.  V.  Moody,  Poems  and  Plays,  Vol /I,  pp.  55-60. 
(Houghton  Mifflin  Co.,  191 2.) 


468  INDUSTRIAL  SOCIETY 

I  will  stuff  their  maw  with  overplus  until  their  spirit  dies; 

From  the  patient  and  the  low 

I  will  take  the  joys  they  know; 

They  shall  hunger  after  vanities  and  still  anhungered  go. 

Madness  shall  be  on  the  people,  ghastly  jealousies  arise; 

Brother's  blood  shall  cry  on  brother  up  the  dead  and  empty  skies. 

"I  will  burn  and  dig  and  hack 

Till  the  heavens  suffer  lack; 

God  shall  feel  a  pleasure  fail  Him,  crying  to  his  cherubim, 

'Who  hath  flung  yon  mud-ball  there 

Where  my  world  went  green  and  fair  ?' 

I  shall  laugh  and  hug  me,  hearing  how  his  sentinels  declare, 
'  'Tis  the  Brute  they  chained  to  labor!    He  has  made  the  bright  earth 
dim. 

Store  of  wares  and  pelf  a  plenty,  but  they  got  no  good  of  him.' " 

So  he  plotted  in  his  rage: 

So  he  deals  it,  age  by. age. 

But  even  as  he  roared  his  curse  a  still  small  Voice  befell; 

Lo,  a  still  and  pleasant  voice  bade  them  none  the  less  rejoice, 

For  the  Brute  must  bring  the  good  time  on;  he  has  no  other  choice. 

He  may  struggle,  sweat  and  yell,  but  he  knows  exceeding  well 

He  must  work  them  out  salvation  ere  they  send  him  back  to  hell. 

All  the  desert  that  he  made 

He  must  treble  bless  with  shade, 

In  primal  wastes  set  precious  seed  of  rapture  and  of  pain; 

All  the  strongholds  that  he  built 

For  the  powers  of  greed  and  guilt — 

He  must  strew  their  bastions  down  the  sea  and  choke  their  towers  with 

silt; 
He  must  make  the  temples  clean  for  the  gods  to  come  again, 
And  lift  the  lordly  cities  under  skies  without  a  strain. 

In  a  very  cunning  tether 

He  must  lead  the  tyrant  weather; 

He  must  loose  the  curse  of  Adam  from  the  worn  neck  of  the  race; 

He  must  cast  out  hate  and  fear, 

Dry  away  each  fruitless  tear, 

And  make  the  fruitful  tears  to  gush  from  the  deep  heart  and  clear. 

He  must  give  each  man  his  portion,  each  his  pride  and  worthy  place; 

He  must  batter  down  the  arrogant  and  lift  the  weary  face, 

On  each  vile  mouth  set  purity,  on  each  low  forehead  grace. 


MACHINE  INDUSTRY 


469 


Then,  perhaps,  at  the  last  day, 
They  will  whistle  him  away, 

Lay  a  hand  upon  his  muzzle  in  the  face  of  God,  and  say, 
'Honor,  Lord,  the  Thing  we  tamed! 
Let  him  not  be  scourged  or  blamed, 
Even  through  his  wrath  and  fierceness  was  thy  fierce  wroth  world 

reclaimed ! 
Honor  Thou  thy  servants'  servant;  let  thy  justice  now  be  shown." 
Then  the  Lord  will  heed  their  saying,  and  the  Brute  come  to  his  own, 
'Twixt  the  Lion  and  the  Eagle,  by  the  armpost  of  the  Throne. 


CHAPTER  VIII 

SPECULATIVE  INDUSTRY:   RISKS  AND  RISK  BEARING 
A.     Problems  at  Issue 

As  compared  with  the  customary  regime  of  mediaeval  England, 
ours  is  a  speculative  society.  The  term  "speculative"  is  not  here 
used  in  any  critical  sense.  It  means  simply  that  in  our  exchange- 
co-operative  society  we  look  to  the  individual  to  make  experiments — 
to  try  new  ventures,  and  to  estimate  needs  in  old  ventures.  Such  a 
function  must  be  performed  by  some  agency  in  any  specialized  society 
if  progress  is  to  occur.  If  the  function  is  wisely  performed,  so  much 
the  better  for  society.  It  will  move  forward  smoothly  and  rapidly; 
its  people  will  have  the  basis  for  reasonable  gratification  of  wants. 
If  the  function  is  poorly  performed,  so  much  the  worse  for  society. 
Its  progress  will  be  halting  and  uncertain,  its  people  not  adequately 
cared  for. 

Flowing  in  part  from  the  speculative  character  of. our  industry 
come  uncertainty  and  insecurity.  They  are  not  due  to  speculative 
industry  alone.  They  flow  also  from  machine  industry,  from  speciali- 
zation, from  interdependence — and  indeed  from  all  the  outstanding 
features  of  our  industrial  society. 

There  would  be  risks  in  industry  under  any  organization  of  society. 
Some  would  be  peculiar  to  the  given  organization;  others  would  not. 
Naturally,  any  given  organization  would  try  to  develop  means  of 
reducing  risks  no  matter  to  what  cause  they  should  be  attributed. 
In  this  section  we  shall  study  the  forms  of  risks  which  modern  capital 
and  management  have  to  meet;  see  the  consequences  of  these  risks 
and  survey  the  structures  which  are  emerging  to  meet  the  situation. 

QUESTIONS 

i.  Differentiate  these  terms:  "speculation,"  "organized  speculation," 
"commercial  speculation,"  "organized  commercial  speculation," 
"industrial  speculation,"  "speculative  society." 

2.  "Industrial  speculation  anticipates  the  wants  of  society.  If  the 
speculator  has  judged  wisely,  society  is  better  provided  with  goods 
than  it  would  have  been  had  its  entrepreneurs  been  averse  to  taking 
chances.     If  the  speculator  has  miscalculated,  he  incurs  a  pecuniary 

470 


SPECULATIVE  INDUSTRY  47 1 

loss  and  society  suffers  from  wasted  resources."     Is  this  true?     Write 
out  a  similar  statement  concerning  commercial  speculation. 
"The  grower,  the  manufacturer,  and  the  merchant  must  speculate." 
Why? 

"Commercial  speculation  is  sometimes  analogous  to  insurance  and 
sometimes  to  gambling."     What  does  this  mean  ? 
"Commercial  speculation  may  concern  itself  either  with  the  space  area 
of  the  market  or  with  the  time  area."     Explain. 

"The  work  of  the  trader  in  acquiring  goods  when  they  are  cheap  and 
parting  with  them  when  they  are  dear  results  in  an  increase  of  their 
utility  to  the  public."     Do  you  agree  ? 

How  can  one  distinguish  between  legitimate  and  illegitimate  specula- 
tion? 

"By  leaving  it  to  the  option  of  the  individual  property-holder  to  under- 
take experiments  or  not  as  he  pleases,  society  secures  most  of  the  gain 
and  avoids  most  of  the  loss."     Is  this  true  ? 

Does  more  speculative  industry  mean  more  costly  industry  ?  If  so,  who 
foots  the  bill  ? 

What  distinction  can  you  draw  between  "speculative  industry"  and 
"organized  speculation."  If  all  organized  speculation  were  to  cease 
what  proportion  of  speculative  industry  would  have  disappeared  ? 
Describe  some  of  the  chief  risks  in  industry.  Group  these  into  classes. 
Are  risks  greater  in  a  changing  condition  of  industry?  Why  or  why 
not  ?    Are  risks  greater  in  a  wide  market  ? 

Is  the  process  of  production  in  modern  industry  spread  over  a  longer 
period  of  time  and  is  it  more  roundabout  than  formerly?  How  does 
this  affect  risks  ? 

Assuming  that  industrial  methods  are  constantly  changing,  should  you 
agree  to  the  suggestion  that  those  persons  who  are  pioneers  in  intro- 
ducing the  new  methods  make  profits  because  of  the  change,  and  that 
those  who  cling  to  obsolete  methods  are  commonly  losers?  Explain 
your  answer. 

Work  through  the  "classification  of  price  influences."  What  ones  of 
these  influences  are  under  the  control  of  the  individual  business  man  ? 
What  is  chance  ?  What  is  its  bearing  upon  the  speculative  character 
of  modern  industrial  society?  As  far  as  this  one  factor  is  concerned, 
is  society  becoming  more  or  less  speculative  ? 

What  factors  contribute  to  making  "the  mechanism  of  industry" 
delicate?  When  once  we  are  aware  it  is  delicate  does  that  delicacy 
make  industry  more  speculative  ? 

Now  that  we  know  there  are  "fashionable  seasons"  does  the  presence 
of  such  seasons  make  industry  more  speculative  ? 
What  is  meant  by  the  industrial  cycle  ?    Does  it  make  industry  more 
or  less  speculative  ? 


472  INDUSTRIAL  SOCIETY 

20.  "The  pecuniary  organization  of  society  increases  the  industrial  insta- 
bility." Is  this  true  ?  Assume  it  to  be  true.  Show  that  as  a  matter 
of  logic  this  does  not  need  to  be  interpreted  as  a  final  judgment  to  the 
effect  that  the  pecuniary  organization  should  be  abandoned. 

21.  "The  railroad  and  the  bank  are  responsible  for  the  modern  industrial 
crisis."  Is  this  a  literal  or  a  figurative  statement  ?  Is  it  a  true  state- 
ment, in  either  case  ? 

22.  Should  you  expect  crises  to  be  more  acute  in  a  frontier  community  or 
in  a  well-settled  community  ?  In  a  new  or  in  an  old  country,  granted 
approximately  equal  industrial  development  ? 

23.  What  are  the  essential  characteristics  of  industry  in  flush  times? 
During  a  crisis  ?    During  a  depression  ? 

24.  It  has  been  said  that  our  society  is  sensitive  to  demand,  and  sensitive 
to  shock.  Why,  in  each  case?  What  bearing  does  this  have  on  the 
question  of  insecurity  of  capital  ?  Would  a  socialistic  society  be  sensi- 
tive to  demand  and  to  shock  ? 

25.  "The  economic  cycle  involves  the  whole  industrial  system.  No  simple 
device  will  arrest  the  violence  of  its  rhythm.  It  can  be  reached  only 
by  a  complex  of  many  complementary  measures.  We  must  learn  to 
control  the  introduction  of  new  technique;  the  demand  for  goods  must 
be  steadied;  we  must  develop  an  art  of  predicting  business  conditions; 
a  means  must  be  found  for  co-ordinating  recently  accumulated  capital 
and  opportunities  for  investment;  a  higher  sense  of  responsibility  in 
making  loans  must  be  felt  by  bankers;  a  feeling  of  responsibility  must 
be  engendered  in  the  promoter  and  means  must  be  devised  for  checking 
the  speculative  mania."  (a)  Explain  the  why  of  each  of  these  state- 
ments,    (b)  What  things,  if  any,  are  we  doing  along  these  lines  ? 

26.  Illustrate  risk  being  reduced  (1)  by  increasing  our  knowledge  of  the 
future;  (2)  by  employing  safeguards;  (3)  by  insurance;  (4)  by  specu- 
lative contracts;    (5)  by  social  control. 

27.  Is  it  possible  by  foresight  and  calculation  to  reduce  or  to  avoid  some 
of  the  risks  of  industry  ?    All  of  the  risks  of  industry  ? 

28.  Does  insurance  reduce  risks  or  does  it  transfer  risks  from  the  individual 
to  society  ?  Grant  that  it  does  only  the  latter,  is  the  function  socially 
justifiable  ?  Just  what  is  the  function  of  insurance  in  modern  industrial 
society  ? 

29.  Is  it  possible  to  insure  your  business  against  "negative"  profits  as  you 
do  against  fire  ?  Against  what  kinds  of  risk  can  you  insure  in  an  ordi- 
nary insurance  company  ? 

30.  A  certain  cotton  manufacturer  displays  great  ability  in  the  production 
of  cloth,  but  he  is  nevertheless  barely  able  to  keep  his  head  above  water, 
because  he  is  a  poor  judge  of  the  raw  cotton  market  and  is  more  likely 
than  not  to  buy  when  prices  are  inflated.  Show  how  he  could  liberate 
himself  from  the  consequences  of  this  defect  of  judgment. 


SPECULATIVE  INDUSTRY  473 

31.  Miller  A  always  covers  purchases  of  wheat  for  milling  by  correspond- 
ing short  sales.  Miller  B  boasts  that  he  is  no  speculator,  and 
refrains  entirely  from  transactions  on  the  exchange.  Whether 
prices  rise  or  fall,  A  is  insured  his  miller's  profit,  and  never  receives 
more.  If  prices  rise,  B  makes  a  profit  over  and  above  his  miller's 
profit.  When  prices  fall,  not  only  may  his  miller's  profit  be  wiped 
out,  but  he  may  incur  additional  losses.  Which  one  is  really  the 
speculator  ? 

32.  During  the  Civil  War  certain  wool  manufacturers  made  enormous 
profits  because  of  the  rise  in  price  of  raw  materials  which  they  had  on 
hand.  After  the  war  there  were  cases  where  these  profits  were  nearly 
wiped  out  by  losses  consequent  upon  the  fall  in  prices  of  raw  materials. 
Explain.     Could  the  loss  have  been  avoided  ? 

33.  Speculators  are  often  regarded  as  mere  gamblers.  If  the  whole  body 
of  speculators  were  to  cease  buying  and  selling  grain,  and  limited  them- 
selves to  betting  upon  the  course  of  prices,  would  the  work  of  commerce 
and  industry  be  carried  on  exactly  as  it  is  at  present  ? 

34.  "The  speculative  trader  of  the  board  of  trade  is  another  specialist." 
Is  this  true  ?     If  so,  in  what  does  he  specialize  ? 

35.  What  is  the  distinction  between  trade  profit  and  speculative  profit  in 
hedging  operations  ? 

36.  "The  board  of  trade  is  one  of  the  greatest  insurance  institutions  in 
existence."    Do  you  agree  ? 

37.  "Speculative  contracts  do  not  reduce  risks;  they  simply  pass  the  risks 
along,  and  society  must  face  as  many  and  as  great  risks  as  would  have 
been  the  case  if  no  such  device  as  speculative  contracts  had  arisen." 
Is  this  true  ? 

38.  Make  a  list  of  at  least  six  kinds  of  speculative  contracts. 

39.  "The  lack  of  a  well-co-ordinated  system  of  control  makes  industry 
resemble,  at  present,  a  mob  rather  than  an  army."  Upon  what  does 
society  depend  for  the  correlation  of  industrial  units  ?  Is  its  dependence 
well  placed?  What  bearing  has  this  question  upon  the  topic  "specu- 
lative industry"? 

40.  What  is  meant  by  referring  to  the  entrepreneur  as  a  risk-taker?  As 
an  insurance  agent  for  the  other  factors  of  production  ? 

41.  If  we  were  to  have  a  socialistic  society  would  risks  disappear? 

42.  Would  there  be  a  risk- taker  in  a  socialistic  society?  Would  there  be 
any  of  the  functions  of  modern  insurance  performed  ? 

43.  Is  our  society  really  more  speculative  than  that  of  the  Middle  Ages? 
If  so,  what  factors  have  made  it  so  ?  In  any  event,  what  are  the  indi- 
cations for  the  future  ? 

44.  Draw  up  as  long  a  list  as  you  can  of  the  various  devices  and  structures 
which  have  been  developed  as  a  result  of  the  speculative  character  of 
industrial  society. 


474  INDUSTRIAL  SOCIETY 

B.     The  Meaning  of  Speculation 
178.    SPECULATION1 

Now  speculation  is  an  all-embracing  word,  overworked,  threadbare, 
and  worn  to  the  bone.  Originally,  it  meant  "to  see,"  then  "to  view," 
"watch,"  "spy  out,"  then  "exploration"  or  "contemplation."  When 
thrift  came  into  the  language  and  men  ceased  burying  their  gold,  it 
began  to  take  on  a  new  meaning.  The  spirit  of  legitimate  adventure 
that  entered  men's  minds  when  the  Most  Christian  Kings  abandoned 
brute  force  and  repudiation,  led  men  to  buy  things  in  the  hope  of  selling 
them  at  a  profit.  It  was  risky  business  at  first,  and  capital  then  as  now 
was  timid.  The  High  Finance  of  the  Middle  Ages  was  not  easily  for- 
gotten. But  little  by  little  channels  through  which  enterprise  might 
flow  into  wealth  came  into  being,  and  confidence  came  with  them. 
This  was  called  speculation. 

By  the  time  Adam  Smith  wrote  his  Wealth  of  Nations  (1776)  the  word 
was  firmly  fixed  in  the  language.  "The  establishment  of  any  new 
manufacture,"  he  said,  "or  any  new  branch  of  commerce,  or  of  any 
new  practice  in  agriculture,  is  always  a  speculation  from  which  the  pro- 
jector promises  himself  extraordinary  profits."  How  the  early  channels 
of  speculation  broadened  into  great  rivers,  how  confidence  grew  as  the 
art  of  making  money  and  increasing  it  developed,  how  speculation  led 
to  the  opening  of  new  countries,  all  this  is  a  fascinating  story.  And 
yet  the  speculation  of  today  is  no  different  in  its  elementals  from  that 
of  the  early  Greeks:  the  same  spirit  of  "divine  unrest"  that  spurs  on 
the  philosopher  in  his  study  stimulates  the  explorer  of  strange  lands, 
beckons  on  the  engineer  and  the  builder  of  railways,  and  attracts  the 
capital  of  the  adventurous  investor.  We  cannot  stop  it  if  we  would, 
because  hope,  ambition,  and  avarice  are  fundamentals  of  human  nature. 
The  police  cannot  arrest  them;  they  are  fixed  and  immutable. 

If  there  is  more  speculation  in  material  things  today  than  there 
ever  was  before,  it  is  because  there  are  more  things  to  speculate  in,  more 
money  to  speculate  with,  more  people  to  speculate,  and  more  machinery, 
like  telephones  and  telegraphs,  to  facilitate  speculation.  Capital,  credit, 
and  new  undertakings  grow  day  by  day  and  open  new  avenues  of  possible 
profit.  The  per  capita  wealth  of  nations,  growing  by  what  it  feeds  on, 
constantly  seeks  new  fields  for  enterprise  and  adventure.  The  intelli- 
gence of  the  people  increases  by  leaps  and  bounds,  and  goes  peering 

1  Adapted  by  permission  from  W.  C.  Van  Antwerp,  The  Stock  Exchange  from 
Within,  pp.  36-39.     (Doubleday,  Page  &  Co.,  1913.) 


SPECULATIVE  INDUSTRY  475 

curiously  into  all  the  little  nooks  and  crannies  of  the  world  for  oppor- 
tunities of  gain — the  apotheosis  of  speculative  enterprise. 

All  forms  of  human  endeavor  in  material  things  are,  or  were  at  their 
beginning,  speculation.  Every  ship  that  goes  to  sea  carries  with  it  a 
speculation  and  leaves  another  one  behind  it  at  Lloyds.  Every  man 
who  insures  his  life  or  his  house  buys  a  speculation,  and  every  com- 
pany that  insures  him  sells  one.  The  farmer  speculates  when  he  ferti- 
lizes his  land,  again  when  he  plants  his  seed,  and  again  when  he  sells  his 
crop  for  future  delivery,  as  he  often  does,  before  it  is  planted  or  before 
it  has  matured.  The  merchant  contracts  to  fill  his  shelves  long  before 
spring  arrives;  he  is  speculating.  The  manufacturer  sells  to  him, 
speculating  on  the  hope  or  belief  that  he  will  be  able  to  buy  the  necessary 
raw  material,  and  again  on  the  labor,  the  looms,  and  the  spindles  neces- 
sary to  make  the  delivery.  In  the  South  the  grower  of  cotton  and  in 
Australia  the  grower  of  wool  are  likewise  speculating  on  the  probability 
of  a  crop  and  on  the  price  at  which  they  may  sell  to  this  manufacturer. 
It  sounds  like  "This  is  the  house  that  Jack  built"  and  its  endless  chain 
of  sequences;  a  chain,  indeed,  and  one  no  stronger  than  its  weakest  link. 
Interfere  with  any  part  of  it,  and  the  whole  commercial  structure  which 
it  binds  together  must  fall  apart.  The  grower,  the  manufacturer,  and 
the  merchant  must  speculate. 

179.    COMMERCIAL  SPECULATION1 

Commercial  speculation  is  sometimes  analogous  to  insurance  and 
sometimes  to  gambling.  In  the  former  case  it  is  said  to  be  legitimate, 
in  the  latter  it  is  said  to  be  illegitimate.  But  the  legitimate  and  illegiti- 
mate transactions  are  so  much  alike  in  their  form,  and  so  inextricably 
mingled  in  practice,  that  it  is  often  extremely  hard  to  draw  the  line 
between  them. 

A  large  speculative  element  is  involved  in  trade  of  every  kind.  The 
trader  seeks  to  buy  articles  at  as  low  a  price  as  he  can  and  to  sell  them 
at  a  higher  price.  He  may  do  this  either  by  buying  them  in  a  market 
where  they  are  cheap  and  selling  them  in  a  market  where  they  are 
dearer;  or  by  buying  them  at  a  time  when  they  are  cheap  and  selling 
them  at  a  time  when  they  are  dearer.  The  difference  between  his  buying 
and  selling  prices  represents  his  profit  on  the  transaction.  The  uncer- 
tainty attaching  to  the  amount  of  such  profit  makes  the  operation  a 
speculative  one.    There  is  a  serious  risk  of  loss,  which  the  trader 

1  Adapted  by  permission  from  A.  T.  Hadley,  Economics,  pp.  100-111.  (G.  P. 
Putnam's  Sons,  1899.) 


476  INDUSTRIAL  SOCIETY 

assumes  for  the  sake  of  a  possible  gain.  Unless  we  can  prove  that  the 
gains  are  honestly  earned  by  some  service  to  society,  we  shall  be  forced 
to  regard  them  as  little  better  than  book-makers'  profits. 

Those  who  hold  the  commercial  theory  of  value  believe  that  trade 
renders  a  service  to  society,  independent  of  the  labor  of  distribution, 
and  that  this  service  is  of  essentially  the  same  character  whether  the  sale 
be  made  in  a  different  market  or  in  the  same  market.  They  hold  that 
the  work  of  the  trader,  in  acquiring  goods  when  they  are  cheap  and 
parting  with  them  when  they  are  dear,  results  in  an  increase  of  their 
utility  to  the  public.  If  an  article  is  unusually  cheap,  it  means  that  the 
supply  is  unusually  great  and  the  utility  of  additions  to  the  supply  less 
than  it  ordinarily  is.  If  it  is  unusually  dear,  it  means  that  the  supply  is 
unusually  small,  and  the  utility  of  additions  to  the  supply  greater 
than  it  ordinarily  is. 

Down  to  the  present  century,  a  large  part  of  the  speculative  profits 
were  made  by  taking  advantage  of  differences  of  price  in  different  places 
— chiefly  in  connection  with  foreign  trade.  The  means  of  communica- 
tion and  transport  were  so  defective  that  there  was  often  a  great  scarcity 
of  an  article  in  one  region  and  an  abundance  of  the  same  article  in 
another.  The  shipowners  who  moved  the  article  from  the  latter  place 
to  the  former  had  a  chance  of  enormous  profits.  But  the  business 
was  also  attended  by  great  risk.  Transportation  was  far  less  safe,  either 
from  the  elements  or  from  human  violence,  than  it  is  today.  There 
was  no  telegraph,  no  good  postal  service,  no  efficient  protection  from 
pirates  by  sea  or  highway  robbers  by  land.  All  these  causes  combined 
to  render  the  arrival  of  goods  so  uncertain  that  the  very  wages  of  the 
seamen  were  made  contingent  upon  the  safe  delivery  of  the  cargo,  and 
the  whole  body  of  sailors  thus  became  participants  in  the  speculation. 

The  nineteenth  century  has  witnessed  a  change  in  these  respects. 
Improved  means  of  communication  have  greatly  lessened  the  differences 
in  price  in  different  markets.  It  is  no  longer  possible  to  have  a  glut  of 
wheat  in  Chicago  and  a  scarcity  in  Liverpool.  The  modern  post-office 
and  the  telegraph  furnish  prompt  information  of  what  is  going  on  all 
over  the  world  and  enable  merchants  to  know  where  goods  are  most 
needed.  The  steamship  and  the  railroad  furnish  a  quick  and  safe 
means  of  placing  the  goods  where  they  will  meet  such  needs  as  may  arise. 
The  difference  of  price  of  any  staple  article  in  two  large  wholesale 
markets  will  not  generally  be  much  greater  than  the  cost  of  transporta- 
tion from  one  to  the  other.  So  moderate  have  the  profits  from  this 
source  become  that  the  business  of  those  who  try  to  secure  them  is  now 


SPECULATIVE  INDUSTRY  477 

known  as  arbitrage  rather  than  speculation.  Only  in  the  trade  with 
barbarous  or  half-civilized  races  does  foreign  commerce  retain  its  char- 
acter as  an  extra-hazardous  business. 

The  speculator  of  today  makes  his  money  chiefly  by  taking  advan- 
tage of  differences  of  price  between  different  times  rather  than  between 
different  markets.  It  is  not  so  much  the  difference  in  the  price  of  wheat 
in  Chicago  and  in  Liverpool  which  furnishes  the  source  of  his  profits,  as 
the  difference  between  its  price  in  Chicago  this  month  and  next  month. 

When  such  speculation  anticipates  an  actual  demand,  it  is  of  great 
service  to  the  community.  The  long  time  which  elapses  between  pro- 
duction and  consumption,  between  contracts  and  their  fulfilment, 
makes  it  extremely  important  to  have  responsible  men  to  anticipate 
the  wants  of  the  market  and  take  the  risks  on  their  own  shoulders.  If 
I  wish  to  build  a  house,  I  ask  a  builder  to  give  me  an  estimate  of  the 
cost.  He  in  turn  goes  to  dealers  in  lumber  and  other  materials  and 
asks  them  to  tell  at  what  price  they  will  deliver  him  the  goods  when  he 
wants  them.  In  this  way  he  knows  approximately  what  it  will  cost 
to  build  the  house.  The  lumber  dealer  probably  contracts  to  deliver 
lumber  which  is  not  now  in  his  possession.  But  if  he  understands  his 
business  he  knows  more  accurately  than  anyone  else  what  its  future 
price  is  likely  to  be.  He  habitually  makes  his  profit  by  his  superior 
knowledge;  but  this  profit  is  far  less  than  the  loss  which  would  be 
involved  if  every  builder  at  the  time  of  making  a  contract  had  to  buy 
all  the  lumber  he  was  going  to  want  six  months  hence,  leaving  his 
capital  (and  the  community's  capital)  unproductive  for  that  length  of 
time,  besides  being  subject  to  the  dangers  of  loss  by  fire. 

Nor  does  this  case  illustrate  the  full  measure  of  service  which 
legitimate  speculation  is  able  to  render  the  community.  Suppose 
that  the  cotton  crop  of  this  year  is  an  unusually  small  one.  The  price 
will  go  up,  the  amount  of  manufacture  lessen.  But  the  cotton 
brokers  foresee  that  next  year's  crop  will  be  larger.  They  therefore 
contract  to  make  future  deliveries  at  lower  rates.  The  manufacturers 
do  not  need  to  buy  raw  material  in  advance  of  their  actual  wants. 
They  use  up  the  old  stock  just  as  the  new  crop  comes  in;  and  the 
mercantile  community  gradually  accumulates  other  reserves  from 
this  large  crop  which  may  become  available  for  use  in  a  year  of 
scarcity.  The  effect  of  such  speculation  is  to  equalize  the  supply  of 
cotton  in  different  years,  and  to  render  its  price  comparatively  steady. 
More  steady  price  makes  larger  consumption  and  manufacture  for 
consumption;    it   therefore   tends   to   increase   the   total   quantity 


47$  INDUSTRIAL  SOCIETY 

demanded  and  to  benefit  producers  also.  If  we  compare  the  prices 
of  the  present  day  with  those  prior  to  the  development  of  speculative 
activity,  we  find  that  the  margin  between  the  amounts  paid  to  pro- 
ducers and  those  charged  to  consumers  is  much  narrower  now  than 
it  was  before.  Part  of  this  difference  is  due  to  cheap  transporta- 
tion; but  a  part  is  due  to  the  action  of  speculators  in  minimizing 
the  effect  of  variations  in  production  upon  prices  paid  to  the 
producer. 

This  is  the  effect  of  legitimate  speculation — anticipating  move- 
ments of  supply  and  demand  and  taking  fair  risks.  Unfortunately 
there  is  a  mass  of  speculation  which  is  not  legitimate — which  is  either 
pure  gambling  or  something  worse.  If  a  man  goes  into  the  purchase 
of  grain  or  cotton  not  because  he  foresees  that  it  will  be  wanted,  but 
for  the  excitement  of  the  wager,  he  is  doing  the  same  kind  of  business 
as  the  man  who  bets  on  a  horse  race  or  on  cards.  The  amount  of  these 
gambling  transactions  veiled  under  the  forms  of  commerce  has  become 
very  large.  In  many  cases  it  has  assumed  the  proportions  of  a  public 
evil. 

The  difference  between  legitimate  speculation  and  gambling  lies 
neither  in  the  subject-matter  nor  in  the  form  of  the  transaction,  but  in 
its  intent  and  purpose.  Legitimate  speculation  involves  anticipation 
of  the  needs  of  the  market  and  a  power  to  assume  risks  in  making 
contracts  to  meet  these  needs.  A  failure  to  fulfil  either  of  these 
requirements  makes  the  operation  an  undesirable  one  for  the  public 
to  tolerate.  If  a  man,  instead  of  anticipating  the  needs  of  the  market, 
attempts  to  manipulate  that  market  by  combinations  and  corners, 
any  gain  that  he  makes  is  usually  at  the  expense  of  the  public.  A 
stricter  enforcement  of  laws  with  regard  to  conspiracy,  and,  what  is 
more  to  the  purpose,  a  better  understanding  by  the  business  commu- 
nity of  the  distinction  between  what  is  good  and  bad  public  policy  in 
the  matter,  would  do  a  great  deal  to  remedy  some  of  the  worst  evils 
with  which  speculation  is  attended.  Of  even  more  importance  is  the 
requirement  that  a  speculator  should  actually  take  the  risks  which  he 
pretends  to  take.  He  should  speculate  with  his  own  capital  and  not 
with  other  people's.  If  a  man  speculates  with  his  own  capital  the 
transaction  is  likely  to  be  a  legitimate  one;  if  he  speculates  with  the 
capital  of  the  community  it  is  almost  always  pure  gambling,  whether 
he  intends  it  to  be  so  or  not. 


See  also  93.     Is  Exchange  Productive  ? 


SPECULATIVE  INDUSTRY  479 

180.     INDUSTRIAL  SPECULATION1 

It  is  not  only  in  commercial  matters  but  also  in  industrial  ones 
that  the  speculator  exercises  a  dominant  influence.  He  controls 
production  as  well  as  trade.  What  the  merchant  does  when  he 
buys  products  in  the  hope  of  selling  them  at  an  advanced  price,  the 
manufacturer  is  doing  when  he  buys  labor  in  the  hope  of  selling  the 
results  of  that  labor  at  a  profit.  The  whole  wage  system  is  one  under 
which  the  employers  of  the  country  part  with  property  rights  today 
in  the  hope  of  securing  larger  property  rights  in  the  future.  Part  of 
their  prosperity  arises  from  skill  in  organizing  labor;  part,  and  usually 
a  larger  part,  arises  from  skill  in  foreseeing  the  wants  of  the  market. 
The  success  or  failure  of  a  man  engaged  in  manufacturing,  in  trans- 
portation, or  in  agriculture  depends  more  upon  his  skill  as  a  prophet 
than  upon  his  industry  as  a  producer.  The  industrial  development 
of  the  last  three  or  four  hundred  years,  rightly  interpreted,  is  an 
account  of  the  reasons  which  have  led  society  to  put  the  control  of  its 
industry  into  the  hands  of  a  body  of  speculative  investors. 

All  productive  industry  involves  a  certain  amount  of  risk.  When- 
ever time  elapses  between  the  application  of  labor  and  the  completion 
of  the  product  of  labor  in  a  form  available  for  actual  enjoyment, 
there  is  an  advance  of  capital  to  the  producers  for  the  sake  of  a  remote 
and  generally  somewhat  unknown  result.  In  the  building  of  a  factory 
or  a  railroad  a  great  deal  of  food  is  consumed.  Whether  the  product 
of  the  labor  thus  applied  will  be  as  useful  to  the  community  as  the 
food  which  was  consumed  by  those  who  have  produced  it,  is  always 
somewhat  uncertain.  The  more  remote  the  consumers  in  time  or 
place,  the  greater  is  the  uncertainty  and  the  more  speculative  the 
whole  transaction. 

Especially  prominent  does  this  uncertainty  become  in  the  applica- 
tion of  any  new  process  or  the  development  of  any  new  locality. 
Under  old  conditions,  experience  has  proved  what  products  are 
wanted  and  how  labor  can  be  economically  applied;  but  every  new 
invention  or  new  settlement  involves  a  multitude  of  new  and  unknown 
conditions.  A  large  proportion  of  the  capital  embarked  in  such 
enterprises  is  lost.  A  large  proportion  of  the  food  consumed  by  the 
laborers  engaged  in  such  undertakings  is  virtually  wasted. 

Are  we  then  to  forego  all  chance  of  such  progress  ?  No.  The  gain 
to  the  community  as  a  whole  from  one  successful  experiment  may 

1  Adapted  by  permission  from  A.  T.  Hadley,  Economics,  pp.  11 2-15.  (G.  P. 
Putnam's  Sons,  1899.) 


480  INDUSTRIAL  SOCIETY 

outweigh  the  loss  from  ten  unsuccessful  ones.  The  conservative 
nation  that  never  changes  its  methods  avoids  a  great  many  losses, 
but  it  fails  to  make  the  conspicuous  gains  which  constitute  modern 
industrial  civilization.  The  problem  of  industrial  growth  can  be 
solved  only  by  encouraging  enough  experiments  to  secure  progress 
without  encouraging  so  many  as  to  destroy  the  whole  accumulated 
capital  of  the  community.  We  have  tried  to  accomplish  the  former 
object  by  giving  individual  possessors  of  capital  the  chance  of  realiz- 
ing large  profits  in  case  of  success,  and  to  protect  ourselves  against 
the  latter  danger  by  insisting,  at  least  in  theory,  that  a  man  shall  make 
these  experiments  at  his  own  expense.  If  everybody  were  free  to 
undertake  them  whether  he  had  proved  his  fitness  by  accumulating 
private  capital  or  not,  the  food  supply  of  the  community  would  prob- 
ably soon  run  short.  If  nobody  were  to  be  allowed  to  make  them  until 
the  whole  community  was  ready  to  vote  for  their  adoption,  they  would 
be  indefinitely  delayed.  By  leaving  it  to  the  option  of  the  individual 
property-holder  to  undertake  them  or  not  as  he  pleases,  society  secures 
most  of  the  gain  and  avoids  most  of  the  loss.  It  allows  him  to  waste 
part  of  the  capital  of  the  community  in  unsuccessful  experiments, 
believing  that  his  example  will  be  a  warning  to  prevent  others  from 
following  in  his  track,  and  that  the  immediate  loss  to  the  community 
may  become  a  means  of  future  gain.  It  guarantees  him  the  good 
results  from  the  successful  experiments,  trusting  that  competition 
will  subsequently  prevent  his  profits  from  being  too  large. 

See  also  199.    The  Entrepreneur  as  a  Risk-Taker. 
327.     Functions  of  the  Entrepreneur. 

C.     Risks  of  Modern  Industrial  Society 
181.    CLASSES  OF  RISK1 

All  risks  may  be  divided  into  static  risks  and  dynamic  risks. 
Static  risks  are  those  risks  which  would  be  found  in  a  stationary  state 
of  society.  Among  them  are  those  due  to  natural  causes,  such  as 
damage  by  lightning,  hail,  earthquake,  storms,  disease,  and  many 
others.  Risks  arising  from  ignorance  are  a  large  class,  which  includes 
many  fires,  bankruptcies,  sicknesses,  accidents,  early  deaths,  and 
failures  in  business  from  misdirected  effort.  Carelessness  is  closely 
akin  to  ignorance  as  a  cause  of  damage.    Lack  of  moral  character 

1  Taken  by  permission  from  John  Haynes,  "Risk  as  an  Economic  Factor," 
Quarterly  Journal  of  Economics,  IX  (1894-95),  412-14. 


SPECULATIVE  INDUSTRY  481 

gives  rise  to  a  class  of  risks  known  by  insurance  men  as  moral  hazards. 
The  most  familiar  example  of  this  class  of  risks  is  the  danger  of  incendi- 
ary fires.  Dishonest  failures,  bad  debts,  etc.,  would  fall  in  this  class, 
as  well  as  all  forms  of  danger  from  the  criminal  classes.  When  these 
risks  are  spoken  of  as  static,  it  is  not  meant  that  dynamic  changes 
cannot  modify  them.  Such  is  not  the  case.  The  invention  of  the 
electric  light  was  a  dynamic  change  which  has  modified  the  danger  of 
damage  by  fire.  Nevertheless,  we  may  legitimately  use  the  word 
"static"  because,  even  in  a  stationary  state  of  society,  we  should 
expect  risks  of  the  same  essential  kind.  The  amount  of  loss  coming 
from  static  risks  is  incapable  of  calculation,  but  is  certainly  very 
great.  The  losses  direct  and  indirect  by  fire  alone  are  estimated 
by  Mr.  Edward  Atkinson  at  $250,000,000  for  the  United  States  in 
1893. 

Other  risks  may  be  called  dynamic,  because  they  are  risks  of 
damage  which  may  be  directly  due  to  dynamic  changes.  These  are 
chiefly  of  two  kinds,  the  first  being  changes  in  the  wants  of  society. 
As  civilization  advances,  human  desires  are  subject  to  constant  modi- 
fication and  to  sudden  changes  in  amount  and  direction.  Changes 
of  style  which  cannot  be  foreseen  by  producers  are  an  example  of 
changes  in  the  wants  of  society.  A  stock  of  men's  hats  which  is  salable 
today  will,  perhaps,  be  utterly  without  a  market  next  year.  A 
dealer  who  has  an  overstock  is  subject  to  heavy  loss. 

In  the  second  place,  changes  in  methods  of  production  give  rise 
to  losses  which  may  be  subdivided  into  two  classes.  The  first  are 
the  losses  which  fall  upon  those  who  are  attempting  to  introduce  new 
processes.  "The  uncertainties,"  says  Professor  Clark,  "that  attend 
the  introduction  of  a  new  process  are  dynamic,  since  they  would 
have  no  existence  if  industry  were  to  continue  in  a  stationary  state. 
There  is  the  chance  that  the  process  may  be  mechanically  defective. 
It  may  not  create  the  desired  commodity  as  the  projector  of  the 
enterprise  expects.  If,  on  the  other  hand,  the  dynamic  change  con- 
sists in  offering  some  new  commodity  for  the  comfort  and  pleasure 
of  consumers,  the  public  may  fail  to  give  the  expected  welcome." 

The  second  are  losses  which  fall  upon  producers  in  consequence 
of  the  introduction  of  improved  processes  by  others.  There  is  con- 
stant danger  that  an  innovation  or  an  improvement  of  some  kind  will 
destroy  the  value  of  property  in  which  a  great  amount  of  capital  has 
been  invested.  Losses  of  this  kind  differ  from  those  of  which  Pro- 
fessor Clark  speaks,  in  that,  while  causing  a  loss  to  individuals,  they 


482  INDUSTRIAL  SOCIETY 

bring  a  social  gain.  The  wealth  directed  to  the  unsuccessful  venture 
might  have  been  employed  in  lines  of  static  activity;  but,  by  being 
diverted,  it  is  lost,  not  only  to  its  owner,  but  to  society  as  well.  In 
the  second  case,  though  society  is  a  gainer  by  the  improvement,  indi- 
viduals are  large  losers.  Losses  of  this  kind  have  been  exceedingly 
common  in  recent  years.  A  notable  case  was  the  destruction  of 
capital  incident  to  the  opening  of  the  Suez  Canal.  The  ships,  mainly 
sailing  vessels,  which  went  around  the  Cape  of  Good  Hope  and  carried 
the  products  of  India,  were  not  adapted  to  the  canal,  and  an  amount 
of  shipping  estimated  at  two  million  tons  was  rendered  practically 
valueless.  Several  years  ago  it  was  discovered  that  worsted  goods 
soon  became  glossy,  and  that  by  an  improved  method  this  defect 
could  be  remedied.  The  Bradford  manufacturers  of  worsted  were 
unwilling  to  incur  the  great  expense  of  changing  their  method.  The 
French  quickly  made  the  change,  and  secured  most  of  the  market. 
The  English  made  the  change  too  late  to  save  their  trade.  In  this 
country  a  large  manufactory  made  the  change  at  once  at  a  cost  of 
three-quarters  of  a  million  dollars.  It  is  clear  that  the  total  amount 
of  dynamic  losses  must  be  very  great. 


See  also  174.     Simple  versus  Complex  Industry. 

182.    INFLUENCES  THAT  DISTURB  THE  STATIC 
EQUILIBRIUM1 

It  might  seem  that  the  influences  that  disturb  such  a  static  equi- 
librium are  too  numerous  to  be  described;  and  yet  these  changes  may 
be  classed  under  five  general  types: 

1.  Growth  of  population. — The  supply  of  labor  is  increasing,  and 
this  fact  of  itself  calls  for  continual  readjustment  of  the  group 
system. 

2.  Increase  of  capital. — The  amount  of  capital  is  increasing, 
and  this  change  also  disturbs  the  static  equilibrium  and  calls  for  a 
rearrangement. 

3.  Changes  of  method. — Changes  take  place  in  the  methods  of 
production.  New  processes  are  devised,  improved  machines  are 
invented,  cheap  motive  powers  are  utilized,  and  cheap  and  available 
raw  materials  are  discovered,  and  these  changes  continually  disturb 

1  Adapted  by  permission  from  J.  B.  Clark,  Essentials  of  Economic  Theory, 
pp.  203-6.     (The  Macmillan  Co.,  1907.) 


SPECULATIVE  INDUSTRY  483 

the  static  state.  There  are  certain  to  be  improvements  on  the  older 
methods  of  production,  for  a  law  of  the  survival  of  the  fittest  insures 
this. 

4.  Changes  in  organization. — There  are  changes  in  the  mode  of 
organizing  the  establishments  in  which  commodities  are  produced, 
and  so  far  as  these  occur  under  a  regime  of  active  competition  they 
also  are  improvements  and  give  added  power  of  production.  The 
mills  and  shops  become  larger  and  relatively  fewer.  There  is  a  great 
centralizing  movement  going  on,  since  the  large  shop  undersells  and 
suppresses  the  smaller  one,  and  combinations  unite  many  great  shops 
under  one  management. 

5.  Changes  in  consumers'  wants. — The  wants  of  consumers  are 
changing.  They  are  growing  more  numerous  as  well  as  more  refined 
and  intellectual.  This  expansion  of  desires  follows  the  general 
increase  of  productive  power,  since  everyone  already  wants  some 
things  that  he  cannot  procure,  and  all  society  has  a  fringe  of  ungrati- 
fied  wants  just  beyond  the  limit  of  actual  gratification.  Even  if  all 
these  wants  that  are  now  near  the  point  of  actual  satisfaction  were 
to  be  satisfied,  the  desires  would  at  once  project  themselves  farther. 
The  mere  increase  in  earning  power  without  any  special  education 
enlarges  the  want  scale,  but  intellectual  and  moral  growth  co-operates 
with  it  in  that  direction  and  calls  latent  wants  into  an  active  state , 
More  and  more  eagerly  do  men  seek  things  for  which  the  desire  was 
formerly  dormant.  Changes  of  this  kind  affect  values,  cause  labor 
and  capital  to  move  from  group  to  group,  and  thus  cause  society  as  a 
whole  to  produce  less  of  some  things  and  more  of  others.  They 
sometimes  cause  wholly  new  groups  to  appear,  and  draw  workers  and 
equipment  from  the  old  ones. 


See  also  209.    Changes  of  Industrial  Structure  and  Unemployment. 

183.    CLASSIFICATION  OF  PRICE  INFLUENCES1 

[Note. — Ours  is  a  pecuniary  society.  Industry  is  conducted  on 
a  price  basis.  This  selection  shows  how  numerous  are  the  risks  of  the 
business  man,  no  other  factor  than  change  of  price  being  considered.] 

We  may  now  fitly  review  the  theory  of  prices  by  enumerating  the 
various  possible  causes  which  might  decrease  the  price  of,  let  us  say, 

1  Taken  by  permission  from  Irving  Fisher,  Elementary  Principles  of  Economics, 
pp.  408-9.     (The  Macmillan  Co.,  191 2.) 


484  INDUSTRIAL  SOCIETY 

pig  iron  in  New  York.     Its  price  might  fall  for  any  one  or  more  of  the 
following  reasons: 

I.  A  rise  in  the  marginal  desirability  of  money  due  either  to — 

A.  A  rise  in  the  purchasing  power  of  money  through 

1.  A  decrease  in  money  or  deposit  currency,  or 

2.  A  decrease  in  their  velocities,  or 

3.  An  increase  in  the  volume  of  trade;  or  to 

B.  An  impoverishment  or  reduction  of  incomes. 

II.  A  fall  in  the  marginal  desirability  of  pig  iron  due  either  to — 

A.  An  increase  in  the  amount  of  pig  iron  used,  through 

1.  Importation  of  pig  iron  from  other  places  where  its  price  is 
lower  than  in  New  York,  or 

2.  Short  sales  of  pig  iron  for  future  delivery  in  expectation  of  a 
fall  of  price,  thus  releasing  to  present  use  such  stocks  as 
would  otherwise  be  held  over  for  the  future,  or 

3.  A  decrease  in  its  cost  by 

a)  A  saving  of  waste, 

b)  A  saving  of  labor, 

c)  A  decrease  in  the  price  of  iron  ore  or  other  prices  enter- 
ing into  its  cost, 

d)  An  increase  in  the  price  of  by-products,  or 

4.  A  trade  war;  or  to — 

B.  A  fall  in  the  marginal  desirability  of  a  given  quantity  of  pig 
iron,  through — 

1.  A  decrease  in  the  price  of  iron  products  through  decrease  in 
marginal  desirability  of  the  satisfactions  they  yield,  be- 
cause of 

a)  An  increase  in  their  amount, 

b)  A  change  in  fashion,  etc.,  or 

2.  An  increase  in  substitutes  for  pig  iron,  or 

3.  A  decrease  in  complementary  articles,  or 

4.  An  increase  in  the  rate  of  interest  whereby  the  value  of  pig 
iron  is  obtained  (by  discounting  the  value  of  iron  products) 
through  an  increase  in  the  marginal  rates  of  impatience, 
a)  From  a  change  in  human  nature 

(1)  By  decreasing  foresight, 

(2)  By  decreasing  self-control, 

(3)  By  increasing  shiftless  habits, 

(4)  By  decreasing  regard  for  posterity,  or 


SPECULATIVE  INDUSTRY  485 

b)  From  a  change  in  incomes 

(1)  By  shifting  their  distribution  in  time  toward  the 
future, 

(2)  By  reducing  their  size, 

(3)  By  increasing  their  uncertainties. 

Back  of  these  causes  lie  other  causes,  multiplying  endlessly  as  we 
proceed  backward.  But  if  we  trace  back  all  of  these  causes  to  their 
utmost  limits,  they  will  all  resolve  themselves  into  changes  in  the 
marginal  desirability  or  undesirability  of  satisfactions  and  of  efforts, 
respectively,  at  different  points  of  time,  and  in  the  marginal  rate 
of  impatience  as  between  any  one  year  and  the  next. 


See  also  153.     Interdependence  of  Prices. 

184.     CHANCE1 

We  all  employ  the  word  "chance"  and  imagine  we  mean  something 
by  it.  The  most  ardent  naturalist,  insisting  most  stoutly  on  the  reign 
of  law,  cannot  altogether  cleanse  his  mouth  of  the  word.  It  and  its 
compeers  play  an  important  part  in  life.  Chance,  luck,  casualty, 
happenings,  accident — take  these  and  kindred  words  from  our  speech, 
and  we  should  not  easily  communicate  with  one  another.  Since  these 
words  maintain  a  persistent  life  through  all  the  advance  of  science, 
they  must  have  some  use  and  point  to  something  about  which  we  often 
need  to  speak. 

What  that  something  is,  is  plain  enough,  it  may  be  said.  "Chance" 
means  uncertainty;  not  uncertainty  in  the  frame  of  things,  but  uncer- 
tainty in  the  beholding  mind.  That  is  all.  "Chance"  is  a  negative 
term.  It  announces  the  absence  of  knowledge  and  is  a  way  of  stating 
ignorance.  When  we  cannot  trace  the  causative  connections  which 
have  brought  an  event  about,  we  say  it  was  due  to  chance.  Such  a 
word  furnishes  a  convenient  label  for  marking  occurrences  as  still 
dark.  Not  detecting  the  tie  between  A  and  B,  we  say  B  follows  A  by 
chance,  meaning  merely  that  there  is  uncertainty  there.  This  uncer- 
tainty it  would  be  ridiculous  to  suppose  exists  in  the  order  of  things, 
but  it  is  far  from  ridiculous  to  say  that  I  can  discover  no  bond.  By 
chance  then  I  indicate  nothing  of  a  positive  kind,  but  merely  state 
that  as  yet  I  have  no  full  acquaintance  with  A,  B,  and  their  con- 
nections. 

1  Adapted  by  permission  from  G.  H.  Palmer,  The  Problem  of  Freedom, 
pp.  131-39.     (Houghton  Mifflin  Co.,  1911.) 


486  INDUSTRIAL  SOCIETY 

A  few  instances  will  set  forth  this  frequent  meaning  of  chance.  I 
shake  my  dice-box,  and  say  it  is  all  chance  how  the  dice  will  fall. 
Nobody  understands  that  in  the  brief  space  between  box  and  table 
causal  agency  is  suspended,  nothing  obliging  one  of  the  dice  to  turn 
up  the  number  six.  I  certainly  never  intended  such  a  notion,  rather 
this:  it  is  impossible  so  precisely  to  reckon  the  forces  which  steer  that 
bit  of  ivory  that  we  can  forecast  the  number  which  will  finally  appear. 
Such  minuteness  of  knowledge  implies  a  delicacy  in  observing  the 
complex  play  of  forces  about  those  little  objects  which  nobody  today 
possesses;  and  though  I  can  make  a  fairly  accurate  guess  as  to  the 
frequency  with  which  the  number  six  will  turn  up,  this  will  not  at  all 
hinder  my  attributing  the  result  to  chance;  for  I  still  wish  to  mark 
the  fact  that  I  know  nothing  of  the  way  in  which  laws  of  gravitation 
have  been  attacking  the  different  sides  of  the  cube. 

Is  this  the  only  meaning  of  chance,  or  is  chance  also  objective? 
I  believe  it  is  objective.  This  world  is  not  altogether  an  orderly 
affair.  I  hold  that,  apart  from  our  defective  knowledge,  there  are 
uncertainties  in  the  nature  of  things.  In  offering  a  doctrine  so  un- 
fashionable I  had  probably  better  state  at  once  a  case  where  chance 
can  be  seen  to  be  present  and  then  examine  critically  how  far  such 
chance  conflicts  with  the  reign  of  law. 

Suppose  I  am  throwing  stones  at  a  mark.  Each  stone  I  hurl  as 
vigorously  as  possible  and  all  in  the  same  direction.  As  I  throw 
the  last  one  a  bird  flies  across;  and  the  stone,  instead  of  moving  unim- 
peded to  its  mark,  collides  with  him.  He  is  killed.  What  killed 
him  ?  Chance;  his  death  was  due  to  accident.  Of  course  this  does 
not  mean  that  there  was  no  causal  sequence  attending  the  death  and 
that  his  existence  ceased  of  itself.  Everybody  knows  it  was  the  stone's 
blow  that  killed  him  and  that  it  would  kill  any  similar  bird  in  similar 
circumstances.  On  that  point  there  is  no  dispute.  Sequential  causes 
were  at  work  and  without  them  the  bird  would  not  have  died.  Where 
then  is  the  chance  ?  It  is  found  in  the  concurrence  of  the  flight  of  the 
bird  and  the  flight  of  the  stone.  What  induced  that  ?  The  bird  was 
propelled  to  that  particular  spot  through  a  long  series  of  sequential 
agencies.  He  is  an  instinctive  creature,  operated,  we  will  suppose, 
entirely  by  reflex  action,  which  inevitably  brought  him  to  this  place. 
In  a  similar  fashion  the  stone  was  projected  from  me  sequentially.  It 
is  true  I  was  conscious  of  the  process,  even  had  in  mind  the  ideal  of 
reaching  a  certain  mark.  But,  after  all,  I  was  obliged  to  use  causal 
agencies,  sequential  agencies,  to  effect  my  purpose,  and  there  stretched 


SPECULATIVE  INDUSTRY  487 

behind  my  action  a  long  series  of  such  agencies,  inducing  me  at  just 
that  moment  to  think  of  throwing  the  stone.  I  threw,  and  it  reached 
a  certain  point  in  the  air  at  just  the  moment  the  bird  also  reached 
that  point.  But  what,  I  repeat,  caused  that  "  also  "  ?  What  brought 
about  that  co-ordination  of  the  one  sequential  series  with  the  other  ? 
The  two  lines  of  sequence  intersect.  For  each  of  the  two  the  causa- 
tion is  complete  and  evident;  it  is  sequential  causation,  fixed,  invari- 
able, each  line  secured  by  its  past  and  capable  of  only  a  single  issue  in 
the  future.  We  do  not  inquire  therefore  what  induced  these  lines  of 
sequence.  But  there  is  a  something  more.  What  induced  their 
intersection  ?     Can  any  sequential  cause  explain  that  ? 

For  such  coincidences  we  do  well,  I  believe,  to  say  there  is  no  proper 
cause,  that  they  are  affairs  of  chance,  luck,  or  accident;  for  these 
terms  by  no  means  exclude  sequential  causation  moving  in  straight 
lines.  They  merely  note  the  absence  of  those  antesequential  terms 
by  which  combinations  are  effected.  Chance  might  be  defined  as 
planless  concurrence;  and  when  it  is  so  defined,  we  discover  it  all 
around  us,  in  great  things  and  in  small.  It  was  an  accident  that  the 
winter  was  exceptionally  severe  after  the  landing  on  our  shore  of  the 
Pilgrim  Fathers;  that  the  tower  of  Siloam  fell  on  those  particular 
persons;  that  the  partridge  flew  past  me  when  I  did  not  have  my  gun. 
The  liberties  of  England  are  largely  due  to  chance  in  the  storm  which 
arose  soon  after  the  sailing  of  the  Spanish  Armada.  For  however 
minutely  we  might  become  acquainted  with  the  sequence  of  conditions 
which  led  up  to  the  storm,  or  to  that  other  sequence  which  led  up  to 
the  sailing,  we  should  never  discover  the  wreck  among  them.  That  was 
an  accident,  the  coming  together  of  two  independent  lines  of  causation 
which  until  that  coinciding  moment  had  no  reference  to  one  another. 

A  piece  of  chance  shaped  my  life.  As  a  young  man  I  sought  a 
place  at  a  western  university.  I  was  appointed,  but  the  letter  inform- 
ing me  was  lost  in  the  mail.  After  waiting  through  several  dis- 
consolate weeks,  I  accepted  a  position  at  Harvard.  Every  man's 
experience  will  furnish  similar  instances;  for  no  day  goes  by,  no  hour, 
in  which  we  are  not  met  by  some  accident  or  other. 

185.    THE  DELICATE  MECHANISM  OF  INDUSTRY1 
Under  the  old  order,  when  those  in  whose  hands  lay  the  discretion 
in  economic  affairs  looked  to  a  livelihood  as  the  end  of  their  endeavors, 

1  Adapted  by  permission  from  Thorstein  Veblen,  The  Theory  of  Business 
Enterprise,  pp.  179-82.     (Charles  Scribner's  Sons,  191 2.) 


488  INDUSTRIAL  SOCIETY 

the  welfare  of  the  community  was  regulated  "by  the  skill,  dexterity, 
and  judgment  with  which  its  labor  was  generally  applied."  What 
would  mar  this  common  welfare  was  the  occasional  disastrous  act  of 
God  in  the  way  of  unpropitious  seasons  and  the  like,  or  the  act  of  man 
in  the  way  of  war  and  untoward  governmental  exactions.  Price 
variations,  except  as  conditioned  by  these  untoward  intrusive  agencies, 
had  commonly  neither  a  wide  nor  a  profound  effect  upon  the  even 
course  of  the  community's  welfare.  This  holds  true,  in  a  general  way, 
even  after  resort  to  the  market  had  come  to  be  a  fact  of  great  impor- 
tance in  the  life  of  large  classes,  both  as  an  outlet  for  their  products 
and  as  a  base  of  supplies  of  consumable  goods  or  of  raw  materials — 
as  in  the  better  days  of  the  handicraft  system. 

Until  the  machine  industry  came  forward,  commerce  (with  its 
handmaiden,  banking)  was  the  only  branch  of  economic  activity 
that  was  in  any  sensible  degree  organized  in  a  close  and  comprehensive 
system  of  business  relations.  "Business"  would  then  mean  "com- 
merce," and  little  else.  This  was  the  only  field  in  which  men  habitu- 
ally took  account  of  their  own  economic  circumstances  in  terms  of  price 
rather  than  in  terms  of  livelihood.  Price  disturbances,  even  when 
they  were  of  considerable  magnitude,  seem  to  have  had  grave  conse- 
quences only  in  commerce,  and  to  have  passed  over  without  being 
transmitted  much  beyond  the  commercial  houses  and  the  fringe  of 
occupations  immediately  subsidiary  to  commercial  business. 

Crises,  depressions,  hard  times,  dull  times,  brisk  times,  periods  of 
speculative  advance,  "eras  of  prosperity,"  are  primarily  phenomena 
of  business;  they  are,  in  their  origin  and  primary  incidence,  phe- 
nomena of  price  disturbance,  either  of  decline  or  advance.  It  is  only 
secondarily,  through  the  mediation  of  business  traffic,  that  these 
matters  involve  the  industrial  process  or  the  livelihood  of  the  com- 
munity. They  affect  industry  because  industry  is  managed  on  a 
business  footing,  in  terms  of  price  and  for  the  sake  of  profits.  So  long 
as  business  enterprise  habitually  ran  its  course  within  commercial 
traffic  proper,  apart  from  the  industrial  process  as  such,  so  long 
these  recurring  periods  of  depression  and  exaltation  began  and  ended 
within  the  domain  of  commerce.  The  greatest  field  for  business  profit 
is  now  afforded,  not  by  commercial  traffic  in  the  stricter  sense,  but  by 
the  industries  engaged  in  producing  goods  and  services  for  the  market. 
And  the  close-knit,  far-reaching  articulation  of  the  industrial  processes 
in  a  balanced  system,  in  which  the  interstitial  adjustments  are  made 
and  kept  in  terms  of  price,  enables  price  disturbances  to  be  trans- 


SPECULATIVE  INDUSTRY  489 

mitted  throughout  the  industrial  community  with  such  celerity  and 
effect  that  a  wave  of  depression  or  exaltation  passes  over  the  whole 
community  and  touches  every  class  employed  in  industry  within  a 
few  weeks.  And  somewhat  in  the  same  measure  as  the  several 
modern  industrial  peoples  are  bound  together  by  the  business  ties  of 
the  world-market,  do  these  peoples  also  share  in  common  any  wave  of 
prosperity  or  depression  which  may  initially  fall  upon  any  one  mem- 
ber of  this  business  community  of  nations. 


See  also  156.    The  Sensitiveness  of  Industrial  Society. 

186.    SEASONAL  FLUCTUATIONS1 

In  seeking  for  the  causes  of  seasonal  fluctuation,  the  attention  is 
arrested  by  the  relation  of  the  word  "  seasonal"  to  the  climatic  changes 
within  the  year.  And  indeed  the  influence  of  these  is  probably  always 
present  to  a  greater  or  less  degree  in  all  cases  of  seasonal  variation.  As 
there  is  in  the  world  of  plant  and  animal  life  a  tendency  toward  emanci- 
pation from  the  tyranny  of  the  seasons,  so  in  industrial  life,  where  every 
advance  of  civilization  has  made  man  more  independent  of  his  physical 
environment,  this  tendency  is  still  more  apparent.  In  the  course  of 
this  development,  seasons,  once  all-powerful  in  their  control  over 
industrial  habits,  have  left  their  impress  upon  social  institutions, 
which  in  turn  guide  the  current  of  industry.  But  leaving  aside  these 
historical  considerations,  climate  and  weather  obviously  still  exert  a 
very  powerful  and  direct  influence  day  by  day  and  month  by  month 
over  the  needs  and  preferences  of  men,  shaping  the  character  and 
controlling  the  periodicity  of  social  and  economic  activities.  It  is 
often  impossible  to  draw  a  hard-and-fast  distinction  between  these 
three  underlying  influences — climatic,  social,  and  economic.  They  act 
in  combination  and  interact  upon  each  other  until  they  become  well- 
nigh  indistinguishable.  Foggy,  rainy  weather  creates  a  demand  for 
umbrellas,  shipping  is  delayed  by  winds  and  storms,  there  is  an 
increased  demand  for  coal  for  heating  in  winter.  Here  the  influence 
of  the  weather  is  simple  and  direct.  In  the  case  of  gas,  the  pre- 
dominant factor  determining  its  consumption  for  lighting  is  the 
climatic — the  simple  fact  that  there  is  less  daylight  in  winter  than  in 
summer.     On  the  other  hand  the  heat  of  the  summer  makes  cooking 

1  Adapted  by  permission  from  Juliet  Stuart  Poyntz,  "Seasonal  Trades,"  in 
Seasonal  Trades,  edited  by  Sidney  Webb  and  Arnold  Freeman,  pp.  33-37.  (Con- 
stable &  Co.,  Ltd.,  191 2.     Copyright  by  the  London  School  of  Economics.) 


4Q0  INDUSTRIAL  SOCIETY 

with  gas  the  preferred  method  for  that  seasom  In  the  building  trade, 
on  the  other  hand,  the  complication  of  causes  is  well  illustrated. 
The  brief  winter  daylight  hinders  all  kinds  of  work,  and  the  frosts 
and  dampness  are  special  obstructions  to  the  bricklayers,  painters, 
plasterers,  masons,  and  their  labourers,  while  the  employment  of 
carpenters  and  plumbers,  who  work  inside,  is  less  affected.  Consider- 
ing only  the  influence  of  climate,  we  should  expect  a  single  large 
fluctuation  in  the  trade  with  the  crest  of  the  wave  in  summer.  Instead 
of  that  we  find  a  complicated  curve  with  several  "crests."  There  is 
a  uniform  depression  in  winter,  but  this  is  due  not  only  to  bad  weather 
but  to  the  social  fact  that  with  residences  and  offices  occupied  in 
winter  there  is  little  demand  for  repairs,  and  that  tradition  and  other 
social  forces  have  concentrated  renovation  and  repairing  at  certain 
other  points  in  the  year;  even  thus,  much  more  building  could  be 
done  in  winter  than  is  the  case  at  present  were  it  not  for  the  economic 
advantage  of  working  at  other  seasons  on  account  of  the  greater  cost 
in  the  winter,  a  fact  of  great  importance  in  a  highly  competitive 
organization  of  industry. 

Social  activity,  social  traditions,  and  social  customs,  influenced 
either  now  or  originally  by  climate,  as  we  have  said,  are  a  powerful 
factor  in  seasonal  fluctuation.  Each  social  season  makes  its  own 
demands  upon  industry,  and  the  various  trades  rise  to  activity  in 
answer  to  those  demands.  The  more  advanced  the  culture  and  the 
more  integrated  the  social  life,  the  more  highly  differentiated  in  time 
as  well  as  otherwise  will  be  the  demands  of  society  upon  industry.  Of 
all  these  demands,  those  made  by  fashion  are  the  most  tyrannous  and 
exacting.  It  tends  to  concentrate  demand  at  certain  periods  of  the 
year,  the  fashionable  seasons.  It  is  responsible  for  the  violent 
fluctuation  in  the  dressmaking  and  millinery  trades,  and  for  much 
irregularity  in  other  trades.  The  London  "season"  affects  almost  all 
branches  of  industry — upholstery,  decorating,  catering,  goldsmiths' 
work,  drapers'  sales,  clothing,  printing,  and  so  on.  And  through 
the  vagaries  in  the  style  of  goods  produced,  fashion  is  one  of  the  least 
calculable  of  all  influences  affecting  industry  and  tends  to  increase 
irregularity.  Where  the  style  of  the  product  is  fairly  uniform  it  is 
possible  to  manufacture  to  stock,  or  at  least  to  anticipate  the  demand 
somewhat.  But  where  the  style  cannot  be  foreseen  on  account  of  its 
rapid  and  irrational  changes,  it  becomes  necessary  to  defer  production 
until  the  last  minute,  and  then  manufacture  at  high  pressure.  Scien- 
tific instruments,  chemicals,  household  utensils,  cotton  thread,  and 


SPECULATIVE  INDUSTRY  491 

other  staple  products  whose  style  changes  little,  can  be  manufactured 
to  stock,  while  in  the  case  of  hats,  clothing,  boots,  silks,  and  many 
other  commodities  of  fashion  it  is  impossible  to  distribute  production 
evenly  over  the  year.  Hats  trimmed  before  the  season's  styles  were 
set  would  be  unsalable.  Even  in  the  cycle  trade  this  consideration 
plays  an  important  part.  The  buyer  wants  the  latest  model,  and 
withholds  his  order  until  the  beginning  of  the  season.  In  dressmaking, 
especially,  every  department  is  absolutely  under  the  domination  of 
the  season's  style.  Cut,  fabric,  lining,  design,  and  trimming  are 
vital  questions  that  can  be  answered  only  when  the  dictators  of  fashion 
have  promulgated  their  edicts;  whereupon  production  begins  with  a 
rush. 

In  many  other  trades  the  cause  of  irregularity  is  more  purely  eco- 
nomic. It  may  be  due  to  the  greater  economy  of  production  possible 
at  certain  seasons,  as  in  the  case  of  the  building  trade,  or  to  variations 
in  the  supply  of  raw  material.  The  handling  of  goods  at  the  docks 
depends  upon  the  time  of  their  arrival.  Dundee  Harbour,  unlike 
other  ports,  is  busiest  in  the  winter,  for  Dundee  is  the  center  of  the 
jute  industry,  and  the  raw  jute  imported  direct  from  India  to  Dundee 
arrives  between  September  and  April  and  gives  employment  to  large 
extra  staffs  in  the  discharge  of  the  cargo.  "In  the  case  of  tea,  the 
busy  season  begins  with  the  imports  of  China  tea,  in  the  end  of  June 
or  beginning  of  July,  and  continues  till  November.  In  December 
and  January  it  falls  away.  In  India  teas  the  season  is  later,  full 
work  running  from  August  to  January,  while  in  February  and  March 
it  decreases  and  comes  to  an  end  for  the  season.  In  the  case  of  coal, 
ice,  and  hard  woods,  trade  is  more  or  less  regular  throughout  the  year 
and  the  same  is  now  largely  true  of  frozen  meat.  The  import  of 
deals  continues  at  its  busiest  from  April  till  the  end  of  October,  when  it 
rapidiy  declines,  the  trade  being  largely  dependent  on  the  extent  to 
which  frost  affects  the  Baltic  ports.  In  the  fruit  trade  the  soft  fruit 
is  followed  by  the  hard,  and  employment  is  at  its  best  from  the 
middle  of  October  till  Christmas,  when,  after  a  break  of  a  fortnight, 
it  continues  good  until  March  is  reached.  The  autumn  sales  in  wool 
are  a  matter  of  common  knowledge,  but  those  in  May  are  also  con- 
siderable." The  jam  industry  depends  upon  the  fruit  season,  and  the 
trade  of  the  greengrocer  upon  the  vegetable  season. 

Industry  being  an  organic  whole,  with  each  part  vitally  connected 
with  every  other,  any  irregularity  in  one  division  is  inevitably  a  cause 
of  disturbance  in  all  proximate  divisions.     A  trade  may  be  seasonal 


4Q2  INDUSTRIAL  SOCIETY 

merely  because  other  trades  are  seasonal  which  supply  it  with  material 
or  which  buy  its  products  for  further  use  in  manufacture.  Or  in  a 
single  industry  the  impetus  to  irregularity  is  carried  from  the  first 
causes,  weather  or  fashion,  to  the  retailers,  from  them  to  the  whole- 
salers, from  them  to  the  manufacturers,  and  thence  to  the  markets 
for  raw  material  or  machinery.  Often  the  connection  becomes  quite 
obscured,  as  in  the  cases  cited  by  Mr.  Aves,  where  the  Lancashire 
cotton  strike  of  1893  is  reported  as  having  been  a  cause  of  great 
slackness  in  the  London  pianoforte  and  harmonium  trade  of  that 
year. 

As  might  be  inferred  from  the  complexity  of  their  causes,  seasonal 
fluctuations  are  by  no  means  long,  simple  curves,  but  show  every  kind 
of  irregularity. 

187.    BUSINESS  CYCLES1 

Under  simple  conditions  the  problem  of  the  organization  of  indus- 
trial life  presents  many  bewildering  aspects.  But  placed  in  a  develop- 
ing society,  it  becomes  doubly  bewildering. 

The  disturbing  elements  in  the  larger  situation  are  closely  associ- 
ated with  those  regularly  recurring  phenomena  which  are  usually 
called  "  crises  "  and  "  depressions."  It  was  once  held  that  these  played 
havoc  with  "economic  gear  and  cogs,"  throwing  the  "industrial 
machine"  "out  of  joint,"  or  leaving  it  "half  stalled."  Such  condi- 
tions were  looked  upon  as  abnormal;  they  were  thought  to  create 
problems  of  a  mechanical  character;  they  called  for  the  services  of  the 
industrial  mechanician.  But,  the  damage  once  repaired,  the  "indus- 
trial machine"  could  run  its  prosperous  course  until  another  catas- 
trophe threw  "the  monkey-wrench  into  the  machine." 

Recent  analysis,  however,  has  shown  that  the  matter  is  not  so 
simple  as  all  this.  Two  closely  related  lines  of  movement  converge 
to  produce  these  disturbances.  The  first  is  the  development  of  the 
industrial  system.  This  involves  change  in  technique,  in  organization, 
in  markets,  and  in  the  demand  for  goods.  The  instruments  of  produc- 
tion are  largely  specialized;  labor  is  mobile  only  within  fixed  limits; 
and  only  newly  accumulated  capital  is  possessed  of  this  characteristic. 
Capital  values  are  based  upon  the  earnings  anticipated  in  view  of  the 
known  and  predictable,  not  the  novel,  elements  in  the  situation.  Par- 
ticular productive  goods  are  turned  out  with  an  expectation  that  they 

1  Adapted  by  permission  from  W.  H.  Hamilton,  Current  Economic  Problems, 
PP-  1()$-96-     (The  University  of  Chicago  Press,  1915.) 


SPECULATIVE  INDUSTRY  493 

will  be  used  in  the  production  of  particular  consumptive  goods.  The 
system  as  a  whole  has  far  too  much  of  rigidity  successfully  and  imme- 
diately to  adapt  itself  to  those  radical  changes.  Yet  so  delicate  is  the 
system  that  anything  which  affects  a  particular  industry  is  certain  to 
have  an  appreciable  effect  upon  the  whole. 

The  second  is  the  "rhythm  of  business  activity,"  or  the  eco- 
nomic cycle.  A  depression,  characterized  by  conservatism  in  business 
and  financial  activity,  gradually  leads  to  an  improvement  in  condi- 
tions; as  business  expands  a  spirit  of  optimism  arises,  and  stimulates 
further  expansion;  the  latter  reacts  upon  the  feeling  of  optimism  and 
causes  it  to  assume  a  tone  of  overconfidence,  which  leads  to  "flush 
times"  and  feverish  activity;  sooner  or  later  business  overshoots  the 
mark,  losses  occur,  and  perhaps  a  crisis;  contraction  is  necessary,  and 
a  depression  again  appears.  The  cycle  is  a  closed  one;  it  has  no 
logical  beginning  and  no  consummation.  From  lean  to  fat  years  it 
ever  runs  its  varied  round. 

But  the  situation  is  further  complicated  by  the  different  behavior 
of  different  industries  and  industrial  agents  during  the  cycle.  If  the 
price  scheme  were  such  that  values  as  a  whole  could  be  quickly  read- 
justed to  meet  new  conditions,  much  trouble  might  be  avoided.  But 
such  is  not  the  case.  Sheer  necessity  alone  must  be  depended  upon 
to  establish  the  lower  price  level.  But  businesses  occupy  different 
strategic  positions;  the  baker  and  the  manufacturer  of  steel  rails 
are  likely  to  be  affected  in  different  ways  by  price-making  forces  at 
different  stages  of  the  cycle.  The  man  with  fixed  salary  and  the- 
employee  whose  contract  runs  in  terms  of  a  few  months  or  weeks  are 
on  a  different  footing.  The  result  is  that  all  values  do  not  go  up  or  go 
down  together.  The  output  of  various  industries,  similarly,  does 
not  increase  or  decrease  together.  Yet  all  of  these  industries  are 
involved  in  a  delicate  system  that  calls  for  nice  adjustments. 

It  is  these  movements  which  are  responsible  for  the  facts  that  no 
two  cycles — or  crises — are  alike,  that  the  cycle  varies  greatly  in 
length,  in  sweep,  and  in  intensity,  and  that  a  myriad  of  dissimilar 
theories  have  been  put  forward  to  account  for  them,  few  of  which 
contain  no  germ  of  truth. 

Its  spectacular  character  has  singled  out  the  crisis  for  particular 
attention  almost  to  the  exclusion  of  the  more  important  "flush 
times"  and  depressions.  It  is  not  surprising  that  antecedent  business 
and  industrial  conditions  are  often  overlooked,  and  crises  are  explained 
in  terms  of  monetary  standards  and  banking  systems.     Undoubtedly 


494  INDUSTRIAL  SOCIETY 

our  banking  laws  in  the  past  have  made  our  crises  unusually  severe. 
The  elasticity  of  credit  and  note-issue  secured  by  the  recent  currency 
act  should  do  much  to  relieve  financial  stringency  when  a  crisis  arises. 
It  should  also  do  something  to  prevent  its  occurrence.  But  those 
who  expect  it  to  cause  the  industrial  process  to  pursue  a  more  even 
course  are  likely  to  be  disappointed. 

The  violence  of  the  ebb  and  flow  of  business  activity  increases 
tremendously  the  difficulty  of  properly  organizing  society  through 
price.  It  also  reveals  grave  breaks  in  the  organization.  Capital  is 
insecure  and  funded  wealth  may  disappear  overnight.  The  cycle  is 
associated  with  a  rhythm  of  overemployment,  nonemployment,  and 
underemployment.  The  capitalists  and  laborers  whose  products 
satisfy  marginal  wants  are  put  in  a  very  precarious  economic  position. 
The  crisis  destroys  wealth,  specialized  talent,  and  organization,  all  of 
which  must  be  replaced. 

The  economic  cycle  involves  the  whole  industrial  system.  No 
simple  device  will  arrest  the  violence  of  its  rhythm.  It  can  be  reached 
only  by  a  complex  of  many  complementary  measures.  //  we  are  to 
control  the  cycle,  we  must  learn  to  control  the  introduction  of  a  new 
technique;  the  demand  for  goods  must  be  steadied;  we  must  develop 
an  art  of  predicting  business  conditions;  a  means  must  be  found  for 
co-ordinating  recently  accumulated  capital  and  opportunities  for 
investment;  a  higher  sense  of  responsibility  in  making  loans  must  be 
developed  by  the  bankers;  a  feeling  of  responsibility  must  be  en- 
gendered in  the  promoter;  and  means  must  be  devised  for  checking  the 
speculative  mania. 

In  time,  as  our  very  rapid  industrial  development  slows  up,  the 
sweep  of  the  economic  cycle  may  be  expected  to  be  less  extreme. 
Then  perhaps  we  shall  hear  complaints  about  a  prosaic  age  that  has 
no  speculative  prizes  to  dangle  before  the  eyes  of  investors  to  tempt 
them  to  take  chances  with  unknown  opportunities.  Then,  perhaps, 
men  will  point  to  the  "golden  age"  of  the  past,  when  unexploited 
opportunities  were  on  all  sides.  They  may  go  so  far  as  to  conclude 
that  our  violent  fluctuations  in  business  were  a  small  price  to  pay 
for  our  rapid  industrial  development. 


SPECULATIVE  INDUSTRY 


495 


1 88.     LABOR  DISTURBANCES 
[Note.— Strained  relations  between  labor  and  capital  of  course 
serve  to  make  industry  more  uncertain.    No  single  illustration  can 
serve  as  an  adequate  index  of  the  strained  relations  referred  to,  but 
the  following  table  at  least  introduces  the  subject.] 

Strikes,  Establishments  Involved,  Strikers,  and  Employees  Thrown  Out  of 
Work,  by  Years,  1881  to  1905* 


Year 

Strikes 

Establishments 

Strikers 

Employees  Thrown 
Out  of  Work 

Number 

Average 
per  Strike 

Number 

Average 
per  Strike 

Number 

Average 
per  Strike 

1881 

1882 

1883 

1884 

1885 

1886 

1887 

1888 

1889 

1890 

1891 

1892 

1893 

1894 

1895 

1896 

1897 

1898 

1899 

1900 

1901 

1902 

1903 ..... 

1904 

1905 

471 

454 

478 

443 

645 

i,432 

i,436 

966 

i,o75 

i,833 

i,7i7 

1,298 

1,305 

i,349 

1,215 

1,026 

1,078 

1,056 

i,797 

i,779 

2,924 

3,162 

3,494 

2,307 

2,077 

2,928 
2,105 
2,759 
2,367 
2,284 
10,053 

6,589 
3,5o6 
3,786 
9,424 
8,116 
5,54o 
4,555 
8,196 

6,973 

5,462 

8,492 

3,809 

n,3i7 

9,248 

10,908 

14,248 

20,248 

10,202 

8,292 

6 
4 
5 
5 
3 
7 
4 
3 
3 
5 
4 
4 
3 
6 

5 
5 
7 
3 
6 

5 
3 
4 
5 
4 
4 

2 
6 
8 
3 
5 
0 
6 
9 
5 
1 

7 
3 

5 

1 

7 
3 
9 
6 

3 
2 

7 
5 
8 

4 
0 

101,070 
120,860 
122,198 
"7,313 
158,584 
407,152 
272,776 
103,218 
205,068 
285,900 
245,042 
163,499 
195,008 

505,049 
285,742 
183,813 
332,570 
182,067 
308,267 
399,656 
396,280 

553,143 
531,682 

375,754 
176,337 

215 
266 
256 
'265 
246 
284 
190 
114 
191 
156 
143 
126 
149 
374 
235 
179 

309 
172 
172 
225 
136 
175 
152 
163 
85 

129,521 
154,671 
149,763 
147,054 
242,705 
508,044 
379,676 
147,704 
249,559 
351,944 
298,939 
206,671 
265,914 
660,425 

392,403 
241,170 
408,391 
a)   249,002 
417,072 
505,066 
543,386 
659,792 
656,055 
5i7,2n 
221,686 

275 
341 
313 
332 
376 
355 
264 
163 
232 
192 
174 
159 
204 
49o 
323 
235 
379 
a)  236 
232 
284 
186 
209 
188 
224 
107 

Total... 

36,757 

181,407 

4.9 

6,728,048 

183 

(1)8,703,824 

a)  237 

a)  Not  including  two  strikes  involving  33  establishments  not  reported. 

*From  the  Twenty-first  Annual  Report  [1906]  of  the  U.S.  Commissioner  of 
Labor,  p.  15.  


See  also  229.    The  Organization  of  the  Labor  Market. 


496 


INDUSTRIAL  SOCIETY 


189.    BUSINESS  FAILURES 

A1 

The  total  number  of  enterprises  of  which  account  was  taken,  and 
the  number  of  failures,  since  1891,  were  as  follows  (Bradstree? s  for 
January  23,  1897): 


1891 
1892 

1893 
1894 
1895 
1806 


Enterprises 


1,903,610 
1,127,424 
1,136,662 
1,120,995 
1,134,299 
1,162,048 


Failures 


14,240 
H,S92 
17,289 
14,588 
14,874 
17,298 


The  figures  thus  would  indicate  an  annual  ratio  of  failures  to 
businesses  of  1  per  cent,  more  or  less.  But  these  were  the  overt 
failures  only,  in  which  there  was  loss  to  creditors.  With  them  should 
be  considered  the  much  more  numerous  cases  in  which  the  field  was 
abandoned  from  want  of  success,  though  all  debts  were  met. 

The  effect  of  the  crisis  of  1893,  and  the  years  of  depression  that 
followed,  appears  plainly  in  the  record  of  failures.  But  it  appears 
more  strikingly  still  in  certain  figures  as  to  the  commercial  repute  of 
the  bankrupt  enterprises — figures  which  are  further  interesting  as 
indicating  how  far  the  commercial  agencies  are  successful  in  reporting 
the  condition  of  the  particular  businesses.  The  failed  enterprises 
were  divided  into  three  classes,  according  to  their  rating  on  the  books 
of  the  agency;  and  the  proportion  of  each  class  in  the  total  of  failures 
was  then  computed  thus: 


Very  Moderate 
or  No  Credit 

Good  Credit 

Very  Good 
Credit 

1889 

92.0  per  cent 

91.9 

91.2 

93o 

69.7 

71.0 

72.3 

71.7 

6 . 6  per  cent 

6-3 

7-i 

5-9 
27.1 
27.4 
26.2 
25-5 

1 . 2  per  cent 
1  6 

1890 

1891 

1-7 

1892 

1893 

3-2 

1  6 

1894 

1895 

i-5 
2  8 

1896 

1  Taken  by  permission  from  "Notes  and  Memoranda,"  Quarterly  Journal  of 
Economics,  XI  (1896-97),  317-19. 


SPECULATIVE  INDUSTRY 


497 


The  proportion  of  failures  (shown  in  the  second  column)  among 
those  whose  credit  was  good,  even  though  not  of  the  best,  increases 
with  the  crisis  of  1893  and  the  succeeding  years  of  depression.  The 
shock  and  the  trying  times  that  followed  caused  the  collapse  of  many 
enterprises,  most  of  them  doubtless  really  unsound  and  likely  to 
succumb  sooner  or  later,  whose  commercial  rating  had  yet  remained 
respectable,  and  who  had  been  able  to  hold  their  own  during  the 
years  of  general  activity  and  confident  optimism.  A  similar  effect, 
though  not  so  marked,  appears  in  the  somewhat  larger  proportion  of 
failures,  from  1893  to  1896,  among  those  rated  as  in  "very  good 
credit."  The  whole  series  of  figures  illustrates  the  course  of 
events  preceding  and  following  a  commercial  crisis:  before,  hope- 
ful speculation,  and  the  continued  prosecution  of.  ill-directed 
enterprises;  after,  collapse,  and  the  gradual  and  reluctant  weeding 
out  of  the  unsound  elements. 


Failures  Due  to 


United  States,  Percentage 


Number 


1912 


1911 


Liabilities 


rgi2 


1911 


Canada,  Percentage 


Number 


1912 


191] 


Liabilities 


1912 


1911 


Incompetence 

Inexperience 

Lack  of  capital. .  . 
Unwise  credits 
Failure  of  others .  . 

Extravagance 

Neglect 

Competition 

Specific  conditions. 

Speculation 

Fraud 


30.2 
4.6 

29 
2 

1 

o 

2 

1 
16 

o 
10 


27.0 

41 
314 

2.0 

1.3 

0.9 

2.2 
2.9 

16.9 
O.7 

IO.6 


26.8 
3-0 

33-5 
2.6 

4-9 
0.9 
1.0 
i-3 
13.8 
34 


23-5 
2.2 

28.3 
2.2 
4.2 
1.2 

i-3 
4-8 
20.7 
2.7 
8.9 


16.3 
5-i 

5o-3 
1-3 

0.9 
0.8 

43 

1.0 

12.8 

0.5 

6.7 


16. 1 
2.9 

49-3 
0.9 
1. 1 
0.9 

4-i 
1. 1 
14.6 
0.9 
8.1 


22.8 
3-5 

45-8 
1-7 
2-5 
0.5 
3-1 
0.6 


0.4 
10.3 


18.9 

i-5 
47-8 
1.0 
i-4 
3-2 
2-5 
0.6 
10. 1 

3-i 
9.9 


If  then  there  are  some  who  gain  much,  and  who  even  seem  to  gain 
too  much,  it  must  not  be  forgotten  that  many  others  are  losing.    Here, 


'Taken  by  permission  from  Bradstreet's,  XLI,  53. 

2  Adapted  by  permission  from  Emile  Vandervelde,  Collectivism  and  Industrial 
Evolution,  pp.  90-91.     (Charles  H.  Kerr  &  Co.,  1906.) 


498  INDUSTRIAL  SOCIETY 

for  example,  are  the  figures  for  2,554  German  corporations,  tabulated 
by  Van  der  Borght  for  1891-1892: 

471  liquidated  with  deficits. 

888  declared  no  dividends. 

641  declared  from  o  to  5  per  cent. 

734  declared  from  5  to  10  per  cent. 

149  declared  from  10  to  15  per  cent. 

64  declared  from  15  to  20  per  cent. 

39  declared  from  20  to  30  per  cent. 

18  declared  from  30  to  40  per  cent. 

21  declared  more  than  40  per  cent. 

D.     Risk  Bearing  in  Modern  Industrial  Society 
190.    AVOIDANCE  OF  RISK1 

Uncertainty  being  regarded  as  an  evil  by  practically  all  normal 
persons,  there  is  a  constant  effort  to  avoid  or  reduce  uncertainties. 
This  may  be  accomplished  in  various  ways,  of  which  the  following  are 
important:  (1)  by  increasing  their  knowledge  of  the  future;  (2)  by 
employing  safeguards  against  mischances;  (3)  by  insurance;  (4)  by 
speculative  contracts,  especially  "hedging."  We  shall  take  these  up 
in  order. 

1.  Risk,  being  simply  an  expression  for  human  ignorance,  decreases 
with  the  progress  of  knowledge.  The  chief  lines  of  progress  in  industry 
at  the  present  time  may  be  said  to  be  those  which  tend  to  lift  the  veil 
which  hides  the  future.  Countless  trade  journals  exist  principally  to 
enable  their  readers  to  forecast  the  future  more  accurately  than  they 
otherwise  could.  This  the  journals  accomplish  by  supplying  data  as 
to  past  and  present  conditions  as  well  as  by  instructing  their  readers 
in  the  relations  of  cause  and  effect.  Our  government  weather  bureau 
supplies  weather  forecasts  which  somewhat  reduce  this  form  of  un- 
certainty for  the  farmers.  Government  reports  of  crop  conditions  and 
information  as  to  diseases  of  plants  and  animals  are  more  important 
influences  in  the  same  direction.  Again  the  prediction  as  to  the 
amount  of  ore  to  be  obtained  from  a  mine  and  the  cost  of  obtaining 
it  is  today  far  less  uncertain  than  ever  before.  Whereas  formerly 
the  mining  prospect  consisted  of  wild  statements  of  the  ore  "in  sight" 
and  the  time  and  cost  required  to  mine  it,  today  the  graduate  of  a 

1  Adapted  by  permission  from  Irving  Fisher,  Elementary  Principles  of  Eco- 
nomics, pp.  427-30.     (The  Macmillan  Co.,  191 2.) 


SPECULATIVE  INDUSTRY  499 

mining  school  can,  through  his  knowledge  of  economic  geology  and 
metallurgy,  make  forecasts  with  some  degree  of  certainty. 

2.  Safeguards  of  many  kinds  have  been  invented  to  reduce  the 
risk  of  shipwreck,  fire,  explosion,  burglary,  etc.  A  modern  ship  is 
built  in  compartments  as  a  safeguard  against  shipwreck;  fire  escapes 
are  a  safeguard  against  loss  of  life  by  fire;  safety  valves  against 
explosions;  and  burglar  alarms  and  safety  deposit  vaults  against 
burglary. 

3.  Insurance  consists  in  consolidating  risks,  i.e.,  in  offsetting  one 
risk  by  another  by  consolidating  in  one  insurance  company  a  large 
number  of  chances.  Relative  certainty  is,  as  it  were,  manufactured 
out  of  uncertainty.  Insurance,  unlike  increase  of  knowledge  and 
safeguards,  does  not  directly  decrease  the  risk  for  society  as  a  whole, 
but  by  pooling  these  risks  it  has  the  effect  of  steadying  the  income 
of  individuals  and  spreading  the  burden  of  risk  more  evenly  over  all. 

4.  It  seems  at  first  to  be  a  curious  fact  that  speculation,  although 
dealing  in  chances,  may  be  used  to  reduce  chance  to  some  persons 
who  use  it  for  this  purpose.  We  have  already  seen  how  short  selling 
reduces  the  risk  to  the  person  sold  to.  A  building  contractor  when 
taking  a  large  contract  was  asked  whether  he  was  not  taking  a  large 
risk,  since  he  could  not  know  in  advance  what  the  costs  would  be. 
He  replied,  "No.  I  am  taking  no  risks  at  all  except  on  'labor';  I 
have  made  contracts  to  be  supplied  with  material  when  needed  at 
fixed  prices."  In  other  words,  dealers  had  sold  him  future  building 
materials  "short."  They  had  each  assumed  the  risk  of  fluctuation 
in  those  special  market  conditions  on  stone,  brick,  timber,  etc.  Simi- 
lar results  follow  from  short  sales  of  wool  to  the  woolen  manufacturer. 

191.    SOME  FUNCTIONS  AND  EFFECTS  OF  INSURANCE1 

Technical  insurance  is  defined  as  that  arrangement  by  which 
persons  subject  to  a  risk  agree  directly  or  indirectly  with  each  other 
that  those  who  escape  the  threatening  event  will  make  up  to  those 
who  suffer  by  it  the  whole  or  a  part  of  the  loss. 

The  main  purpose  of  technical  insurance  is  to  relieve  the  individual 
of  the  burden  of  risk  resting  upon  him.  Aside,  however,  from  the 
direct  effect  of  technical  insurance,  there  are  certain  subsidiary  effects 
upon  the  social  organism.  Some  of  these  effects  are  good,  and  some 
are  unfavorable.    Let  us  consider  the  good  effects:   (a)  The  decrease 

1  Adapted  by  permission  from  John  Haynes,  "Risk  as  an  Economic  Factor," 
Quarterly  Journal  of  Economics,  IX  (1894-95),  442-46. 


5oo  INDUSTRIAL  SOCIETY 

of  the  cost  of  production.  Under  the  head  of  producer's  insurance  we 
saw  that  risk  to  the  individual  producer  was  a  subjective  cost,  and 
that  marginal  subjective  estimates  of  risk  enter  in  as  a  determinant 
of  objective  cost.  Now,  technical  insurance  comes  in,  and  removes 
the  major  part  of  this  item  of  cost.  The  producer,  in  place  of  carrying 
a  risk  that  is  burdensome  to  him,  pays  a  premium  which  is  relatively 
light.  Nowhere  is  this  more  true  than  in  the  case  of  marine  insurance. 
Imagine  that  marine  insurance  did  not  exist.  The  shipping  business 
would  be  carried  on  only  by  great  companies  possessing  many  ships, 
so  that  they  could  get  the  benefit  of  self -insurance.  It  needs  no 
argument  to  prove  that  the  price  of  foreign  merchandise  would  be 
much  higher  than  now.  Fire  insurance  is  another  excellent  example 
of  this  fact.  This  brings  us  directly  to  the  next  advantage  of  technical 
insurance,  which  is  a  corollary  of  what  has  just  been  said,  (b)  It 
makes  it  possible  for  small  producers  to  hold  their  own,  where  other- 
wise they  would  be  forced  out  of  business,  (c)  Technical  insurance 
prevents  the  impairment  of  the  productive  force  of  society  by  putting 
productive  agents  back  into  their  old  positions  after  a  disaster.  Presi- 
dent Walker  shows  how  labor  may  become  permanently  degraded  as 
the  result  of  temporary  misfortune.  Suppose  a  village  whose  chief 
support  is  a  single  industrial  establishment.  Suppose  this  establish- 
ment burned,  with  no  insurance.  The  employer  cannot  readily 
transfer  himself  to  another  place  where  his  talents  can  be  used  so 
advantageously,  and  the  same  is  true  of  the  laborers.  Both  become 
discouraged,  and  the  industrial  efficiency  of  master  and  men  may  be 
forever  impaired.  Insurance  guards  against  this  calamity.  Fire 
insurance,  accident  insurance,  and  insurance  against  sickness  are 
efficient  in  the  same  way.  Life  insurance  in  a  more  direct  way  accom- 
plishes the  same  result  by  keeping  families  together,  and  allowing 
the  orphan  children  to  be  brought  up  with  proper  training,  all  of  which 
results  ultimately  in  increased  productivity,  (d)  Technical  insurance 
is  an  aid  to  credit.  The  practice  is  universal  of  requiring  houses,  or 
other  inflammable  property  on  which  money  is  raised  by  mortgage, 
to  be  insured.  Without  insurance,  many  who  now  borrow  freely 
from  savings  banks  and  other  lenders  would  be  unable  to  borrow  at 
all,  and  others  would  borrow  only  at  ruinous  rates,  (e)  Life  insurance 
combines  what  I  have  called  self-insurance  of  the  nature  of  saving 
with  technical  insurance.  A  form  of  life  insurance  which  does  not  do 
this  is  conceivable,  and  has  sometimes  been  tried;  but  the  common 
form  lays  aside  a  reserve  fund  against  the  claim  of  each  person  insured. 


SPECULATIVE  INDUSTRY  50 1 

This  form  of  insurance,  therefore,  encourages  capitalization.  This, 
to  be  sure,  is  not  a  net  gain,  because  a  man  who  is  insured,  feeling 
a  sense  of  security,  is  likely  to  spend  that  part  of  his  income  which  is 
left  after  paying  his  insurance  premium  more  freely  than  would  be 
the  case  if  he  were  not  insured.  But,  as  premiums  are  generally  paid 
out  of  income,  we  may  conclude  with  Schonberg  that  "there  is  gener- 
ally a  stronger  building  up  of  private  capital  than  would  otherwise 
follow."  (/)  The  sociological  and  ethical  effects  which  result  from  the 
security  and  comfort  which  insurance  gives  are  influences  for  good. 

The  good  effects  above  enumerated  are  not  without  some  off- 
setting disadvantages.  Security  is  good,  but  security  as  well  as 
hazard  may  have  an  unfavorable  effect  upon  industry,  (a)  Intensity 
of  effort  is  diminished.  Make  the  ordinary  man's  future  secure 
even  on  a  low  material  basis,  and  his  energy  will  flag  to  some  extent. 
(b)  Carelessness  is  encouraged  by  insurance.  Much  wealth,  for 
instance,  goes  up  in  smoke  simply  because  vigilance  is  relaxed  on 
account  of  the  property  being  insured,  (c)  The  greatest  disadvantage 
of  technical  insurance  is  the  encouragement  which  it  gives  to  dis- 
honesty. Property  is  wilfully  destroyed  to  get  insurance,  thus 
increasing  the  net  amount  of  property  destroyed  and  increasing  the 
cost  of  insurance  to  honest  men.  I  have  been  informed  that  where  a 
mill  burns  in  a  factory  village  the  village  hotel  is  almost  sure  to  follow. 
The  same  informant  states  that  a  prudent  insurance  man  of  his 
acquaintance  makes  it  a  rule,  on  learning  of  the  burning  of  a  mill 
in  a  village,  to  cancel  all  insurance  held  by  him  on  the  hotel.  It  is 
estimated  that  from  35  to  50  per  cent  of  the  loss  by  fire  in  the  United 
States  is  chargeable  to  incendiarism. 

Technical  insurance  is  attended  with  a  large  expense  for  manage- 
ment, and  at  present  this  is  excessive.  Not  that  insurance  men  make 
greater  gains  than  other  business  men,  but  there  are  more  agents 
for  all  kinds  of  insurance  companies  than  there  is  economic  justifica- 
tion for.  

See  also  79.     The  Early  History  of  Insurance  in  England. 

192.  SPECULATIVE  CONTRACTS 
In  our  contractual  society,  speculative  contracts  form  one  of  the 
leading  ways  of  transferring  and  ultimately  of  reducing  industrial 
risks.  These  speculative  contracts  are  so  numerous  and  so  well 
known  that  a  simple  illustration  will  suffice.  I  decide  to  build  a 
house.    A  contractor  assumes  the  task.    He  then  proceeds  to  make 


$02  INDUSTRIAL  SOCIETY 

sub-contracts  with  the  purveyors  of  lumber,  bricks,  and  other  materials 
to  the  effect  that  these  materials  shall  be  delivered  to  him  at  a  certain 
future  time  and  at  a  certain  price.  The  main  contractor  has  thus 
contracted  himself  out  of  risk  with  reference  to  price  changes  in  these 
materials. 

Our  contractor  has  thus  been  relieved  of  much  of  his  risk,  but  has 
this  operated  to  diminish  the  industrial  risks  of  society  ?  At  first 
glance  it  would  appear  that  the  risks  have  merely  been  shifted.  The 
social  significance  of  the  operation  rests  in  the  fact  that  the  dealers  in 
lumber,  bricks,  and  other  materials  are  presumably  specialists  who 
know  in  considerable  detail  the  present  and  probable  future  conditions 
in  their  particular  industries.  They  are  thus  presumably  better 
judges  of  the  risks  of  those  particular  enterprises  than  the  main  con- 
tractor, so  that  when  the  main  contractor  shifts  risks  to  their  shoulders 
it  probably  does  mean  a  reduction  in  the  total  risks  of  society. 

The  foregoing  illustration  is  typical.  A  man  agrees  to  do  a  certain 
thing.  He  then  contracts  himself  out  of  certain  phases  of  the  risk 
involved.  True,  the  burden  is  merely  transferred  to  someone  else, 
but  presumably  this  someone  else  is  a  specialist,  and  therein  is  the 
social  defense. 

It  would  be  quite  erroneous  for  us  to  think  of  the  speculative  con- 
tracts involved  in  trading  on  the  organized  exchanges  as  constituting 
the  greater  part  of  the  speculative  contracts  of  our  day.  The  work  of 
the  organized  exchanges  has  certain  sensational  elements,  and  volumes 
have  been  written  upon  these  exchanges  where  sentences  have  not 
been  written  upon  the  vastly  greater  volume  of  speculative  contracts 
entered  into  outside  the  limits  of  the  organized  exchange. 


See  also  179.    Commercial  Speculation. 

193.    HEDGING:  A  FORM  OF  SPECULATIVE  CONTRACT 

A1 

All  ownership  of  property  involves  the  risk  of  loss  from  changes 
in  value.  The  miller  who,  in  December,  buys  wheat  that  will  not  be 
marketed  as  flour  till  April  runs  the  chance  that  wheat  and  flour  will 
both  fall  in  price  between  the  two  dates,  and  so  he  will  have  to  write 
off  a  loss. 

Speculative  trading  permits  the  transferring  of  this  burden  from 

ordinary  owners,  e.g.,  millers,  to  a  special  class. 

1  Taken  by  permission  from  F.  M.  Taylor,  Principles  of  Economics,  pp.  294-95. 
(University  of  Michigan,  1916.) 


SPECULATIVE  INDUSTRY  503 

Illustration:  A  milling  company  buys  10,000  bu.  of  wheat  on  the 
Chicago  exchange,  said  wheat  to  be  delivered  at  once  for  use  in  the 
milling  business.  But  the  milling  company  wishes  to  confine  itself 
strictly  to  its  own  business — milling — avoiding  all  speculation  in 
wheat.  It  therefore  wishes  to  shut  out  any  chance  of  loss  by  a  fall  in 
the  price  of  wheat  and  flour  between  the  purchase  of  the  wheat  and 
the  sale  of  the  flour  made  from  it.  Accordingly,  it  sells  10,000  bu. 
for  future  delivery;  i.e.,  agrees  to  deliver  10,000  bu.  at  a  definite  price 
three  months  from  date.  This  having  been  done,  whatever  change 
takes  place  in  the  price  of  wheat,  the  milling  company  will  neither 
gain  nor  lose;  that  is,  whatever  it  gains  or  loses  on  the  original  pur- 
chase of  cash  wheat  will  be  exactly  offset  by  an  equal  loss  or  gain  on 
the  future  sale. 

Thus,  suppose  that,  when  the  purchase  is  made,  cash  wheat  is 
$1.00  per  bu.  and  three-months  futures  $1.04.  Further  suppose 
that,  when  the  three  months  have  passed,  wheat  is  $i'.o4.  Under 
these  conditions,  the  two  transactions  will  come  out  as  follows: 

Cash  Wheat  Future 

Original  cost $10,000      Cost $10,400 

Storage,  insurance,  etc. .  .  .  400 


Total  cost $10,400 

Value 10,400      Selling  value 10,400 


Gain  or  loss $00,000      Gain  or  loss $00,000 

Evidently  in  this  case  there  is  neither  gain  nor  loss  from  the 
transactions. 

Suppose,  now,  that  the  price  at  the  time  of  future  delivery  turns 
out  to  be  $1 .00;  will  the  result  be  different? 

Cash  Wheat  Future 

Total  cost $10,400      Cost $10,000 

Value 10,000      Selling  value 10,400 


Loss $     400  Gain $     400 

Still  again,  suppose  price  to  be  90  cents  at  time  of  future  delivery; 
what  result  ? 

Cash  Wheat  Future 

Total  cost $10,400  Cost $  9,000 

Value 9,000  Selling  value 10,400 

Loss $  1,400  Gain $  1,400 


504  INDUSTRIAL  SOCIETY 

Finally,  suppose  price  at  time  of  future  delivery  to  be  $1.10; 
what  result  ? 

Cash  Wheat  Future 

Total  cost $10,400      Cost $11,000 

Value 11,000      Selling  value 10,400 


Gain $     600      Loss $     600 

Thus  on  any  price  the  element  of  risk  from  price  changes  is 

eliminated. 

B1 

Hedging  may  be  defined  as  the  practice  of  making  two  contracts  at 
about  the  same  time  of  an  opposite,  though  corresponding,  nature — the 
one  in  the  trade  market,  and  the  other  in  the  speculative  market.  A 
purchase  in  the  actual  grain  market  of  a  certain  amount  of  grain  at  a 
certain  price  is  promptly  offset  by  a  short  sale  in  the  speculative 
market  on  some  large  exchange  of  the  same  amount  of  grain  for  some 
convenient  future  month's  delivery,  with  a  view  to  cancelling  any 
losses  that  might  result  from  fluctuations  in  price.  As  soon,  however, 
as  the  trade  transaction  is  terminated  by  a  sale,  the  speculative  short 
sale  must  also  be  terminated,  i.e.,  covered  by  a  purchase  on  the 
exchange.  Both  contracts  are  entered  into  at  about  the  same  time, 
and  both  must  be  terminated  at  about  the  same  time  if  the  hedger 
wishes  to  avoid  speculation. 

In  explaining  this  process  of  hedging  let  us  consider  the  needs  of 
a  grain  dealer,  who,  for  example,  purchases  100,000  bushels  of  wheat 
in  August  at  $1 .00  a  bushel;  and  who,  as  is  a  customary  practice,  has 
made  this  purchase  with  borrowed  funds  to  the  extent  of  90  per  cent 
of  the  purchase  price,  the  banker  holding  the  grain  paper  as  collateral 
for  the  loan.  The  banker  is  protected  because  he  knows  that  at  any 
time  he  can,  owing  to  the  existence  of  a  large  continuous  market,  sell 
out  the  buyer.  But  what  shall  we  say  of  the  grain  dealer's  risk  ?  Is 
he  not  running  a  tremendous  risk  by  buying  so  much  wheat  on  a 
10  per  cent  margin  when  in  the  course  of  a  week  or  two,  owing  to  world- 
wide conditions  over  which  he  has  no  control,  wheat  may  decline  from 
10  to  20  cents  per  bushel  ?  If  there  were  not  some  way  in  which  he 
can  insure  himself  against  such  a  contingency  it  would  be  doubtful 
if  our  large  elevator  companies  could  remain  in  business  for  any  length 
of  time,  especially  with  their  trade  profit,  under  present  competitive 

Adapted  by  permission  from  S.  S.  Huebner,  "The  Functions  of  Produce 
Exchanges,"  Annals  of  the  American  Academy  of  Political  and  Social  Science, 
XXXVIII  (191 1),  342-49. 


SPECULATIVE  INDUSTRY  505 

conditions,  limited  to  one  or  two  cents  per  bushel.  In  fact  the  leading 
interests  in  the  grain  business  have  testified  before  Government 
Committees  that  hedging  is  absolutely  necessary  to  enable  them  to 
continue  in  business,  and  here  it  may  be  repeated  that  a  hedging  opera- 
tion cannot  be  conducted  without  executing  a  short  sale. 

Now  just  as  soon  as  this  grain  dealer  purchases  the  wheat  in  the 
actual  wheat  market  he  at  once  gives  an  order  to  sell  short  on  some 
exchange  an  equal  amount  in  the  speculative  market  for,  let  us  say, 
September  delivery.  These  two  transactions  are  entirely  distinct. 
The  grain  dealer  does  not  intend  to  deliver  the  wheat  he  actually  holds 
in  fulfilment  of  this  short  sale.  Now  let  us  suppose  that  wheat  rises 
to  $1 .  10  per  bushel.  In  that  case  he  has  a  profit  of  10  cents  per  bushel 
on  the  wheat  he  owns,  since  he  purchased  it  at  $1 . 00.  But,  as  we  have 
seen,  the  price  of  wheat  is  a  world  price  made  such  by  the  operation  of 
arbitrageurs,  and  there  is  every  reason  to  believe  that  if  the  price  of 
cash  wheat  rises  10  cents  a  bushel  the  September  option  will  also  have 
a  rise  of  10  cents,  or  approximately  that  amount.  Since  the  grain 
dealer  sold  short  an  equal  amount  in  the  speculative  market  he  suffers 
a  loss  on  that  transaction  of  10  cents  per  bushel.  The  profit  on  his 
trade  transaction  is  cancelled  by  his  loss  on  the  paper  transaction.  On 
the  other  hand,  supposing  that  wheat  declines  10  cents  per  bushel, 
the  grain  dealer  loses  10  cents  upon  his  trade  wheat,  but  the  10  cents 
lost  here  will  be  cancelled  by  the  10  cent  rise  on  the  short  transaction. 
In  other  words,  whether  wheat  should  rise  to  $2  .00  a  bushel  or  decline 
to  50  cents  a  bushel,  this  dealer  is  always  even  as  regards  the  given 
market.  Whatever  he  makes  by  price  fluctuations  on  the  wheat  he 
holds  is  lost  on  his  paper  transaction  and  vice  versa.  If,  when 
September  arrives,  he  finds  that  circumstances  are  such  as  to  make  it 
necessary  or  desirable  to  hold  his  wheat  longer,  he  may  close  out  his 
September  short  sale  in  the  speculative  market  and  at  once  enter  into 
another  sale  for  a  later  month.  This  shifting  of  hedging  transactions 
from  one  month  to  another  month  is  a  very  common  practice,  although 
where  the  party  interested  is  not  the  holder  of  a  seat  on  the  exchange,  it 
involves  accumulating  commission  charges. 

The  question  will  at  once  be  asked,  since  the  dealer  is  always 
even,  how  does  he  make  his  profit?  Here  we  must  distinguish 
clearly  between  the  trade  profit  and  the  speculative  profit.  This 
grain  dealer  wishes  to  avoid  speculative  risks  and  therefore  makes 
use  of  the  speculative  market  for  the  purpose  of  hedging.  His 
business  consists  in  conveying  his  wheat,  let  us  say,  from  Chicago 


506  INDUSTRIAL  SOCIETY 

to  New  York,  and  it  is  in  the  handling  and  the  transportation  of 
the  grain  from  this  market  to  another  market  that  he  expects  to 
make  a  trade  profit,  which  is  the  result  of  his  knowledge  of  the 
business  and  his  ability  to  render  this  particular  service  in  com- 
petition with  other  dealers. 

The  explanation  given  here  will  apply  differently  in  different 
industries  to  meet  the  needs  of  those  who  wish  to  use  the  exchange 
for  hedging  purposes.  Thus  if  a  manufacturer  wishes  to  buy  cotton 
from  a  commission  man  before  the  cotton  crop  has  matured,  this 
dealer,  although  he  may  not  own  the  cotton,  may  nevertheless  sell 
1,000  bales  of  cotton  short  for  December  delivery  at,  let  us  say,  11  \ 
cents.  He  probably  charged  1  \\  cents  because  he  knew  that  he  could 
at  once  order  his  broker  to  buy  1,000  bales  of  cotton  on  the  exchange  at 
n  cents  a  pound.  He  has  thus  added  \  cent  to  the  price  as  covering 
all  necessary  expenses  and  his  trade  profit.  In  this  case  it  will  be 
noticed  that  the  hedging  operation  is  the  reverse  of  our  previous 
illustration,  the  speculative  transaction  being  a  purchase  and  the 
trade  transaction  a  short  sale.  Now  when  the  time  comes  for  the 
dealer  to  deliver  this  cotton  the  price,  owing  to  a  severe  drought, 
may  have  risen  to  16  cents  per  pound.  When  the  time  for  delivery 
arrives  he  will  go  into  the  actual  cotton  market  and  buy  1,000  bales 
at  16  cents  per  pound,  and,  having  sold  it  at  n|  cents  per  pound 
he  is  out  4I  cents.  But  at  the  time  when  he  buys  the  cotton  in  the  real 
market  for  delivery  he  orders  his  broker  to  close  his  transaction  on  the 
exchange  by  a  sale  of  the  1 ,000  bales.  Having  bought  on  the  exchange 
at  11  cents,  he  now  asks  his  broker  to  sell  at  16  cents,  and  has  a  profit 
of  5  cents  per  pound.  Having  lost  \\  cents  on  the  one  transaction 
and  made  5  cents  on  the  other  he  has  his  one-half  cent  profit.  It 
should  be  stated  again  that  whenever  the  dealer  closes  his  transaction 
in  the  actual  market  he  must  at  once  also  close  the  corresponding 
transaction  in  the  speculative  market. 

In  the  same  way  a  manufacturer  may  be  the  holder  of  a  large 
stock  of  finished  cotton  goods,  or  a  miller  of  flour.  He  is  unable  to  sell 
the  goods  and  fears  a  decline  in  price.  Possibly  a  large  decline  would 
compel  him  to  sacrifice  the  greater  part  of  his  stock.  Other  things 
being  equal,  however,  the  price  of  the  finished  goods  and  the  raw 
material  out  of  which  they  are  manufactured  will  rise  and  fall  together. 
In  that  case  the  manufacturer  may  hedge  by  holding  the  finished  cloth 
or  flour  and  selling  short  that  amount  of  cotton  or  wheat  which  is 
necessary  to  make  the  goods  he  holds.     Consequently  if  he  loses  on 


SPECULATIVE  INDUSTRY  507 

his  finished  goods  because  the  price  goes  down,  he  will  make  about  the 
equivalent  amount  on  his  short  sale  because  cotton  or  wheat  will  also 
decline.  Having  sold  short  he  will  reap  a  profit  on  this  sale,  available 
at  any  time  because  of  the  existence  of  a  continuous  market. 

Even  the  farmers,  who  as  a  class  are  usually  loudest  in  their  com- 
plaints of  the  operation  of  the  exchanges,  are  among  the  greatest 
gainers  through  the  practice  of  hedging.  Were  it  not  possible  for 
large  elevator  companies  and  exporters  to  hedge  their  holdings  of  grain, 
the  farmer  would  be  unable  to  dump  his  large  crops,  as  at  present,  on 
the  market  within  the  three  months  of  the  crop  moving  season  and 
receive  cash  therefor.  No  class  of  middlemen  could  be  induced  to 
take  a  year's  harvest  within  so  short  a  time  and  hold  it  for  gradual 
distribution  during  the  balance  of  the  year;  and  if  any  cared  to  be  such 
reckless  gamblers  it  is  doubtful  if  bankers  would  care  to  finance  their 
operations.  Without  the  hedging  privilege  elevator  owners  and 
grain  dealers  would  be  obliged  to  discount  the  enormous  risk  assumed 
in  buying  large  quantities  of  grain,  and,  to  be  on  the  safe  side,  would 
have  to  make  allowance  for  the  worst  contingency  anticipated  by 
offering  the  farmer  a  much  smaller  price  for  his  grain  than  is  now  given. 
It  is  generally  maintained  by  the  leading  interests  in  the  market  that 
without  the  hedging  privilege  farmers  would  get  an  average  price  at 
least  10  per  cent  less  than  that  prevailing  today. 

In  its  essence,  therefore,  hedging  is  insurance  against  a  real  and 
ever-present  hazard  in  business.  Each  leading  produce  exchange, 
such  as  the  Chicago  Board  of  Trade  or  the  Minneapolis  Chamber  of 
Commerce,  renders  in  this  respect  a  function  as  legitimate  and  useful 
as  our  life  and  fire  insurance  companies;  in  fact  they  should  be 
regarded  as  among  the  greatest  insurance  institutions  in  existence. 
They  underwrite  risks  of  so  dangerous  a  type  that  no  private  insur- 
ance company  has  ever  ventured  to  underwrite  them.  For  a  holder 
of  large  amounts  of  grain  and  cotton  not  to  enter  the  speculative 
market  for  hedging  purposes  is  to  be  a  speculator  of  the  worst  kind, 
yes,  a  gambler.  The  risk  of  losing  the  customary  small  trade  profit, 
and  many  times  more  than  this,  must  be  apparent  when  we  reflect  that 
each  year's  crop  is  financed  to  90  per  cent  of  its  value  on  borrowed 
funds,  and  that  values  often  change  within  a  week  or  two  by  many 
times  the  trade  profit  expected.  The  hazard  is  a  dangerous  one,  and 
the  chance  of  a  heavy  loss  ratio  many  times  greater  than  that  con- 
nected with  any  other  known  form  of  insurance. 

See  also  97.     Produce  Exchanges. 


508  INDUSTRIAL  SOCIETY 

194.    A  CASE  WHERE  ORGANIZED  SPECULATION  WAS 
FORBIDDEN1 

Sometimes  when  public  indignation  has  been  aroused  by  the  opera- 
tion of  brokers  in  certain  lines  there  have  been  attempts  made  to 
stop  all  transactions  in  those  lines;  but  they  have  usually  proved 
disastrous.  In  the  year  1864  the  large  issue  of  paper  currency  had 
driven  gold  out  of  circulation  and  caused  it  to  be  bought  and  sold  as  a 
commodity.  Much  of  it  was  in  the  hands  of  speculators.  When 
its  price  rose  more  than  100  per  cent  it  was  supposed  by  the  public 
that  part  of  this  increase  was  due  to  the  operations  of  these  specula- 
tors. All  gold  speculation  was  therefore  prohibited  by  statute. 
Under  the  excitement  of  public  opinion  in  time  of  war  this  statute 
was  enforced  to  a  far  greater  degree  than  could  have  been  done  in 
peace.  The  effect  was  precisely  the  opposite  of  what  had  been  antici- 
pated. Every  man  who  was  engaged  in  foreign  trade  had  to  provide 
security  for  being  able  to  make  gold  payments  in  the  immediate 
future,  if  called  upon  to  do  so.  Being  prevented  from  dealing  with 
speculators,  he  now  had  to  accumulate  a  reserve  of  his  own.  This 
caused  an  increased  demand  for  gold  at  a  time  when  it  was  unusually 
difficult  to  maintain  an  adequate  supply.  Under  two  weeks'  opera- 
tion of  the  act,  the  price  of  a  hundred  gold  dollars  rose  from  about 
two  hundred  paper  dollars  to  very  nearly  three  hundred.  So  obvious 
was  its  evil  effect  that  it  was  hurriedly  repealed  as  a  means  of  pre- 
venting further  commercial  disasters.  Again,  in  the  early  part  of  1866, 
there  was  a  rise  in  the  price  of  gold,  which  was  attributed  by  public 
opinion  to  the  speculators.  Their  machinations  were  defeated,  not 
by  legislation,  but  by  issue  to  the  market  of  a  part  of  the  gold  lying 
in  the  Treasury  of  the  United  States.  For  the  moment  the  price  of 
gold  fell,  and  people  rejoiced  that  the  plans  of  the  speculators  had 
been  defeated.  But  a  short  time  later,  when  the  war  between 
Prussia  and  Austria  caused  a  demand  for  gold  in  Europe,  there  were 
large  exports  of  the  metal,  and  its  price  rose  by  natural  causes.  The 
United  States  was  obliged  to  put  back,  at  a  decided  loss,  a  part  of 
the  gold  which  the  Treasury  had  so  unwisely  issued.  It  turned  out  in 
the  end  that  the  operations  of  the  speculators  in  anticipating  the  wants 
of  the  future  would  have  prevented  a  loss  to  the  country,  and  the 
attempt  of  the  Treasury  to  defeat  those  operations  was  attended  with 
expense  both  to  the  government  and  to  the  mercantile  community. 

1  Taken  by  permission  from  A.  T.  Hadley,  Economics,  pp.  108-10.  (G.  P. 
Putnam's  Sons,  1899.) 


SPECULATIVE  INDUSTRY  509 

195.    REDUCTION  OF  RISK  BY  SOCIAL  CONTROL 

The  capitalists  and  entrepreneurs  of  modern  industrial  society 
are  continually  striving  to  reduce  their  risks  by  the  method  of  social 
control.  In  the  more  formal  kinds  of  social  control  such  as  law  and 
government,  instances  are  numerous.  Statistical  bureaus  for  the 
furthering  of  scientific  knowledge  of  industrial  problems  are  set  up. 
Projects  for  securing  a  stable  medium  of  exchange  are  worked  upon. 
The  attempt  is  made  to  stabilize  our  entire  financial  structure  by  a 
Federal  Reserve  act.  One  could  not  in  a  day  enumerate  all  of  the 
cases.  In  type  perhaps  they  may  be  characterized  as  (a)  prohibitive 
intervention,  in  which  certain  harmful  practices  are  forbidden;  for 
example,  the  laws  regarding  theft;  (b)  mandatory  intervention,  in 
which  it  is  insisted  that  certain  acts  tending  to  standardize  and  stabi- 
lize industrial  affairs  must  be  performed,  notable  illustrations  occurring 
in  connection  with  public  service  companies;  (c)  promotive  interven- 
tions, in  which  conditions  are  so  adjusted  as  to  make  it  possible  for 
individuals  to  work  under  more  standard  and  stable  conditions;  for 
example,  a  protective  tariff  or  a  Federal  Reserve  act,  or  our  laws 
concerning  the  carrying  out  of  contracts. 

Informal  social  control,  as  manifested  in  such  agencies  as  public 
opinion  and  codes  of  ethics,  is  also  summoned  to  aid  in  the  reduction 
of  industrial  risks.  We  hear  much  of  the  moral  responsibility  which  a 
banker  should  feel  in  conducting  his  operations.  Advertising  propa- 
ganda by  railways  and  armor  plate  companies  with  the  design  of 
securing  a  more  hospitable  public  opinion  has  not  been  unknown. 
Leagues  are  formed  to  educate  congressmen  and  their  constituencies 
to  the  wisdom,  nay  the  necessity,  of  legislation  of  the  types  referred 
to  above. 

196.    REGULATION  OF  PRODUCTION  THROUGH 
COMBINATIONS1 

Q.  People  championing  the  industrial  and  railroad  combina- 
tions claim  that  the  railroad  combinations  and  the  industrial  com- 
binations are  able  to  do  two  things:  They  effect  such  economies  and 
savings  in  transportation  and  manufacturing  that  they  are  very  impor- 
tant factors  in  keeping  the  balance  of  trade  in  favor  of  this  country; 
and  the  other  claim  is  that  they  are  able  to  keep  the  production  so  even 
with  the  demand  that  there  is  no  overproduction,  and  thereby  they 

1  From  the  Report  of  the  Industrial  Commission,  1901,  XIII,  109. 


$10  INDUSTRIAL  SOCIETY 

are  able  to  avert  panics  and  financial  crises.  I  would  like  to  ask 
you  if  you  have  any  opinions  on  these  two  points  that  you  would  care 
to  give  to  the  Commission? — A.  I  have  no  doubt  that  both  the 
propositions  stated  by  you  are  well  founded,  if  I  correctly  understand 
them.  Take,  for  instance,  the  United  States  Steel  Corporation  just 
organized.  That  organization  became  an  absolute  necessity  under 
the  situation  confronting  Mr.  Morgan.  Here  was  the  Carnegie 
Company,  which,  by  the  way,  was  not  a  so-called  trust  up  to  a  year 
or  so  ago,  but  a  mere  co-partnership.  Here  this  company  dominated 
the  steel  situation.  It  was  threatening  to  invade  the  territory  of  all 
the  other  steel  concerns  and  bring  about  a  general  demoralization  of 
prices,  and  undoubtedly  an  overproduction,  which  would  have 
thrown  thousands  of  men  out  of  employment  for  a  considerable  period, 
and  would  have  brought  about  in  the  end  a  devastating  and  destruc- 
tive panic.  Seeing  that  situation,  Mr.  Morgan  stepped  to  the  front 
and  devised  a  system  by  which  practically  the  entire  steel  business  of 
the  country  could  be  brought  under  control,  and  whereby  the  dangers 
that  confronted  the  country  could  be  averted;  and  that  company,  if  it 
is  wisely  managed,  as  it  undoubtedly  will  be,  will  prove  to  be  a  regu- 
lator. It  will  sell  its  products  at  as  low  a  profit  as  it  is  possible  for 
any  concern  to  do,  because  it  can  manufacture  cheaper  than  any  small 
concern  that  can  compete  with  it.  Its  own  interests  will  force  it  to 
pursue  a  course  that  will  be  conducive  to  the  interests  of  both  the 
public  and  the  people  wlio  purchase  and  consume  its  products.  It 
seems  to  me  that  that  is  a  case  very  much  in  point  in  connection  with 
your  question,  and  I  think  it  will  be  of  an  inestimable  benefit  to  the 
country  that  that  combination  was  formed  when  and  as  it  was. 

Q.  Do  you  think  that  these  combinations,  being  able  to  regulate 
or  control  production,  will  have  a  great  influence  in  averting  panics 
such  as  we  have  had  in  the  past  ? — A.  I  think  there  is  no  question 
about  it. 

Q.  Do  you  think  that  idea  is  and  has  been  in  the  minds  of  the 
men  who  have  brought  about  these  combinations? — A.  I  have  no 
doubt  of  it. 


SPECULATIVE  INDUSTRY  51 1 

197.    DOES  PRICE  MAINTENANCE  PROMOTE  STABILITY? 


Professor  Taussig  defines  price  maintenance  as  "the  practice 
among  manufacturers  of  prescribing  the  prices  at  which  their  wares 
shall  be  sold  by  retail  dealers." 

This  definition  is  not  a  complete  statement  of  what  price  main- 
tenance is,  nor  is  it  accurate  as  far  as  it  goes. 

The  first  serious  objection  is  connected  with  his  idea  that  the 
manufacturer  alone  dictates  the  price.  He  may  or  he  may  not  do  so. 
Price  maintenance  ordinarily  takes  a  form  in  which  the  resale  price 
is  the  subject  of  a  contract  or  agreement  between  the  manufacturer 
and  one  or  more  distributors.  Furthermore,  this  ordinarily  is  an 
agreement,  not  upon. a  price  arbitrarily  set,  but  upon  one  of  certain 
generally  accepted  prices  for  kindred  goods.  This  price,  it  is  stipu- 
lated is  to  be  received  for  the  goods  in  question  upon  resale.  Obvi- 
ously the  choice  is  not  between  the  manufacturer  on  the  one  hand 
or  the  consumer  on  the  other  hand  determining  the  price,  but  it  is  be- 
tween the  manufacturer  and  one  or  more  of  the  distributors  in  agree- 
ment together  on  the  one  hand,  and  the  final  distributor  (or  retailer) 
alone  on  the  other.  This  right  of  the  manufacturer  and  distributor 
to  agree  upon  the  resale  price  is  the  most  important  element  of  the 
price-maintenance  problem. 

Secondly,  Professor  Taussig  implies  that,  the  prices  to  be  fixed 
will  be  uniform  and  permanent.  The  exercise  of  this  right  may  or 
may  not  result  in  the  prices  agreed  upon  being  uniform  in  all  parts 
of  the  country.  Uniformity  of  prices  in  all  markets  has  been  given 
undue  prominence  in  price-maintenance  discussions.  This  is  not  an 
essential  feature.  The  question  of  quantity  discounts,  the  questions 
whether  freight  is  to  be  included  or  not,  and  kindred  problems,  con- 
stantly arise  for  consideration,  even  where  uniformity  is  attempted. 
Moreover,  as  long  as  there  is  no  monopoly  or  manufacturer's  agree- 
ment on  prices,  price  levels  may  change.  As  a  matter  of  fact,  they 
are  changing  constantly.  In  the  automobile  industry,  for  instance, 
where  price  maintenance  has  been  employed  by  the  agency  method, 
the  price  levels  have  tended  constantly  downward.  No  advocate 
of  price  maintenance  objects  to  this,  but  he  does  contend  that  the 
manufacturer  and  the  distributor  ought  to  have  the  right  to  agree 

1  Adapted  from  P.  T.  Cherington,  "Discussion  of  Price  Maintenance,"  Ameri- 
can Economic  Review,  VI,  Supplement  (1916),  199-200. 


512  INDUSTRIAL  SOCIETY 

upon  the  way  in  which  prices  should  come  down,  instead  of  leaving 
this  entirely  to  the  final  retailer. 

Furthermore,  the  price-maintenance  agitation  is  concerned  entirely 
with  identified  goods  made  and  sold  under  competitive  conditions. 
These  facts  ought  to  be  made  a  part  of  any  definition. 

These  changes,  if  introduced  in  Professor  Taussig's  definition, 
would  modify  it  to  read  about  as  follows:  Price  maintenance  is  the 
arrangement  by  which  manufacturers  of  identified  merchandise,  made 
and  sold  under  competitive  conditions,  agree  with  some  or  all  of  the 
distributors  of  this  merchandise  concerning  the  price  at  which  it  is  to  be 
resold. 

B1 

A  proper  system  of  resale  price  maintenance  does  not  aim  to  set 
standard  price  levels  but  to  see  that  those  price  levels,  once  established, 
shall  not  lose  their  effectiveness  as  a  basis  for  quality  competition  and 
service  competition. 

From  the  point  of  view  of  costs  and  profits,  a  system  of  price 
maintenance  as  a  protection  to  the  public  interest  has  distinct  ad- 
vantages over  any  system  of  unrestricted  prices.  Production  costs 
can  best  be  kept  down  to  a  minimum  by  a  careful  adjustment  to  known 
price  standards.  Production  profits  under  the  conditions  specified 
are  competitive,  and,  therefore,  cannot  ordinarily  be  predatory. 
Distribution  costs  are  materially  reduced  by  the  increased  speed  of 
sale  which  is  the  result  of  identification  of  the  merchandise  and  the 
stimulation  of  demand  by  advertising.  This  general  stimulation 
throughout  the  country  has  shown  itself,  in  many  lines  of  merchandise, 
to  be  a  more  effectual  method  of  speeding  turn-over  than  dependence 
upon  the  skill  of  local  merchants.  Distribution  profits  under  a 
properly  safeguarded  system  of  price  maintenance  are  kept  from 
ever  assuming  an  extortionate  size. 

Unrestricted  prices  are  not  a  benefit  to  the  public  at  large  for  the 
following  reasons : 

i.  The  sale  of  merchandise  at  unrestricted  prices  fosters  monopoly 
as  it  concentrates  distribution  into  the  hands  of  the  few. 

2.  This  form  of  competition  is  neither  fair  nor  honest  as  the  only 
aim  is  to  secure  the  legitimate  patrons  of  others  with  the  ultimate 
end  of  making  up  losses  by  other  sales  at  advanced  prices. 

1  Adapted  from  Report  on  Price  Maintenance,  by  Chamber  of  Commerce 
of  the  United  States,  April  i,  1916. 


SPECULATIVE  INDUSTRY  513 

3.  It  is  neither  fair  nor  honest  because  each  item  of  merchandise 
should  bear  its  proportion  of  overhead  expense,  and  when  goods  are 
sold  at  cost  or  less  this  cannot  be  done. 

4.  It  is  not  fair  or  just  to  the  small  dealer  whose  distribution  is  at 
best  limited  and  who  therefore  cannot  compete.  The  ability  of  the 
business  man  of  small  means  should  not  be  handicapped  and  his  use- 
fulness and  success  denied  him  because  unfair  methods  of  selling 
merchandise  deny  him  his  right. 

5.  It  is  not  fair  to  the  manufacturer  who  desires  to  protect  the 
retail  price  of  his  produce  and  who  sees  his  created  demand  destroyed 
by  reckless  and  unfair  price-cutting. 

6.  It  is  not  just  to  the  city  or  state  because  the  concentration  of 
the  retail  business  in  the  hands  of  the  few  depreciates  the  value  of 
real  property  which  remains  untenanted  and  of  stocks  that  might 
be  subject  to  taxation. 

7.  It  is  not  of  advantage  to  the  public  as  it  denies  employment 
to  many  who  might  otherwise  be  employed  in  smaller  stores. 

8.  It  is  not  fair  to  the  public  because  it  destroys  the  social  advan- 
tages growing  out  of  adequate  inducements  to  inventors  to  produce 
new  goods. 

9.  It  is  not  fair  to  the  public  because  it  destroys  the  social 
advantages  of  such  distribution  conveniences  as  are  represented 
by  neighborhood  stores  and  by  small  but  skilful  merchants. 

10.  The  only  concerns  that  are  benefited  are  those  which  pursue 
the  methods  of  wreck  and  ruin  for  the  small  merchant,  in  order  that  the 
public  may  be  inconvenienced  and  deceived  in  the  long  run. 

n.  The  laborer  is  worthy  of  his  hire,  the  farmer  of  proper  pro- 
tection, and  the  small  dealer,  the  retailer,  in  like  measure,  that  he  may 
be  able  to  exist. 

12.  Restricted  prices  would  tend  to  the  prosperity  of  both  the 
large  and  small  merchant  inasmuch  as  a  guaranteed  profit  would  make 
both  prosperous  in  a  deserving  measure. 


5i4  INDUSTRIAL  SOCIETY 

198.    KNOWLEDGE  AND  INFORMATION  IN  RELATION 
TO  RISK-TAKING 


The  ablest  bankers,  merchants,  and  investors  collect  data  under 
twelve  headings,  or  on  about  twenty-five  subjects,  as  follows: 

I.  Buildings  and  real  estate:  (1)  including  all  new  building  and 
fire  losses. 

II.  Bank  clearings:  (2)  total  bank  clearings,  (3)  bank  clearings 
excluding  New  York. 

III.  Business  failures :  (4)  failures,  by  number,  amount  of  liabili- 
ties, and  percentage  of  failures  to  number  of  firms  in  business. 

IV.  Labor  conditions:    (5)  immigration  figures. 

V.  Money  conditions:  (6)  money  in  circulation,  (7)  comptroller's 
reports,  (8)  loans  of  the  banks,  (9)  cash  held  by  the  banks,  (10)  de- 
posits of  banks,  (11)  surplus  reserve  of  banks. 

VI.  Foreign  trade:  (12)  imports,  (13)  exports,  (14)  balance  of  trade. 

VII.  Gold  movements:  (15)  gold  exports  and  imports,  (16)  domes- 
tic and  foreign  exchange  and  money  rates. 

VIII.  Commodity  prices:  (17)  production  of  gold,  (18)  com- 
modity prices. 

IX.  Investment  market:  (19)  stock  exchange  transactions, 
(20)  new  securities. 

X.  Condition  of  crops:  (21)  crop  conditions  and  production  of 
other  commodities. 

XI.  Railroad  earnings:  (22)  gross  and  net  earnings,  (23)  idle- 
car  figures,  (24)  miscellaneous. 

XII.  Social  conditions:   (25)  political  factors. 

The  twelve  headings  already  described  are  arranged  so  they  may 
be  grouped  and  classified  under  the  three  following  divisions.  These 
divisions  are  purely  arbitrary,  as  every  subject  affects  in  some  man- 
ner each  of  the  three  divisions. 

Corporations  and  merchants  especially  study: 
New  building  and  iron  production 
Bank  clearings 
Business  failures 
Labor  conditions 
Earnings,  crops,  politics,  etc. 

1  Adapted  by  permission  from  R.  W.  Babson,  "Barometric  Indices  of  the 
Conditions  of  Trade,"  Annals  of  the  American  Academy  of  Political  and  Social 
Science,  XXXV  (1910),  596,  608-9. 


SPECULATIVE  INDUSTRY  515 

Bankers  and  others  loaning  money  especially  study : 
Money  conditions 
Foreign  trade 

Gold  movements  and  foreign  money  rates 
Commodity  prices 
Clearings,  failures,  politics,  etc. 

Stock  exchange  firms,  bond  houses,  and  investors  especially  study: 
Prices  and  transactions 
Crop  statistics 
Railroad  earnings 
Social  and  political  factors 
All  figures  on  mercantile  and  monetary  conditions 

B1 

Information  dealing  with  the  metal  market  may  be  grouped  under 
three  heads,  viz.:  (1)  sources  of  current  statistics;  (2)  trade  papers 
publishing  current  information;  (3)  annual  statistical  publications. 
The  following  are  the  important  ones: 

1.  Sources  of  Current  Statistics 

A.  United  States  Statistics: 

American  Iron  and  Steel  Association,  261  S.  Fourth  St.,  Phila- 
delphia 

Copper  Producers'  Association,  No.  1  Liberty  Street,  New 
York 

Horace  J.  Stevens,  ed.  The  Copper  Handbook,  Houghton, 
Michigan 

The  Iron  Trade  Review,  Cleveland,  Ohio 

Engineering  and  Mining  Journal,  New  York 

United  States  Steel  Corporation  Monthly  Report  of  unfilled 
orders 

Customs  House  returns 

B.  English  and  Foreign  Statistics: 
Julius  Matton,  25  Rood  Lane,  London 
Henry  Merton  &  Co.,  Ltd.,  London 
Vivian,  Younger  &  Bond,  London 

1  Adapted  by  permission  from  B.  D.  Mudgett,  "Current  Sources  of  Informa- 
tion in  Produce  Markets,"  Annals  of  the  American  Academy  of  Political  and  Social 
Science,  XXXVIII  (191 1),  438~39- 


516  INDUSTRIAL  SOCIETY 

2.  Trade  Papers  Publishing  Current  Information 

The  Journal  of  Commerce  and  Commercial  Bulletin,  New  York 

The  Iron  and  Coal  Trades  Review,  London 

The  Iron  Trade  Review,  Cleveland 

The  Iron  Age,  New  York 

Mineral  Industry,  New  York 

Engineering  and  Mining  Journal,  New  York 

American  Metal  Market  and  Daily  Iron  and  Steel  Report,  pub- 
lished by  the  American  Metal  Market  Co.,  81  Fulton  St.,  New 
York 

The  Steel  and  Metal  Digest  (monthly),  published  by  the  American 
Metal  Market  Co.,  81  Fulton  St.,  New  York. 

Bulletin  of  the  American  Iron  and  Steel  Association,  261  S.  Fourth 
St.,  Philadelphia 

3.  Annual  Statistical  Publications 

Statistical  Report  of  the  American  Iron  and  Steel  Association,  261 

S.  Fourth  St.,  Philadelphia 
Metal  Statistics,  published  by  the  American  Metal  Market  Co., 

81  Fulton  St.,  New  York 
Publications  of  the  United  States  Geological  Survey 
Commerce  and  Navigation  of  the  United  States,  published  by  the 

Bureau  of  Statistics,  Washington,  D.C. 
The  Copper  Handbook,  published  by  Horace  J.  Stevens,  Houghton, 

Michigan 
Comparative  Statistics  of  Lead,  Copper,  Spelter,  Tin,  Aluminum, 

Nickel,  Quicksilver,  and  Silver,  compiled  by  the  Metalsgesell- 

schaft,  the  Metallurgische-Gesellschaf t  A.-G.,  and  the  Berg-  und 

Metalbank  Aktiengesellschaft,  Frankfurt-am-Main,  Germany 
Directory  of  Iron  and  Steel  Works  in  the  United  States,  published 

by  the  American  Iron  and  Steel  Association. 

199.    THE  ENTREPRENEUR  AS  A  RISK-TAKER1 

The  incomes  which  business:  men  secure  through  their  ability  to 
adjust  themselves  to  changes  in  the  market,  though  not  technically 
produced,  are  yet  in  a  sense  earned.  By  putting  their  capital  at 
hazard  and  agreeing  to  pay  stipulated  wages,  rent  and  interest,  for  the 
factors  which  they  hire,  they  relieve  the  owners  of  these  factors  from  a 

1  Adapted  by  permission  from  T.  N.  Carver,  The  Distribution  of  Wealth, 
pp.  269-75.     (The  Macmillan  Co.,  1904.) 


SPECULATIVE  INDUSTRY  517 

certain  amount  of  risk.  Even  these  men  may  lose  through  the  failure 
of  a  business  man,  but  not,  under  the  law,  until  he  has  lost  all  his  own 
capital.  Their  risk  is  therefore  reduced  by  having  his  capital  placed 
in  the  position  of  greatest  hazard— that  is,  in  the  position  where  losses 
strike  it  first  and  never  reach  the  other  factors  until  it  has  all  been 
wiped  out.  In  so  far  as  these  other  factors  are  made  somewhat  safer 
by  this  process  they  can  well  afford  to  receive  something  less  on  the 
average  than  they  might  otherwise  receive,  leaving  the  business  man 
something  of  a  surplus  in  the  long  run  to  compensate  him  for  his 
greater  risk. 

This  part  of  the  business  man's  profits  is  analogous  to  the  profits 
of  an  insurance  company,  which  are,  of  course,  different  from  the 
premiums  received.  The  real  reward  of  the  insurer,  whether  he  be 
an  ordinary  business  man  or  a  chartered  insurance  company,  is  to  be 
found  in  the  excess  of  gains  over  losses. ,  In  the  case  of  the  insurance 
company  it  is  the  total  premiums  received  for  assuming  the  risk  minus 
the  losses  consequent  upon  assuming  the  .risk.  Here  the  question 
arises:  How  does  there  happen  to  be  a  difference?  Why  will  the 
patrons  of  an  insurance  company  pay  it  more  than  their  total  losses, 
thus  leaving  the  company  a  profit?  Evidently  because  the  risk  to 
the  insurer  is  less  than  to  the  insured.  In  the  case  of  fire  insurance, 
for  example,  the  loss  to  the  insurer  in  case  of  fire  would  include  only  the 
money  value  of  the  buildings  and  goods  destroyed;  but  in  the  case 
of  the  insured  it  would  also  include  shrunken  credit  and  crippled 
business.  Having  capital  of  his  own,  his  credit  is  good  for  a  certain 
amount  in  addition,  but  a.  part,  at  least,  of  that  credit  vanishes  with 
his  capital.  More  important  still  is  the  effect  of  a  large  and  sudden 
loss  as  compared  with  small  annual  payments  upon  his  consumption. 

It  is  evident  that  in  the  case  of  the  business  man,  as  was  shown  to 
be  true  in  the  case  of  the  insurance  company,  so  much  of  his  gross 
income  as  is  necessary  to  cover  his  real  risk,  or  to  make  good  his  losses, 
is  not  to  be  classed  as  profits.  Only  that  which  he  wins  because  of 
favorable  changes  in  the  market,  over  and  above  what  he  loses  because 
of  unfavorable  changes,  can  be  so  classed.  How  does  there  happen  to 
be  a  surplus  in  this  case  ?  It  must  be,  as  in  the  former  case,  because 
the  risk  to  him  is  less  than  it  would  be  to  those  whom  he  relieves  of  it. 
As  compared  with  the  laborers,  it  is  probable  that  a  given  loss  would 
affect  him  less  seriously  than  it  would  them.  The  loss  of  any  con- 
siderable part  of  their  wages,  which  would  frequently  happen  if  they 
bore  their  own  risk,  or  took  their  own  chances  with  the  market  for  their 


518  INDUSTRIAL  SOCIETY 

products,  would  mean  serious  deprivation.  But  there  is  no  reason 
for  believing  that  a  given  loss  would  on  the  average  affect  the  business 
man  less  seriously  than  it  would  the  landlord  and  the  capitalist  of 
whom  he  hires  his  land  and  capital.  They  are  usually  in  as  good  a 
position  to  bear  a  loss  as  he  is.  But  there  are  reasons  for  believing 
that  the  skilful  business  man  will  experience  fewer  losses  than  would  be 
experienced  by  those  whom  he  relieves  of  risk,  whether  they  be  laborers 
landlords,  or  capitalists.  This  is  due  to  no  actuarial  principle,  as  in 
the  case  of  the  insurance  company,  but  to  the  business  man's  superior 
foresight  and  skill  in  avoiding  losses.  That  is  a  part  of  his  special 
function,  and  in  the  performance  of  it  he  can  be  assumed  to  develop 
special  skill.  This  part  of  his  income  is,  therefore,  due  to  the  fact 
that  he  is  able  to  avoid  losses  more  effectively  than  the  others  whom 
he  relieves  of  their  risks.  Even  if  he  pays  them  what  they  might  be 
expected  to  earn  on  the  average  and  in  the  long  run — counting  the 
losses  with  the  gains  resulting  from  fluctuations  of  the  market  and 
other  fortuitous  circumstances — by  so  managing  the  business  that  the 
losses  are  reduced  and  the  gains  increased,  the  business  man  will  find 
himself  in  the  possession  of  a  surplus  without  having  robbed  or  out- 
bargained anyone.  This  means  that  this  part  of  his  surplus  is  due  to 
the  fact  that  he  is  able  to  reduce  the  risk  which  he  assumes  below  that 
which  the  others  would  have  had  to  carry  if  he  had  not  relieved  them. 
But  even  if  the  business  man  is  not  able  to  avoid  losses  more 
successfully  than  the  others  whom  he  relieves  of  risk,  he  may  still 
secure  an  income  through  his  function  as  a  risk-taker.  The  owner 
of  any  factor  of  production  will  ordinarily  accept  as  hire  something 
less  than  its  average  marginal  product,  on  condition  that  he  is  relieved 
of  risk. 

See  also  ioo.  The  Enterpriser. 

326.  The  Entrepreneur  and  the  Capitalist. 

327.  The  Functions  of  the  Entrepreneur. 

328.  Is  the  Entrepreneur  Active  or  Passive  ? 

200.    THE  RISK  THEORY  OF  PROFIT1 
[Note. — The  following  statement  is  designed  to  show  on  what 

grounds  some  writers  regard  profits  a  return  for  risk-taking.] 

First,  the  distinguishing  peculiarity  of  the  entrepreneur  is  not  that 

he  is  a  co-ordinator,  but  is  to  be  found  in  his  ownership  of  the  product. 

1  Taken  by  permission  from  F.  B.  Hawley,  "The  Risk  Theory  of  Profit," 
Quarterly  Journal  of  Economics,  VII  (1892-93),  478-79. 


SPECULATIVE  INDUSTRY  519 

Secondly,  as  the  ownership  of  the  product  implies  that  the  con- 
tinuance of  risk  and  the  indetermination  of  the  amount  of  the  residue 
are  always  coexistent,  the  residue  of  the  product  must  constitute  the 
reward  for  risk,  and  the  only  possible  inducement  to  incur  risk. 

Thirdly,  that  the  mere  calculation  of  the  subjective  value  of  a  risk 
does  not  make  such  value  a  constituent  of  cost — to  become  a  cost 
the  anticipated  loss  must  be  actually  suffered  or  the  risk  itself  trans- 
ferred to  another  with  a  consideration;  that  such  a  transfer  is  simply 
the  division  between  two  undertakers,  both  of  the  risk  itself  and  of 
the  residue  of  the  product,  which  is  its  reward;  and  that  the  insurer 
of  a  risk,  despite  his  receiving  a  specified  sum  for  taking  it  upon  him- 
self, nevertheless  looks  to  a  residue  for  his  remuneration. 

Fourthly,  no  one  ever  assumes  a  risk  for  a  consideration  only  equal 
to  its  subjective  value  to  himself,  when  he  can  get  more  for  doing  it. 
His  subjective  valuation  marks  the  limit  below  which  his  anticipations 
of  reward  will  not  go;  but  the  amount  he  will  exact  is  really  deter- 
mined by  the  subjective  valuation  his  would-be  competitor,  just 
deterred  from  assuming  the  same  risk,  places  upon  it,  allowance  being 
made  for  the  special  facilities  possessed  by  each. 

Fifthly,  that  the  excess  afforded  by  the  residue  over  the  under- 
taker's subjective  valuation  of  his  risk  is  a  monopoly  gain  and  a  part 
of  the  profit  of  the  entrepreneur,  but  is  not  a  fundamentally  distinct 
form  of  income,  being  only  an  increment  or  augmentation  of  the 
reward  for  risk,  because  the  influence  of  monopoly  is  distributive 
*rather  than  productive. 

Sixthly,  that  not  only  such  things  as  have  present  value  and  are 
capital  can  be  risked,  but  also  things  of  present  value  that  are  not 
capital,  such  as  land,  and  things  of  only  prospective  value,  such  as 
wages,  salaries,  and  interest  yet  to  be  earned,  and  even  reputation. 
Industrial  venturing  is  not,  therefore,  the  peculiar  and  exclusive 
function  of  the  capitalist;  and,  even  when  capital  is  ventured,  the 
venturing  of  it  is  a  function  of  its  actual  possessor,  the  entrepreneur, 
and  not  of  the  mere  claimant,  which  the  capitalist  is. 

Seventhly,  that  enterprise,  or  risk-taking,  is  to  be  ranked  along 
with  land,  labor,  and  capital,  as  one  of  the  four  fundamental  divisions 
of  the  productive  forces,  and  profit,  its  reward,  is  to  be  classed  with 
rent,  wages,  and  interest  as  one  of  the  four  radically  distinct  forms 
of  income. 


CHAPTER  IX 

THE  WAGE  SYSTEM  AND  THE  WORKER 
A.     Problems  at  Issue 

"The  worker"  is  here  used  in  the  popular  sense  of  the  term, 
meaning  the  wage-earner.  In  the  language  of  technical  economics 
the  term  sometimes  has  wider  significance,  including,  for  example, 
the  physician,  the  lawyer,  and  many  others.  But  for  our  present 
purposes  "worker"  means  the  dependent  worker — dependent,  that  is, 
upon  an  employer  for  his  hire. 

When  the  discussion  is  thus  narrowed  to  the  dependent  worker,  it 
is  apparent  that  he  is,  to  a  considerable  extent,  subject  to  the  risks 
and  uncertainties  of  capital.  If  the  position  of  capital  is  insecure,  the 
worker  will  be  insecure  in  his  employment  and  thus  his  livelihood 
is  uncertain.  Notwithstanding  the  fact  that  the  -entrepreneur  serves 
as  a  sort  of  insurance  concern  for  the  worker,  as  was  seen  in  the  pre- 
ceding section;  notwithstanding  the  fact  that  the  large  indirect  costs 
of  modern  industry  bring  some  pressure  upon  the  entrepreneur,  in 
a  period  of  waning  demand  for  the  product,  to  retain  his  workers 
longer  than  was  the  case  under  the  domestic  system,  it  still  remains 
true  as  a  broad  generalization  that  the  worker  is  liable  to  suffer  from ' 
the  uncertainties  in  which  capital  and  management  find  themselves. 
It  matters  not  at  all  that  the  worker  has  had  little,  if  any,  part  in 
bringing  about  the  state  of  affairs  which  has  caused  these  uncertainties. 

And  there  are  other  uncertainties  for  the  worker  even  when  capital 
is  quite  secure.  Industrial  accident,  occupational  disease,  fatigue, 
inadequate  wage,  inadequate  opportunity,  are  all  possibilities  and 
in  thousands  of  cases  they  become  actualities.  These  uncertain- 
ties arise  in  part  from  the  nature  of  the  technical  processes  of 
modern  industry;  in  part  from  the  position  in  which  the  worker  finds 
himself  in  industrial  society;  in  part  from  inadequate  and  at  times 
even  hostile  social  control. 

The  evils  of  the  situation  are  countenanced  by  no  one.  Opinions 
vary  concerning  the  proper  corrective  measures.  We  are  not  now 
concerned  in  passing  judgment  upon  these  measures.  Much  more 
study  should  be  undertaken  before  we  should  attempt  such  a  thing. 

520 


THE  WAGE  SYSTEM  AND  THE  WORKER  521 

Our  present  task  is  to  see  the  situation,  appraise  the  causes,  and  take 
cognizance  of  the  structures  arising  in  our  society  to  meet  the  case. 

It  must  not  be  supposed  that  there  is  nothing  but  evil  in  the  situa- 
tion. There  are  many  elements  of  certainty  and  security.  Then,  too, 
many  of  the  matters  open  to  criticism  are  not  really  constituent  parts 
of  the  wage  system,  properly  understood.  Indeed  they  are  some- 
times directly  antagonistic  to  it.  Professor  Fetter  has  defined  the 
wage  system  as  "the  organization  of  industry  wherein  some  men, 
owning  and  directing  capital,  buy  at  their  competitive  value  the 
services  of  men  without  capital."  A.  moment's  reflection  will  show 
that  it  is  not  an  essential  part  of  the  wage  system  that  the  parties 
should  be  unequal  in  the  competitive  struggle.  Quite  the  reverse. 
As  Fetter  says  "the  typical  wage  system  would  be  one  in  which  all 
such  hindrances  were  lacking,  in  which  there  were  no  social  or  political 
limitations  on  free  competition  except  such  as  would  help  in  educating 
and  training  the  worker." 

Are  we,  in  our  present  wage  system,  developing  social  classes  or 
are  we  merely  developing  ever-changing  plastic  social  groups  ?  The 
best  opinion  inclines  to  the  latter  view,  but  the  situation  is  well 
worth  canvassing  so  that  we  may  have  some  appreciation  of  the 
factors  making  for  and  against  rigidity  in  social  stratification. 

QUESTIONS 

1.  What  interest  has  society  at  large  in  the  status  and  progress  of  the 
worker  ?  On  what  possible  grounds  could  one  advocate  a  fair  living 
wage  for  workers  ?  Could  it  at  all  be  urged  from  the  point  of  view  of 
society  as  a  whole  ?  ( 

•  2.  "The  worker  is  the  victim  of  all  the  causes  of  insecurity  affecting 
capital  and  has  others  peculiar  to  his  own  lot."  Is  this  true  ?  What 
are  some  of  those  peculiar  to  his  own  lot  ? 

3.  The  insecurity  of  labor  has  been  ascribed  to  one  or  more  of  the  following: 
(a)  the  machine  system;  (b)  production  on  a  large  scale;  (c)  pecuniary 
competition;  (d)  the  sensitiveness  of  modern  industry;  (e)  the  scheme 
of  prices;  (/)  the  rhythm  of  the  business  cycle;  (g)  the  rapid  develop- 
ment of  technique;  (h)  dependence  upon  distant  and  future  markets; 
(i)  specialization.  Are  these  points  well  taken?  Do  they  make  for 
insecurity  of  capital  ? 

4.  People  talk  of  the  labor  problem.  Is  there  really  a  single  labor  problem  ? 
If  so,  what  is  it  ? 

5.  Presumably  one  thing  in  which  we  are  interested  is  that  of  having  as 
large  and  efficient  a  labor  force  as  possible  in  order  to  do  the  work  society 


522  INDUSTRIAL  SOCIETY 

needs  to  have  done.  Is  a  waste  of  labor  power  involved  in  (a)  the  care 
of  the  sick  ?  (6)  the  care  of  persons  too  young  to  work  ?  (c)  the  care  of 
persons  too  old  to  work  ?  (d)  compulsory  school  attendance  ?  (e)  prema- 
ture death?  (/)  militarism?  (g)  debauchery? 

6.  May  the  problems  of  unemployment  be  expected  to  become  less  acute 
if  the  pecuniary  organization  of  society  is  perfected  ?  If  the  rhythm  of 
the  trade  cycle  is  lessened  ?  if  our  tariff  policy  becomes  more  stable  ? 
if  the  railroad  systems  are  brought  under  government  ownership  ?  if 
regulated  monopoly  displaces  competition  quite  extensively?  if  the 
volume  of  immigration  is  reduced  ?  if  the  government  prescribes  con- 
ditions of  employment  and  rates  of  wages  ?  if  collective  bargaining 
becomes  universal  ?  if  industrial  development  proceeds  at  a  slower  rate  ? 
if  society  adopts  socialism  ? 

7.  What  are  the  causes  of  unemployment  ?  What  is  meant  by  saying  its 
consequences  are  cumulative  ? 

8.  Has  machinery  increased  or  diminished  unemployment  ? 

9.  "It  is  worth  noting  that  a  change  in  industrial  structure  is  not  in  itself 
a  cause  of  unemployment.  It  may  cause  a  man  to  lose  his  last  job; 
it  does  not  explain  what  prevents  him  from  getting  a  new  one."  Assume 
this  to  be  true.     What  does  prevent  him  from  getting  a  new  one  ? 

10.  "Industry  today  is  mobile.  For  any  agent  in  modern  industry  to  be 
reasonably  secure  it  must  therefore  be  mobile,  but  mobility  is,  by  force  of 
circumstances,  forbidden  the  worker."     Examine  this  position. 

11.  "The  machine  technology  covers  so  small  a  fraction  of  the  life-history 
of  mankind  that  its  discipline  has  not  yet  produced  a  mechanically 
standardized  race."     What  does  this  mean  ?     What  of  it  ? 

12.  Are  you  inclined  to  attribute  the  nervous  breakdowns  so  frequent  in 
modern  industry  to  machine  industry  or  to  the  gain  spirit  applied  to 
machine  industry  or  to  something  else  ? 

13.  "Responsibility  for  industrial^  accidents  and  even  for  industrial  con- 
ditions is  largely  social.  The  responsible  individual  cannot  be  isolated."* 
Explain. 

14.  "Society,  not  the  worker,  is  responsible  for  industrial  accidents,  occupa- 
tional diseases,  etc.  Then  let  society  bear  the  loss.  Why  punish  the 
employer  ?  "     Examine  this  position. 

15.  Wherein  do  the  forces  of  demand  and  supply  operate  in  peculiar  ways 
with  respect  to  labor? 

16.  "Formerly  the  workman  owned  the  instruments  with  which  he  worked. 
Today  the  instruments  are  all  owned  by  another  class,  the  capitalists. 
Now,  since  without  instruments  the  workman's  labor-power  is  useless,  he 
is  obliged  to  accept  such  wages  as  the  capitalist  may  dictate,  even 
though  these  are  far  below  what  the  laborer  produces."  Write  out  the 
converse  of  this  argument  showing  that  the  capitalist  is  at  the  mercy 
of  the  laborer.  )  Is  either  statement  correct  ? 


THE  WAGE  SYSTEM  AND  THE  WORKER  523 

17.  What  is  meant  by  "the  insecurity  of  the  laborer  due  to  intense  compe- 
tition"? 

18.  Characterize  the  "wage  contract"  from  the  point  of  view  of  security 
of  the  worker. 

19.  Draw  up  a  list  of  reasons  why  the  employer  is  likely  to  have  a  superior 
position  in  the  bargaining  relation.  What  of  it?  In  so  far  as  evil 
consequences  result  from  this  situation,  are  they  evil  consequences 
to  the  worker  or  to  society  at  large  ? 

20.  What  effect  has  the  transfer  of  thought,  skill,  and  intelligence  from  the 
worker  to  the  machine  and  to  management  had  upon  the  security  of 
the  worker's  position? 

21.  It  is  sometimes  said  that  the  greatest  difficulty  with  the  situation  in 
which  labor  finds  itself  is  that  its  uncertainties  and  insecurities  are 
cumulative.     What  does  this  mean  ?     Does  it  seem  true  to  you  ? 

22.  What  is  meant  by  (a)  the  law  of  negligence;  (b)  the  doctrine  of  assumed 
risks,  and  (c)  the  fellow-servant  doctrine  ?  Why  are  these  positions  so 
criticized  today  ?     Were  they  ever  satisfactory  ? 

23.  It  has  been  said  that  the  laborer  has  not  been  relieved  of  his  uncer- 
tainties as  adequately  as  has  been  capital  through  the  agency  of  social 
control.  Is  this  probable  ?  Tell  why  you  think  it  probable  that  mat- 
ters have  worked  out  in  this  way. 

24.  Many  people  complain  concerning  the  situation  which  "freedom  of 
contract"  has  placed  upon  the  worker.  Just  what  is  the  meaning 
of  "freedom  of  contract"?  Wherein  has  it  difficulties  for  the 
worker  ? 

25.  "The  right  of  a  person  to  sell  his  labor  upon  such  terms  as  he  deems 
proper  is,  in  its  essence,  the  same  as  the  right  of  the  purchaser  of  labor 
to  prescribe  the  conditions  upon  which  he  will  accept  such  labor  from 
the  person  offering  to  sell  it.  In  all  particulars  the  employer  and  the 
employee  have  equality  of  right."  Is  this  "equality  of  right"  a  reality 
or  a  legal  fiction  ?  Does  it  benefit  one  of  the  two  parties  more  than 
the  other  ? 

26.  "Our  great  trouble  is  the  lack  of  organization  in  the  labor  market.  The 
market  for  corn,  cotton,  steel,  etc.,  is  highly  organized.  That  for  labor 
is  highly  disorganized.  If  it  were  well  organized  most  of  the  elements 
of  insecurity  of  the  worker  would  disappear."  Why  has  the  market 
for  labor  remained  unorganized  as  compared  with  that  for  cotton? 
What  concrete  things  would  make  for  organization  of  this  market  ? 
Would  it  accomplish  what  is  here  claimed  for  it  ?  Is  organization  of  the 
labor  market  synonymous  with  organized  labor? 

27.  Are  there  any  motive  forces  which  tend  to  bring  about  the  regularization 
of  industry  through  action  by  individuals  ? 

28.  Just  how  does  regulation  of  output  by  the  employer  tend  to  stabilize 
the  position  of  the  worker  ? 


524  INDUSTRIAL  SOCIETY 

29.  "Because  of  the  delicate  pecuniary  organization  of  society  the  conse- 
quences of  a  failure  of  the  industrial  machine  at  one  point  are  dissi- 
pated through  the  whole  of  the  economic  order.  Thus  the  burdens  of 
eCDnomic  insecurity  are  much  smaller  than  they  would  be  under  a  non- 
pecuniary  organization."     Can  you  support  this  statement  ? 

30.  Would  it  be  correct  to  speak  of  the  civil-service  movement  as  one  in 
the  direction  of  guaranteeing  greater  stability  of  employment  ? 

31.  Draw  up  a  statement  of  the  function  of  social  insurance. 

32.  "Society  pays  pensions  to  persons  wounded  in  war.  It  should  be 
equally  willing  to  pay  pensions  to  those  wounded  in  providing  society's 
daily  subsistence."     Is  this  a  sound  argument? 

33.  "Industrial  insurance  is  no  solution  of  the  problems  of  economic  insecur- 
ity. It  substitutes  for  an  analysis  of  those  problems  an  accurate 
accounting  of  industrial  risks;  for  an  attempt  at  solution  an  endeavor 
to  distribute  the  risks  with  the  minimum  of  burden."  Explain  fully. 
Do  you  agree? 

34.  In  what  ways  is  it  charged  that  immigration  increases  the  insecurity  of 
the  position  of  labor.     Does  the  argument  apply  primarily  to  skilled  or 

'  to  unskilled  labor  ?  It  has  been  argued  that  heavy  immigration  tends 
to  lower  the  standard  of  living  of  the  worker  in  this  country.  On 
what  grounds  is  this  stated  ?  Suppose  it  is  true,  what  difference  does 
it  make  to  the  worker?  What  difference  does  it  make  to  society 
at  large  ? 

35.  "The  worker  can  never  be  secure  until  he  is  safeguarded  against  (a)  un-v 
employment;  (b)  industrial  accident ;  (c)  sickness;  (d)  poverty-stricken 
old  age;  (e)  inadequate  livelihood.  This  cannot  occur  under  a  pecuni- 
ary organization  of  society.  Such  an  organization  has  been  amply 
tried.  It  has  abundantly  established  its  inadequacy  in  the  face  of  such 
difficulties."     Examine  this  position. 

36.  "Nothing  short  of  control  of  population  will  suffice  as  a  solution  of  the 
labor  problem."  Why  does  the  writer  say  this?  What  does  control 
of  population  mean  ? 

37.  Draw  up  in  outline  form  a  statement  of  the  relation  of  vocational 
guidance  to  the  security  of  the  worker.  Do  the  same  for  employment 
bureaus. 

38.  "I  have  solved  the  labor  problem  so  far  as  my  own  factory  is  concerned. 
I  pay  my  men  a  rate  of  wages  somewhat  higher  than  they  can  get 
elsewhere.  For  them  I  have  provided  recreation  facilities,  sanitary 
conditions  of  employment,  and  a  bureau  of  vocational  guidance.  Any- 
one else  can  solve  the  labor  problem,  if  he  does  as  I  have  done."  If  all 
employers  should  follow  this  employer's  example,  would  the  problem  be 
solved  ? 

39.  If  "employer's  liability"  is  deemed  advisable,  should  the  law  be  made  to 
apply  to  miners,  factory  operatives,  machinists,  locomotive  engineers, 
drug  clerks,  errand  boys,  household  servants  ? 


THE  WAGE  SYSTEM  AND  THE  WORKER  525 

40.  "Vocational  education  means  an  increase  of  labor  efficiency  and  thus 
an  increase  of  wages."  "Vocational  education  means  an  increase  of 
efficiency  which  means  fewer  laborers  can  do  the  same  work  and  thus 
wages  will  go  down."     What  is  your  opinion  of  this  matter  ? 

41.  "Industrial  success  is  personal,  not  social.  The  existing  social  system 
is  not  keeping  men  at  the  bottom.  It  is  their  own  personal  deficien- 
cies that  keep  them  there."     Give  reasons  for  or  against. 

42.  What  is  your  present  conclusion :  Are  low  wages  caused  by  low  standards 
of  living,  or  are  low  standards  of  living  caused  by  low  wages  ? 

43.  What  is  your  present  conclusion:  Are  low  wages  caused  by  inefficiency 
on  the  part  of  the  worker,  or  is  inefficiency  on  the  part  of  the  worker 
caused  by  low  wages  ? 

44.  "The  enactment  of  a  minimum  wage  for  unskilled  labor  would  probably 
lead  to  the  following  results:  various  evasions  of  the  law;  substitution  of 
more  efficient  for  less  efficient  labor;  increase  in  the  use  of  machinery; 
increase  in  unemployment."  Give  arguments  for  and  against  the 
probability  of  these  things  happening. 

45.  It  is  sometimes  said  that  labor  itself  would  gain  nothing  by  the  intro- 
duction of  the  minimum  wage.  It  is  argued  that  the  increased  wage 
would  result  in  an  increased  price  of  the  product  made  by  this  labor, 
and  since  labor  is  itself  the  main  consumer  of  its  products,  the  apparent 
rise  in  money  wage  would  be  offset  by  the  rise  in  prices.  What  is  your 
own  opinion  on  this  matter  ? 

46.  "The  increased  wages  will  in  all  probability  come  from  the  parts  of  the 
incomes  of  capitalists  which  otherwise  they  would  save.  Thus  the 
proposal  is  likely  to  lead  to  a  decrease  in  the  amount  of  capital  and  a 
tendency,  in  consequence,  toward  a  lower  rate  of  wages  in  the  next  genera- 
tion.    This  tendency  is  likely  to  prove  cumulative."     Do  you  agree  ? 

47.  Some  people  think  one  of  the  great  difficulties  in  connection  with  labor 
problems  is  that  the  incentives  which  labor  had  in  former  days  have 
been  taken  away  by  the  consequences  of  the  Industrial  Revolution. 
Make  out  a  list  of  the  incentives  labor  had  in  the  days  of  mediaeval 
industry  in  England.  What  ones  of  these  have  been  taken  away  by  the 
Industrial  Revolution  ?  Have  any  new  incentives  sprung  up  to  take 
the  place  of  the  old  ones  ?     Is  the  wage  the  only  incentive  today  ? 

48.  Why  do  employers  engage  in  welfare  work  ?  Is  it  to  furnish  incentive 
to  labor?  Is  it  on  humanitarian  grounds?  Is  it  because  it  pays? 
Are  there  other  possible  reasons? 

49.  "Wages  will  take  care  of  themselves  if  in  some  way  we  can  diminish  the 
numbers  of  those  desiring  employment  in  poorly  paid  occupations." 
Do  you  agree  ?    Is  the  proposal  one  which  should  be  carried  out  ? 

50.  Why  do  unions  attempt  to  establish  the  principle  of  uniformity  with 
respect  to  wage  rates,  hours  of  work,  and  conditions  of  employment 
generally  in  a  trade  ? 


526  INDUSTRIAL  SOCIETY 

51.  Strikes,  boycotts,  blacklists,  and  picketing  sound  like  militant  matters 
which  would  be  unsettling  to  industry.  What  can  anyone  mean  by  say- 
ing that  they  are  devices  being  used  to  bring  about  stability  ? 

52.  Some  people  believe  that  the  labor  problem  so  called  will  be  solved  by 
keeping  hands  off — by  letting  competition  work  itself  out.  Trade 
unionism,  they  believe,  will  interfere  with  the  workings  of  competition 
by  setting  up  a  labor  monopoly.     What  do  you  think  of  this  position  ? 

53.  Look  up  the  meaning  of  "profit-sharing."  It  is  urged  as  one  of  the 
devices  which  might  be  used  to  give  greater  security  to  the  worker. 
Is  it  really  a  device  to  give  him  security  or  to  increase  his  productivity  ? 
Is  it  likely  to  work  well  in  either  event  ? 

54.  "Profit-sharing  solves  the  labor  problem  by  giving  the  employee  a 
pecuniary  interest  in  the  business."  "Profit-sharing  is  an  attempt  to 
bribe  labor  with  small  amounts  of  stock  to  accept  the  capitalist's  view- 
point and  philosophy."     Where  lies  the  truth  ? 

55.  What  are  the  defects  of  co-operation  as  a  solution  of  the  labor  problem  ? 

56.  "The  labor  problem  can  be  adequately  and  finally  solved  without  the 
use  of  cumbersome  legislative  methods.  Use  the  universal  principles 
of  justice.  Give  both  employer  and  employee  what  is  right  and  the 
problem  is  solved."  What  are  these  universal  principles  of  justice? 
Who  would  apply  them  ?     Is  this  means  adequate  ? 

57.  Draw  up  a  list  of  the  elements  of  security  in  the  position  of  the  worker. 
Compare  the  situation  with  that  of  1300. 

58.  What  is  meant  by  the  expression  "democracy  in  industry."  Does  it 
seem  to  you  a  practical  proposal  or  is  it  merely  Utopian  ? 

59.  Just  what  is  the  mechanism  of  the  plan  of  the  socialists  to  give  greater 
security  to  the  worker  ?  of  the  syndicalists  ? 

60.  Draw  up  a  list  of  the  structures  or  devices  which  are  designed  to  meet 
the  difficulties  connected  with  the  position  of  the  worker  in  our  wage 
system.  What  ones  of  these  structures  or  devices  involve  little  or  no 
change  in  the  present  organization  of  society?  What  ones  involve 
much  change  ?  What  ones  are  emerging  as  a  result  of  action  by  the 
laboring  class  ?  What  ones  as  a  result  of  action  by  employers  ?  What 
ones  as  a  result  of  action  of  society  as  a  whole  ? 

61.  For  the  sake  of  the  argument,  assume  that,  in  the  net,  the  position  of  the 
worker  is  uncertain  and  insecure  and  that  it  must  remain  so  under  our 
present  organization  of  society.  Does  the  acceptance  of  this  position 
commit  you  to  a  belief  that  the  present  organization  should  be  done 
away  with  ? 

62.  It  is  generally  said  that  class  consciousness  has  developed  quite  slowly 
in  the  United  States.  Can  you  give  any  reasons  why  this  would  be 
true? 

63.  May  it  be  true  that  interests  are  fundamentally  harmonious  and  that 
class  conflict  is  due  to  lack  of  understanding  of  common  interests  ? 


THE  WAGE  SYSTEM  AND  THE  WORKER  527 

64.  "For  a  class  struggle  to  exist  in  society  there  must  be  first  a  class 
inequality,  and  second  the  outlets  must  be  closed  whereby  the  strength 
and  ferment  of  the  inferior  class  have  been  permitted  to  escape." 
How  far  do  these  conditions  exist  in  the  United  States  ? 

65.  "A  state  has  been  reached  where  the  proletariat  cannot  attain  its 
emancipation  from  the  sway  of  the  exploiting  and  ruling  class — the 
bourgeoisie — without  at  the  same  time,  once  and  for  all,  emancipating 
society  at  large,  from  all  exploitation,  oppression,  class  distinction,  and 
class  struggles."     What  group  of  people  is  likely  to  believe  this  ? 

66.  "  Social  life  is  an  extremely  complex  thing.  One  belongs,  not  to  a  single, 
but  to  many,  different  groups.  In  America,  therefore,  there  can  be  no 
such  thing  as  a  group  or  a  class  viewpoint."  Illustrate  for  individuals 
in  the  middle  class.     Does  the  conclusion  apply  to  the  proletariat  ? 

67.  Why  do  employers  generally  talk  in  terms  of  national  and  social  welfare 
and  laborers  in  terms  of  group  and  class  welfare  ? 

68.  Sketch  as  clearly  as  you  can  the  general  attitude  of  the  employer  upon 
the  constitution,  the  courts,  government  control  of  industry,  the  Chris- 
tian religion,  vocational  education,  trade  unionism.  Sketch  the  atti- 
tude of  the  worker. 

69.  "Talk  of  class  conflict  is  nonsense.  The  interests  of  labor  and  capital 
are  fundamentally  harmonious."  "Class  conflict  is  inevitable.  The 
interests  of  labor  and  capital  are  fundamentally  antagonistic."  Which 
is  true  ?     Is  either  true  ?     Can  both  be  true  ? 

70.  If  a  real  basis  of  conflict  exists  between  two  groups,  who  is  to  decide 
what  is  "right"  ?     Is  there  a  "public"  that  can  do  so  ? 

71.  Are  there  two  distinct  classes,  a  laboring  and  an  employing  class?  If 
there  are  not  two  distinct  classes,  is  society  divided  into  some  other 
definite  number  of  distinct  classes  ? 

72.  "The  tests  of  relative  income  fails  utterly  to  furnish  a  standard  for 
distinguishing  classes."     Why  or  why  not? 

73.  Assume  that  you  are  a  business  manager.  Are  there  any  cases  where 
your  policy  will  depend  upon  your  theory  of  classes  ?  Can  you  imagine 
a  business  having  in  some  of  its  parts,  a  certain  organization  because 
the  manager  has  a  given  theory  of  classes  ? 

74.  Assume  that  you  are  a  statesman.  Are  there  any  cases  where  your 
policy  will  depend  upon  your  theory  of  classes  ? 

75.  Social  insurance  is  urged.  How  will  the  project  be  regarded  by  the 
extreme  socialist  ?  By  the  extreme  classical  economist  ?  Could  they 
reach  the  same  practical  conclusion  ?  If  they  did,  would  they  do  so  by 
following  out  the  same  hypotheses  with  respect  to  social  classes  ? 

76.  Assume  that  classes  do  exist.  Does  our  discussion  lead  to  the  conclusion 
that  the  existence  of  classes  is  an  evil  thing  ? 

77.  Suppose  that  classes  do  exist  and  that  their  existence  is  an  evil  thing. 
What  can  we  do  about  it? 


528  INDUSTRIAL  SOCIETY 

B.     An  Introductory  Survey 
201.    THE  WAGE-EARNERS1 

Let  us  recapitulate.  We  have  excluded,  first,  the  employing  class; 
second,  all  who,  having  possession  of  the  agencies  and  instrumentalities 
of  production,  whether  agricultural  or  mechanical,  are  not  dependent 
on  others  for  the  opportunity  to  produce;  third,  those  who,  though 
not  owning  land,  lease  it,  whether  under  the  protection  of  law  or 
subject  to  all  the  hardships  of  competition.  These  successive  exclu- 
sions leave  us  the  employed  class,  whether  in  agriculture  or  manu- 
factures. From  this  we  further  exclude  all  who  produce  on  shares, 
and  all  who  are  paid  or  subsist  out  of  the  revenues  of  their  employers./ 
We  have  left  the  wages  class  proper,  including  all  persons  who  are 
employed  in  production  with  a  viej^  to  jthe  profit  of  their  employers,  \ 
and  are  paid  at  stipulated  rates. 

But  though  the  wage  class  includes  but  a  fraction  of  humanity,  it 
is  large.  Of  the  eighty  millions  of  English-speaking  people,  three- 
fourths  probably,  two-thirds  certainly,  subsist  on  wages. 

202.    LABOR  CONDITIONS  AND  PROBLEMS 
[Note. — This  is  an  outline  of  Professor  Hoxie's  course  on  Labor 
Conditions  and  Problems.     It  is  presented  as  a  means  of  showing 
something  of  the  scope  of  the  topic  we  are  considering.     The  outline 
will  repay  careful  study.] 

A.  The  Fundamental  and  General  Conditions  of  Labor  and  Social 
Welfare 

1.  The  rights  or  the  legal  status  of  labor  and  the  employers 

a)  Rival  theories  of  law  and  rights 

(1)  The  laissez-faire  theory 

(2)  The  sociological  theory 

(3)  The  absolutistic  standpoint 

(4)  The  evolutionary  viewpoint 

b)  The  general  right  to  the  freedom  of  contract 

c)  The  wage  contract 

d)  The  rights  of  bargaining 
(1)  Competitive  rights 

~»(a)  The  right  to  work  where,  when,  and  for  whom  he  pleases 
ib)  The  right  to  quit  work 

{c)  Rights  as  to  wages  and  conditions  of  employment :  wages; 
hours;  dangerous  work;  unsanitary  work;  the  right  to 
maintain  a  nuisance 

1  Adapted  by  permission  from  F.  A.  Walker,  The  Wages  Question,  pp.  216-17. 
(Henry  Holt  &  Co.,  1891.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  529 

(2)  The  rights  of  combination 

(a)  General 

(b)  The  right  to  bargain  collectively 

(c)  The  right  to  strike 

(d)  The  right  to  persuade  and  picket 

(e)  The  right  to  boycott 
(/)  The  right  to  blacklist 

*      e)  The  right  to  compensation  for  death  or  accident 

(1)  Contracting  out 

(2)  Assumption  of  risk 

(3)  Employers'  liability 

(4)  Workingmen's  compensation 
/)  The  employers'  right  to  discharge 
g)  The  employers'  right  of  discipline 
h)  Property  rights  of  workers 

(1)  In  general 

(2)  Employers'  lien 

(3)  Debt  and  the  right  to  the  tools  of  the  trade 

f  2.  The  legal  and  economic  strength  of  the  workers  as  compared  with  the 
employers 

a)  The  advantages  of  the  employers  as  conferred  by:  the  ownership 
of  the  means  of  production;  the  waiting  power  of  the  individual; 
industrial  combinations;  employers'  associations;  the  ability  to 
employ  legal  talent;  the  theory  of  the  law  and  the  attitude  and 
applications  of  the  courts;  the  protection  of  police  power;  strike- 
breaking agencies;  labor  "oversupply"  and  the  competition  of 
laborers;  political  control;  the  effects  of  machine  industry;  the 
spy  system;  blacklisting 

b)  The  advantages  of  the  employees  as  conferred  by:  combination; 
monopolistic  organizations;  strikes;  violence;  boycotts;  the  spy 
system;  sabotage;  political  control;  the  general  theory  of  price- 
making;  agencies  of  the  state  for  industrial  control  and  the  dis- 
semination of  knowledge 

c)  The  general  outcome:  as  to  skilled  and  organized  labor;  as  to 
unskilled  and  unorganized  labor 

3.  The  " efficiency"  of  the  workers 

a)  The  general  relation  of  "labor  efficiency"  to  the  welfare  of  labor 
and  society 

b)  Factors  determining  "labor  efficiency" 

(1)  General  and  social;  resources;  transportation;  goods,  mar- 
kets, and  market  organization;  commercial  and  financial 
organization;  the  state  of  the  industrial  arts — the  general 
effects  and  tendencies  of  the  machine  industry;  public  health; 


530  INDUSTRIAL  SOCIETY 

organization  of  the  labor  market;  the  number  and  general 
quality  of  the  workers  as  determined  by  the  birth-rate, 
eugenic  ideals  and  conditions,  immigration 

(2)  Shop  conditions:  management,  organization,  and  efficiency; 
sanitation  and  safety;  vocational  adaptation;  education  and 
training,  covering  apprenticeship,  industrial  education,  etc.; 
specialization  and  monotony;  fatigue  and  its  determinants 

(3)  Home  life,  standards  of  living,  general  character,  and  outlook 
of  the  workers 

(4)  Leisure  and  recreation 

(5)  Temperance 

(6)  Criminal,  reformatory,  and  welfare  agencies 

B.  Specific  Conditions  and  Problems  affecting  Labor  and  Social 
Welfare 

1.  Woman's  labor 

2.  Child  labor 

3.  Convict  and  padrone  labor 

4.  How  workers  are  trained  and  fitted  for  work  before  entering  upon  it: 
public-school  training  generally;  industrial  education  (trade  schools, 
continuation  schools);   effects  upon  workers 

5.  How  work  is  secured:  miscellaneous  application;  newspaper  adver- 
tisements; shop  bulletins;  friendly  intervention;  private  employ- 
ment agencies ;  public  employment  agencies ;  advanced  methods  and 
problems  of  vocational  selection 

6.  The  organization  of  the  shop 

a)  Managerial  organization:  ordinary;  functional;  material  and 
mechanical  conditions 

b)  How  workers  are  organized  for  production  in  the  shop:  individual 
work  and  direct  responsibility;  gang  work;  sub-contract  or 
sweating  work;  the  padrone  system 

7.  The  government  of  the  shop  and  shop  discipline:  autocratic  rule; 
democratic  rule;  the  presentation  of  complaints  and  the  considera- 
tion of  grievances;  discipline — fining  and  docking,  discharge,  rec- 
ord-keeping and  blacklisting 

8.  The  character  and  amount  of  work  required:  classification  of  work 
and  workers;  the  determination  of  speed  and  output;  methods  of 
work  and  task-setting;  methods  of  determining  and  enforcing  speed 
and  output;  the  determination  of  quality  of  work  and  output 

9.  The  adaptation  and  training  of  the  workers  in  the  shop:  the  assign- 
ment of  the  worker  and  the  determination  of  his  fitness  for  the  work'; 
apprenticeship;  special  instruction  and  training  in  the  shop;  effect:? 
on  the  workers 


THE  WAGE  SYSTEM  AND  THE  WORKER  531 

10.  Wages  and  wage  determination 

a)  Wage  factors:  base  rates;  special  rewards  such  as. overtime  work 
and  pay,  bonus  payments,  premium  payments,  profit-sharing 
dividends,  co-operation  awards,  special  awards  for  suggestions 

b)  Modes  and  times  of  wage  payments:  their  character;  their 
determination;  their  effects  on  the  training  of  workers,  on  the 
efficiency  of  workers,  on  the  speed  of  workers,  on  the  health  of 
workers,  on  the  wages  of  workers  in  relation  to  efficiency,  on  the 
character  viewpoint  of  the  workers 

c)  The  cutting  of  wage  rates:  methods;  effects;  conditions  neces-, 
sary  to  prevent 

d)  Who  determines  wages 

e)  Methods  by  which  wages  are  determined:  arbitrary  authority; 
competition;  custom;  individual  bargaining;  collective  bargain- 
ing 

/)  General  forces  affecting  wages:  industrial  and  financial  conditions 
g)  Extent  and  variation  of  wages:    different  classes  of  workers; 

different  occupations 
h)  The  minimum  wage:  actual;  the  socially  tolerable;  the  problem 
i)  The  general  problem  of  wages  and  wage  payment 

11.  Hours  of  labor 

a)  Actual:   general;   occupational;   women  and  children 

b)  How  determined 

c)  Effects  as  above 

d)  The  minimum  working-day:  actual;  the  socially  tolerable  maxi- 
mum; the  problem 

12.  Specialization  of  work:  extent;  causes;  tendencies;  effects  on  output, 
quality,  and  the  workers;  monotony,  capability,  spiritual  and  social 
effects 

13.  Advancement  and  promotion:  significance;  opportunities;  methods 

14.  Security  and  continuity  of  employment:  the  turnover  of  labor;  how 
determined  in  the  shop;  general  factors  affecting;  the  problem 

15.  Sanitation,  comfort,  and  safety:  facts;  causes;  -remedies 

16.  Accidents  and  industrial  diseases:  extent;  causes;  effects;  responsi- 
bility; remedies  for;  private  industrial  insurance  (co-operative  and 
business) ;  state  control  (legislation,  inspection  and  administration, 
punishment) ;  compensation,  including  employers'  liability,  working- 
men's  compensation,  state  insurance 

17.  Special  conditions  and  evils  of  particular  occupations,  e.g.,  messenger 
boys 

18.  Unemployment:   seasonal;   occupational;   general 

19.  Standards  of  living,  and  living  conditions  of  the  workers:  food; 
clothing;  housing;   recreation;   causes;   effects;   the  problem 


532  INDUSTRIAL  SOCIETY 

20.  Betterment  programs;  the  laissez-faire  ideal ;  the  trade-union  program ; 
the  syndicalistic-anarchistic  program;  the  government  control 
of  industry  and  living  conditions;  the  socialistic  program;  the  uplift 
or  progressive  program;  co-operation  and  profit-sharing ;N  employers' 
welfare  work 

203.  ECONOMIC  INSECURITY  OF  THE  WORKERS1 
To  grasp  the  problem  as  a  whole  we  must  appreciate  the  peculiar 
position  of  the  laborer  in  the  machine  system.  This  can  best  come 
.  from  contrasting,  say,  the  villein  on  the  manor  with  the  modern  indus- 
trial "hand/'  Custom  granted  to  the  former  the  use  of  the  same 
land  year  after  year,  exacted  from  him  a  fixed  rent,  forbade  his  dis- 
possession, and  made  his  position  permanent.  He  and  the  land  formed 
an  inseparable  industrial  unit:  there  was  always  something  for  him 
to  work  with;  what  he  produced  he  had.  The  problem  of  want  might 
indeed  confront  him;  but  it  was  associated  with  a  raid  of  an  alien 
feudal  lord  upon  his  manor  or  the  failure  of  the  elements  to  grant  a 
full  yield  from  the  earth.  The  group  to  which  he  belonged  was 
established  upon  a  "personal"  basis,  and  was  possessed  of  a  spirit  of 
solidarity.     He  possessed  as  long  as  they  possessed. 

In  modern  industrial  society,  on  the  contrary,  there  is  no  perma- 
nent association  of  the  laborer  with  the  instruments  of  production. 
He  secures  equipment  with  which  to  work  by  means  of  a  "contract" 
expressed  in  pecuniary  terms,  and  running  for  a  stipulated  period.  He 
owns  no  equities  in  the  property  with  which  he  works.  When  the 
contract  expires,  it  need  not  be  renewed.  No  other  property  owner 
is  compelled  to  make  a  new  contract  with  him.  The  bait  of  higher 
wages,  drawing  him  from  place  to  place,  is  likely  to  prevent  his  identi- 
fication with  a  group  animated  by  a  spirit  of  solidarity.  He  has  the 
tremendous  advantages  which  come  from  freedom  of  movement  and 
the  chance  to  take  advantage  of  the  best  opportunity  which  presents 
itself.  He  has  the  disadvantages  which  attend  short-time  contracts. 
These  last  are  outgrowths  of  two  sets  of  conditions:  first,  those 
affecting  employment,  causing  it  to  increase  or  decrease,  and  to 
pay  higher  or  lower  wages ;  and  second,  his  own  industrial  powers, 
which  may  be  partially  impaired  or  even  totally  collapsed,  from 
accident  or  sickness  to  which  he  is  exposed.  When  they  are  gone, 
as  they  will  eventually  be  in  old  age,  he  has  no  respectable  surety 
of  support. 

1  Adapted  by  permission  from  W.  H.  Hamilton,  Current  Economic  Problems, 
PP-  S^"1?-     (The  University  of  Chicago  Press,  1915.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  533 

This  larger  problem  involves  several  minor  problems,  very 
closely  connected,  and  yet  possessed  each  of  its  peculiar  aspects. 
Unemployment,  perhaps  the  most  difficult  of  these,  is  closely  associ- 
ated with  the  short-time  contract.  With  changing  business  condi- 
tions, the  employer,  who  is  dependent  upon  pecuniary  returns,  may 
find  it  impossible  to  renew  old  contracts.  Changes  in  technique, 
the  disappearance  of  his  market,  and  a  thousand  other  causes  may 
contribute  to  this  result.  It  is  rendered  more  serious  by  the  ebb 
and  flow  in  the  demand  for  labor,  which  is  closely  associated  with  the 
rhythm  of  the  business  cycle.  Unfortunately  the  supply  of  labor, 
unlike  currency,  is  not  possessed  of  the  necessary  elasticity  to  meet 
the  changing  conditions.  The  risks  are  too  unpredictable  for  insurance 
to  become  more  than  a  palliative.  The  solution  of  the  larger  problem 
is,  in  general,  associated  with  that  of  the  other  problems  of  the  cycle. 

Industrial  accidents  occur  because  we  have  not  yet  learned  abso- 
lutely to  control  the  dangerous  natural  forces  which  we  have  pent  up 
in  our  machines,  and  because  we  have  not  learned  properly  and 
exactly  to  adjust  our  movements  to  these  huge  engines  of  production — 
and  destruction.  In  general  their  causes  are  resident  in  the  system  as 
a  whole  and  cannot  be  directly  imputed  to  " individuals."  Unfor- 
tunately, however,  their  consequences  may  be  quite  concentrated. 
They  are  no  respecters  of  persons,  and  are  as  likely  as  not  to  rob  of 
their  productive  abilities  laborers  who  have  families  dependent 
upon  them.  The  problem  involves:  first,  a  prevention  of  industrial 
accidents,  attended  as  they  are  with  great  losses  of  productive  power; 
and  second,  the  devising  of  some  legal  measure  to  compensate  the 
injured  and  innocent  party  for  his  loss. 

Sickness  and  old  age  are  serious  social  problems.  The  former, 
through  the  absence  of  the  laborer  and  the  breaks  in  the  productive 
process,  which  his  absence  entails,  piles  up  huge  economic  costs. 
Unless  assistance  be  rendered  at  the  time  of  stress,  sickness  may 
lead  to  a  great  loss  of  productive  power  and  in  many  cases  to  perma- 
nent dependence.  Provision  for  old  age,  under  short-time  labor 
contracts,  is  difficult  and  rarely  is  adequate.  But,  even  if  individually 
made,  there  is  grave  doubt  whether  the  saving  involved  does  not 
deplete  the  income  to  such  an  extent  as  seriously  to  cripple  efficiency. 
At  any  rate  the  feeling  of  insecurity  is  likely  to  hinder  the  laborer's 
performance  of  his  work.  A  scheme  of  insurance  should  be'able  greatly 
to  reduce  the  wastes  incident  to  both  of  these  universal  occurrences. 
What  is  needed  is  a  long-time  calculation,  based  on  the  whole  life  of  the 


534  INDUSTRIAL  SOCIETY 

laborer,  not  a  series  of  short-time  calculations  such  as  labor-contrat  ts 
make  necessary. 

Finally  there  is  the  problem  of  insecurity  due  to  wages  too  low  to 
yield  a  decent  standard  of  living.  There  is  just  now  a  disposition  to 
try  to  solve  the  problem  by  the  establishment  of  "minimum-wage 
scales."  The  problem  is  one  of  the  most  difficult  in  the  field  of  eco- 
nomics. If  the  "natural,"  or  competitive  wage  is  to  be  set  aside  as 
too  low,  what  standard  can  be  found  to  determine  the  proper  wage  ? 
Will  there  not  be  evasion  of  laws  prescribing  "artificial"  wages  ?  To 
prevent  this,  will  not  the  government  be  compelled  to  regulate  prices, 
service,  hiring  and  discharge,  accounting  systems,  discipline,  etc.  ? 
Will  not  the  experience  of  the  government  in  attempting  to  prevent 
rebates  be  duplicated  ?  What  will  be  the  influence  of  regulation  on 
the  investment  of  capital  in  the  industries  involved?  To  what 
lengths,  and  to  the  adoption  of  what  new  social  schemes,  will  this 
policy  carry  us  ?  Can  the  project  be  made  to  succeed  without  a  sup- 
plementary control  of  the  supply  of  labor  ?  Would  it  not  be  better  to 
try  to  solve  the  question  through  an  attempt  to  decrease  the  numbers 
of  the  lower  class,  and  through  technical  education  ?  It  seems  that 
prices  seriously  at  variance  with  competitive  prices  cann6t  be  en- 
forced. Such  an  attempt  would  have  far  greater  chances  of  success, 
if  accompanied  by  efforts  to  restrict  the  supply  or  increase  the  effi- 
ciency of  labor.  A  conscious  "control  of  births,"  a  restriction  of 
immigration,  vocational  guidance,  and  compulsory  technical  train- 
ing should  do  much  to  make  the  minimum  wage  effective.  If  we  can 
wait  for  slowly  changing  conditions  to  produce  results,  and  if  we  do 
not  force  a  single  proposal  to  carry  the  whole  burden  of  raising  low 
wages,  eventually  we  should  expect  success. 

The  problem  of  economic  insecurity  occurs  in  its  most  aggravat- 
ing form  among  unskilled  and  unorganized  laborers.  State  aid  will 
help  them;  but  it  will  not  free  them  from  the  necessity  of  working  out 
their  own  salvation.  Skilled  and  organized  laborers  should  be  able 
to  solve  their  own  problem  through  their  effective  device  of  collective 
bargaining. 

204.    LIFE  AND  LABOR  IN  A  STEEL  DISTRICT1 
At  the  close  of  the  field  work  in  1908  we  summed  up  under  eight 
heads  the  results  of  the  Pittsburgh  Survey  as  to  the  conditions  of  life 

1  Taken  by  permission  from  E.  T.  Devine,  "Pittsburgh  the  Year  of  the 
Survey,"  The  Pittsburgh  District,  Civic  Frontage:  The  Pittsburgh  Survey,  pp.  3-4. 
(Survey  Associates,  Inc.,  1914.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  535 

and  labor  among  the  wage-earners  of  the  American  steel  district. 
We  found: 

I.  An  altogether  incredible  amount  of  overwork  by  everybody, 
reaching  its  extreme  in  the  twelve-hour  shift  for  seven  days  in  the 
week  in  the  steel  mills  and  the  railway  switchyards. 

II.  Low  wages  for  the  great  majority  of  the  laborers  employed 
by  the  mills,  not  lower  than  in  other  large  cities,  but  low  compared  with 
prices — so  low  as  to  be  inadequate  to  the  maintenance  of  a  normal 
American  standard  of  living;  wages  adjusted  to  the  single  man  in  the 
lodging-house,  not  to  the  responsible  head  of  a  family. 

III.  Still  lower  wages  for  women,  who  receive  for  example  in  one 
of  the  metal  trades,  in  which  the  proportion  of  women  is  great  enough 
to  be  menacing,  one-half  as  much  as  unorganized  men  in  the  same 
shops  and  one- third  as  much  as  the  men  in  the  union. 

IV.  An  absentee  capitalism,  with  bad  effects  strikingly  analo- 
gous to  those  of  absentee  landlordism,  of  which  also  Pittsburgh 
furnishes  noteworthy  examples. 

V.  A  continuous  inflow  of  immigrants  with  low  standards, 
attracted  by  a  wage  which  is  high  by  the  standards  of  Southeastern 
Europe,  and  which  yields  a  net  pecuniary  advantage  because  of 
abnormally  low  expenditures  for  food  and  shelter  and  inadequate 
provision  for  the  contingencies  of  sickness,  accident,  and  death. 

VI.  The  destruction  of  family  life,  not  in  any  imaginary  or 
mystical  sense,  but  by  the  demands  of  the  day's  work,  and  by  the  very 
demonstrable  and  material  method  of  typhoid  fever  and  industrial 
accidents — both  preventable,  but  costing  in  single  years  in  Pittsburgh 
considerably  more  than  a  thousand  lives,  and  irretrievably  shattering 
nearly  as  many  homes. 

VII.  Archaic  social  institutions  such  as  the  aldermanic  court, 
the  ward  school  district,  the  family  garbage  disposal,  and  the  unre- 
generate  charitable  institution,  still  surviving  after  the  conditions  to 
which  they  were  adapted  have  disappeared. 

VIII.  The  contrast — which  does  not  become  blurred  by  familiarity 
with  detail,  but  on  the  contrary  becomes  more  vivid  as  the  outlines 
are  filled  in — the  contrast  between  the  prosperity  on  the  one  hand  of 
the  most  prosperous  of  all  the  communities  of  our  western  civilization, 
with  its  vast  natural  resources,  the  generous  fostering  of  government, 
the  human  energy,  the  technical  development,  the  gigantic  tonnage 
of  the  mines  and  mills,  the  enormous  capital  of  which  the  bank 
balances  afford  an  indication;  and,  on  the  other  hand,  the  neglect 


536  INDUSTRIAL  SOCIETY 

of  life,  of  health,  of  physical  vigor,  even  of  the  industrial  efficiency  of 
the  individual. 

C.     Unemployment 
205.     THE  UNEMPLOYMENT  PROBLEM1 

1.  Unemployment  is  involuntary  idleness  during  normal  work  time: 

a)  According  to  the  New  York  Department  of  Labor  about  15 
per  cent  of  the  organized  workers  of  that  state  are  constantly 
unemployed. 

b)  The  United  States  census  estimates  that  about  22  per  cent  of 
the  workers  of  the  country  are  unemployed  for  a  part  of  the 
year. 

2.  The  principal  personal  causes  of  unemployment  are  sickness  and 
disability  of  various  sorts: 

a)  These  causes  lead  to  a  study  of  the  "unemployables." 

b)  The  " unemployables "— three  classes:  those  physically  or 
mentally  wholly  unable  to  work,  those  who  lack  efficiency  in 
their  work,  those  too  "lazy"  to  work. 

3.  Industrial  causes  of  unemployment  throw  efficient  workmen  into 
forced  idleness,  by  circumstances  entirely  unconnected  with  their 
personality: 

a)  The  "  disemployed "  are  out  of  work,  not  because  they  are 
unable  to  work,  but  because  there  is  no  work  for  them  to  do. 

b)  Seasonal  trades  are  common,  and  they  inevitably  mean  unem- 
ployment: (1)  Railroad  construction  work  is  suspended  during 
the  extreme  cold  months,  likewise  building  trades,  etc.  (2)  Un- 
employment is  less  frequent  in  summer  than  in  winter  (except 
in  coal  mines,  theaters,  clothing  trades).  (3)  The  average 
miner  can  work,  from  year  to  year,  about  two-thirds  of  the  time. 

c)  Industrial  crises  and  labor  troubles  increase  unemployment: 
Many  thousands  of  men  (strikers)  are  annually  forced  out  of 
work  because  they  feel  so  strongly  their  class  responsibility 
that  they  join  in  an  action  of  which  they  disapprove. 

4.  The  unemployed  leads  an  irregular  life: 

a)  The  result  is  usually  some  form  of  dissipation. 

b)  The  unemployed  tends  to  lose  one  of  his  best  characteristics  as 
an  efficient  worker — methodical  regularity. 

1  Taken  by  permission  from  E.  S.  Bogardus,  An  Introduction  to  the  Social 
Sciences,  pp.  91-93.  (University  of  Southern  California,  1913.  Author's  copy- 
right.) 


THE  WAGE  SYSTEM  AND  THE  WORKER 


537 


c)  At  the  end  of  the  period  of  unemployment,  the  average  man  is 
far  less  efficient  and  capable  than  at  the  beginning  of  his  period 
of  unemployment. 

d)  Increases  need  for  charity;  in  two-thirds  of  the  families  who 
apply  for  charity  in  industrially  normal  times,  one  or  more 
wage-earners  are  unemployed  at  the  time. 

e)  The  irregular  life  of  the  father  communicates  itself  to  the 
children. 

/)  The  lack  of  food  resulting  from  a  lack  of  income  means  mal- 
nutrition for  the  whole  family. 

g)  The  individual  degenerates,  the  family  suffers,  society  pays  the 
cost — in  more  philanthropy  and  taxes  or  by  being  deprived  of 
the  services  of  its  idle  workmen. 

206.     MEDIAEVAL  UNEMPLOYMENT1 

The  problem  of  unemployment,  which  gives  us  so  much  anxiety, 
confronted  our  forefathers  also,  although  it  was  not  then  nearly  so 
vast  and  complicated.  Many  causes  contributed  to  produce  it:  the 
breakdown  of  the  feudal  system  freed  serfs  from  the  obligation  of 
rendering  service  to  their  lords,  but  they  were  not  all  fit  for  other 
work,  and  many  who  had  given  up  their  lands  in  the  hope  of  obtaining 
better  employment  in  the  towns  discovered  too  late  that  they  had  not 
the  skill  necessary  for  industrial  occupations.  Agricultural  labourers 
were  thrown  out  of  work  by  the  enclosure  of  large  tracts  of  land  for 
sheep  farming.  The  developing  of  the  manufacture  of  cloth  so  greatly 
increased  the  demand  for  wool  that  landowners  found  it  more  profit- 
able to  turn  their  land  into  pasture  than  to  grow  corn  upon  it.  Enclos- 
ing was  not  carried  on  as  extensively  in  our  period  as  in  the  sixteenth 
century,  but  even  in  the  reign  of  Henry  VII  Parliament  declared 
that  on  account  of  it  idleness  daily  increased,  for  where  in  some  towns 
"two  hundred  persones  were  occupied  and  lived  by  their  lawfull 
labours,  no  we  ben  there  occupied  two  or  three  herdemen."  The 
selfish  policy  of  the  gilds  in  limiting  the  number  of  apprentices  each 
master  might  take  also  caused  unemployment,  as  many  youths  were 
prevented  from  acquiring  the  training  needed  to  make  them  efficient 
artisans.  The  workmen  themselves  complained  that  the  employ- 
ment of  aliens  deprived  them  of  work,  and  no  doubt  this  was  a  factor 
in  the  situation.     The  long  wars  in  which  England  was  engaged  also 

1  Taken  by  permission  from  A.  Abram,  English  Life  and  Manners  in  the  Later 
Middle  Ages,  pp.  95-96.     (George  Routledge  &  Sons,  Ltd.,  1913.) 


538  INDUSTRIAL  SOCIETY 

tended  to  swell  the  numbers  of  the  unemployed:  many  soldiers 
returned  from  them  unfit  or  unwilling  to  work.  There  were  others 
also  who  could  earn  a  living  but  who  preferred  to  be  idle;  such  as, 
for  instance,  a  beggar  described  in  Mr.  Riley's  Memorials  of  London 
who  went  about  "barefooted  and  with  long  hair,  under  the  guise 
of  sanctity,"  pretending  to  be  a  hermit;  for  six  years  he  lived  "by 
such  lies,  falsities,  and  deceits,"  whereas  he  was  able  to  work. 

207.    THE  UNEMPLOYED1 

It  is  difficult  to  see  how  any  estimate  of  numbers,  or  any  generali- 
zations as  to  extent  or  causes  of  unemployment  can  proceed  upon  a 
basis  that  does  not  sharply  differentiate  two  classes.  The  first 
presents  an  industrial  problem.  It  includes  those  unemployed  per- 
sons able  and  willing  to  work,  those  who  are  ready  to  enter  industry 
for  the  first  time,  the  victims  of  maladjustment  who  may  seldom 
actually  join  the  ranks  of  the  unemployed  but  who  are  constantly  in 
process  of  change  from  industry  to  industry  or  who  are  engaged  in 
seasonal  or  casual  work,  those  who  are  underemployed,  the  short- 
time  men  who  accept  reduction  in  hours  and  pay  rather  than  be 
thrown  out  entirely,  etc.  These  constitute  a  constant  unemployed 
group  with  which  we  are  here  concerned. 

The  second  class,  the  unemployables,  presents  primarily  a  relief 
problem.  They  cannot  be-made'aTcTTarge  upon  industry,  nor  can  the 
problem  be  solved  by  organized  business.  Whenever  this  has  been 
attempted  in  any  large  measure,  it  has  tended  to  disorganize  the 
labor  market,  to  lower  the  efficiency  of  the  industry,  and  to  bring 
about  endless  controversy.  Typical  of  this  class  are  vagrants  that 
will  not  work,  persons  incapacitated  for  work  by  old  age  or  illness 
(not  due  to  industrial  accidents  and  diseases),  the  handicapped  such 
as  cripples,  defectives,  mothers  that  must  keep  their  children  with 
them  daily  while  they  work,  convicts,  girls  and  boys  on  parole,  and 
those  that  are  inefficient  or  defective  for  some  non-removable  cause. 
These  are  temporarily  or  permanently  out  of  the  normal  industrial 
field.  Many  are  capable  of  some  form  of  work,  but  require  special 
organizations  or  personal  arrangement  to  adjust  this.  Some  are 
defectives  and  require  institutional  care.  Some  are  physically  unfit, 
and  need  to  be  brought  up  to  a  better  standard,  while  others  require 
relief. 

1  Adapted  by  permission  from  F.  A.  Kellor,  Out  of  Work,  pp.  27-28. 
(G.  P.  Putnam's  Sons,  1915.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  539 

208.    UNEMPLOYMENT  A  CASE  OF  MALADJUSTMENT1 

The  problem  of  unemployment  is  the  problem  of  the  adjustment  of 
the  supply  of  labour  and  the  demand  for  labour.  The  supply  of 
labour  in  a  country  is,  in  the  widest  sense,  the  supply  of  population. 
It  is  at  any  moment,  apart  from  the  possibilities  of  emigration  and 
immigration,  a  fairly  fixed  quantity.  Moreover,  it  is  fixed  for  each 
moment,  not  by  anything  then  happening,  but  by  the  habits  and 
actions  of  millions  of  disconnected  households  a  generation  back. 
The  demand  for  labour,  on  the  other  hand,  is  an  aggregate  of  thou- 
sands or  tens  of  thousands  of  separate  demands  in  the  present.  It 
fluctuates  with  the  fortunes  and  the  calculations  of  the  host  of  rival 
employers. 

Discrepancy  between  two  things  so  distinct  in  immediate  origin 
is  obviously  possible.  The  problem  has  merely  to  be  stated  in  order 
to  shatter  the  simple  faith  that  at  all  times  any  man  who  really 
wants, work  can  obtain  it.  There  is  nothing  in  the  existing  industrial 
order  to  secure  this  miraculously  perfect  adjustment. 

Unemployment  is  not  to  be  explained  away  as  the  idleness  of  the 
unemployable.  As  little  can  it  be  treated  as  a  collection  of  accidents 
to  individual  work-people  or  individual  firms.  It  is  too  widespread 
and  too  enduring  for  that.  There  are  specific  imperfections  of 
adjustment  which  are  the  economic  causes  of  unemployment. 

One  of  these  has  long  been  recognized.  While  industry,  as  a 
whole,  grows,  specific  trades  may  decay,  or  change  in  methods  and 
organization.  The  men  who  have  learnt  to  live  by  those  trades  may 
find  their  peculiar  and  hard- won  skill  a  drug  on  the  market  and  them- 
selves permanently  displaced  from  their  chosen  occupations,  while 
lacking  both  the  youth  and  the  knowledge  to  make  their  way  into 
new  occupations. 

A  second  type  of  maladjustment  between  the  demand  for  and  the 
supply  of  labour  is  found  in  actual  fluctuations  of  industrial  activity. 
Many  trades,  perhaps  most  trades,  pass  regularly  each  year  through 
an  alternation  of  busy  and  slack  seasons,  determined  by  climate  or 
social  habits,  or  a  combination  of  both.  Building  is  slack  in  winter 
and  busy  in  spring  and  summer.  Printers  find  least  to  do  in  the 
August  holidays  and  most  in  the  season  just  before  Christmas.  At 
the  London  docks  timber  comes  in  at  one  time  of  the  year;  fruit  at 
another;    tea  at  a  third.     Behind  and  apart  from  these  seasonal 

1  Adapted  by  permission  from  W.  H.  Beveridge,  Unemployment,  pp.  4-13,  81. 
(Longmans,  Green  &  Co.,  1910.) 


540  INDUSTRIAL  SOCIETY 

vicissitudes  of  special  trades,  and  affecting,  though  in  varying  degrees, 
nearly  all  trades  at  about  the  same  time,  is  a  cyclical  fluctuation  in 
which  periods  of  general  depression — 1868,  1879,  1885-1886,  1893- 
1895,  1904 — alternate  at  irregular  intervals  with  periods  of  feverish 
activity — 1872-1874,  1881,  1889-1890,  1899-1900.  At  such  times  of 
depression  the  industrial  system  does  appear  to  suffer  a  temporary  loss 
of  elasticity;  it  fails  for  a  while  to  keep  pace  with  the  steady  growth 
of  the  population. 

These  two  elements  in  the  problem  of  unemployment  have  long 
been  familiar.  A  third,  apparently  far  more  important  than  either 
the  occasional  transformation  of  industrial  structure  or  the  periodic 
fluctuations  of  industrial  activity,  is  only  just  beginning  to  receive 
attention.  This  is  the  requirement  in  each  trade  of  reserves  of  labour 
to  meet  the  fluctuations  of  work  incidental  even  to  years  of  prosperity. 
The  men  forming  these  reserves  are  constantly  passing  into  and  out  of 
employment.  They  tend,  moreover,  to  be  always  more  numerous 
than  can  find  employment  together  at  any  one  time.  This  tendency 
springs  directly  from  one  of  the  fundamental  facts  of  industry — 
the  dissipation  of  the  demand  for  labour  in  each  trade  between  many 
separate  employers  and  centres  of  employment.  Its  result  may  be 
described  as  the  normal  glutting  of  the  labour  market.  The  counter- 
part of  such  glutting  is  the  idleness  at  every  moment  of  some  or  others 
of  those  engaged. 

In  the  total  reserve  of  labour  for  any  occupation  it  is  possible  to 
distinguish  three  elements.  There  is  first  the  body  of  men  represent- 
ing the  fluctuations  in  the  volume  of  work  to  be  done  at  all  centres  of 
employment  taken  together.  These  men  are  required  by  the  con- 
ditions of  the  trade  as  a. whole.  There  is,  second,  the  body  of  men 
required  by  the  fact  that,  owing  to  distance,  ignorance,  or  custom,  the 
supply  of  labour  cannot  move  with  perfect  freedom  and  instantane- 
ously from  any  one  centre  of  employment  to  any.,  otjier,  and  that 
therefore  separate  centres,^  to  meet  their  fluctuations  of  work,  must 
to  some  extent  keep  separate  reserve's.  These  men  represent  the 
friction  of  the  labour  market.  There  is^  third,  the  body  of  men 
required  neither  by  the  fluctuations  in  the  total  volume  of  work  nor 
by  the  fluctuations  of  separate  business,  but  liable  to  be  attracted 
and  retained  by  the  perpetual  chance  of  work. 


See  also  186.     Seasonal  Fluctuations. 
187.     Business  Cycles. 


THE  WAGE  SYSTEM  AND  THE  WORKER  541 

209.     CHANGES  OF  INDUSTRIAL  STRUCTURE 
AND  UNEMPLOYMENT1 

Changes  of  industrial  structure  are  constantly  occurring  and 
constantly  throwing  men  out  of  employment.  The  very  life  and 
growth  of  industry  consist  in  the  replacement  of  old  machines  by 
new;  of  established  processes  by  better  ones;  of  labour  in  one  form 
and  combination  by  labour  in  fresh  forms  or  fresh  combinations. 
The  demand  for  labour  is  thus  in  a  state  of  perpetual  flux  and  recon- 
struction both  as  to  quality  and  as  to  quantity.  Men  who  for  years 
have  satisfied  the  demand  in  one  form  may  find  the  form  suddenly 
changed;  their  niche  in  industry  broken  up;  their  hard-won  skill 
superfluous  in  a  new  world;  themselves  also  superfluous  unless  they 
will  and  can  learn  fresh  arts  and  find  the  way  into  unfamiliar  occupa- 
tions. They  are  displaced  by  economic  forces  entirely  beyond  their 
control  and  taking  little  or  no  account  of  personal  merits.  They  are, 
in  the  words  of  John  Stuart  Mill,  "sacrificed  to  the  gains  of  their 
fellow-citizens  and  of  posterity." 

The  changes  which  may  have  this  effect  are  very  various.  Each 
indeed  is  so  far  individual  and  specific  as  to  make  exhaustive  descrip- 
tion impossible.     All  that  can  be  done  is  to  note  the  main  types. 

First,  while  the  industry  of  the  country  as  a  whole  grows,  particular 
industries  or  forms  of  production  may  decay. 

Second,  an  industry  may  be  transformed  by  the  introduction  of 
new  processes  or  new  machines.  From  this  point  of  view  the  lace 
trade  is  particularly  interesting. 

Third,  perhaps  as  an  accompaniment  of  new  processes  or  machines 
one  type  of  labour  may  be  substituted  for  another.  Thus,  in  boot 
making,  where  the  number  of  persons  employed  remains,  in  spite  of 
the  increased  total  population,  practically  the  same  in  1901  as  in  1891, 
there  has  been,  according  to  the  census,  not  only  a  substitution  of 
machine  work  for  hand  work,  but  also  of  females  for  males,  and  of 
younger  for  older  males. 

Fourth,  the  chief  seat  of  an  industry  may  shift  from  one  part  of 
the  country  to  another.  This,  as  in  the  instance  of  the  lace  ttade 
mentioned  above,  may  happen  as  the  accompaniment  of  other 
changes.  Sometimes — as  in  the  removal  of  the  main  shipbuilding 
centres  of  the  country  from  south  to  north— it  may  be  independent 
of  them. 

1  Adapted  by  permission  from  W.  H.  Beveridge,  Unemployment,  pp.  111-14. 
(Longmans,  Green  &  Co.,  1910.) 


542 


INDUSTRIAL  SOCIETY 


Changes  of  industrial  structure  are  as  a  rule  far  more  gradual 
than  is  allowed  for  by  popular  imagination.  The  typical  alterations 
noted  above  have  been  spread  over  intervals  of  ten  to  fifty  years. 
The  industrial  population  is  constantly  changing,  by  death  or  retire- 
ment at  one  end  of  life,  and  the  entry  of  fresh  generations  at  another. 
The  numbers  in  any  industry  may  decline  continuously  without  anyone 
being  displaced  from  it,  but  simply  through  no  new  men  entering  to 
take  the  places  of  those  who  get  past  work.  Industries  seldom 
die  in  a  night.  So  too  new  machines  and  new  processes  are  seldom 
introduced  everywhere  at  one  blow.  They  come  gradually  and 
experimentally.  Even  where  the  substitution  of  the  new  process 
for  the  old  is  direct,  the  existing  workmen  or  some  of  them  have 
naturally  the  first  chance  of  learning  the  new  one.  Often  the  substi- 
tution is  quite  indirect;  machine  production  grows  slowly  in  one  dis- 
trict or  set  of  factories  as  hand  production  slowly  declines  elsewhere. 

There  is  a  logical  objection  at  any  time  to  describing  a  change  of 
industrial  structure  as  in  itself  a  cause  of  unemployment.  The  cause 
of  a  man's  being  unemployed  is  not  that  which  led  him  to  lose  his 
last  job  but  that  which  prevents  him  from  getting  another  job  now. 
A  change  of  industrial  structure  may  displace  men  from  their  chosen 
occupations.  It  does  not  in  itself  prevent  their  immediate  reabsorp- 
tion  elsewhere. 

See  also  182.     Influences  that  Disturb  the  Static  Equilibrium. 

210.    THE  INFLUENCE  OF  MACHINERY  UPON  EMPLOYMENT1 

,  In  discussing  the  influence  of  machinery  upon  demand  for  labor 
we  must  distinguish  its  effects  upon  (1)  the  number  of  workers  em- 
ployed; (2)  the  regularity  of  employment;  (3)  the  skill,  the  duration, 
intensity,  and  other  qualities  of  labor. 

The  facts  and  figures  seem  to  support  the  following  conclusions: 

1.  That  along  with  the  increased  application  of  machinery  to  the 
textile  and  other  staple  manufactures  there  has  been  a  decrease  of 
employment  relative  to  production. 

2..  That  in  the  transport  industries  the  increase  of  employment  is 
in  inverse  proportion  as  machinery  is  introduced  into  the  several 
branches  as  a  dominating  factor. 

3.  That  the  rapid  diminution  of  agricultural  employment  is  not 
compensated  by  any  proportionate  increase  of  manufacturing  employ- 

JAdapted  by  permission  from  J.  A.  Hobson,  "The  Influence  of  Machinery," 
Political  Science  Quarterly,  VIII  (1893),  97-1 11. 


THE  WAGE  SYSTEM  AND  THE  WORKER  543 

ment,  but  that  the  displaced  agricultural  labor  finds  employment  in 
such  branches  of  the  transport  and  distributive  trade  as  are  less  sub- 
ject to  machinery. 

So  far,  therefore,  as  the  statistics  of  employments  present  a  just 
register  of  the  influence  of  machinery  upon  demand  for  labor,  we  are 
driven  to  conclude  that  the  net  influence  of  machinery  is  to  diminish 
employment  so  far  as  those  industries  are  concerned  into  which 
machinery  directly  enters,  and  to  increase  the  demand  in  those  indus- 
tries which  machinery  affects  but  slightly  or  indirectly.  If  this  is  true 
of  England,  which,  having  the  start  in  the  development  of  the  factory 
system,  has  to  a  larger  extent  than  any  other  country  specialized 
in  the  arts  of  manufacture,  it  is  probable  that  the  net  effect  of  machin- 
ery upon  the  demand  for  labor  throughout  the  industrial  world  has 
been  to  throw  a  larger  proportion  of  the  population  into  industries 
where  machinery  does  not  directly  enter.  This  general  conclusion, 
however,  for  want  of  exact  statistical  enquiries  conducted  upon  a 
single  basis,  can  only  be  accepted  as  probable. 

The  influence  of  machinery  upon  regularity  of  employment  has  a 
twofold  significance.  It  has  a  direct  bearing  upon  the  measurement 
of  demand  for  labor,  which  must  take  into  account  not  only  the  num- 
ber of  persons  employed  but  the  quantity  of  employment  given  to 
each.  It  has  also  a  wider  general  effect  upon  the  moral  and  industrial 
condition  of  the  workers,  and  through  this  upon  the  efficiency  of  labor, 
which  is  attracting  increased  attention  among  students  of  industrial 
questions.  The  former  consideration  alone  concerns  us  here.  We 
have  to  distinguish:  (1)  the  effects  of  the  introduction  of  machinery 
as  a  disturbant  of  regularity  of  labor;  (2)  the  normal  effects  of 
machine  production  upon  regularity  of  labor. 

On  the  whole,  it  seems  reasonable  to  conclude  that  the  present 
net  influence  of  machinery  is  toward  an  increased  irregularity  of 
employment,  except  in  industries  where  (1)  the  demand  for  the 
commodities  produced  is  regular  and  (2)  supply  is  regulated  by  the 
organized  action  of  those  who  control  production. 

Our  reasoning  from  the  ascertained  tendencies  of  machinery 
inclines  to  the  conclusion  that,  taking  into  consideration  the  two  prime 
factors,  namely,  the  number  of  those  employed  and  the  regularity  of 
employment,  machinery  does  not  favor  an  increased  steady  demand 
for  labor.     It  tends,  apparently,  to  drive  labor  in  three  directions: 

1.  To  the  invention,  execution,  and  maintenance  of  machinery  to 
make  machines,  the  labor  of  making  machines  being  continually 


'• 


544  INDUSTRIAL  SOCIETY 

displaced  by  machines,  and  being  thus  driven  to  the  production  of 
machines  further  remote  from  the  machines  directly  engaged  in  pro- 
ducing consumptive  goods.  The  labor  thus  engaged  must  be  in  an 
ever  diminishing  ratio  to  a  given  quantity  of  consumption.  Nothing 
but  a  great  increase  in  the  quantity  of  consumption  or  the  opening  of 
new  varieties  of  consumption  can  maintain  or  increase  the  demand  for 
labor  in  these  machine-making  industries. 

2.  To  continual  specialization  and  refinement  in  the  arts  of 
distribution.  The  multiplication  of  merchants,  middlemen,  and 
retailers  which,  is  so  marked  a  feature  of  English  industry  during  the 
last  forty  years,  is  directly  traceable  to  the  influence  of  machinery. 

3.  To  the  supply  of  new  wants,  which  are  either  (a)  wholly  non- 
material,  i.e.,  intellectual,  artistic,  or  other  personal  services,  (b)  partly 
non-material,  e.g.,  works  of  art  chiefly  the  embodiment  of  individual 
taste  or  spontaneous  energy,  or  (c)  too  irregular  or  not  sufficiently 
extended  to  admit  the  application  of  machines.  The  learned  pro- 
fessions, art,  science,  and  literature,  and  those  branches  of  labor 
engaged  in  producing  luxurious  materials  or  services,  furnish  a 
steadily  increasing  employment.  So  long,  then,  as  a  community  grows 
in  numbers,  so  long  as  individuals  desire  to  satisfy  more  fully  their 
present  wants,  and  combine  to  develop  new  wants  forming  a  higher 
or  more  intricate  standard  of  comfort,  there  is  no  evidence  to  show 
that  machinery  has  an  effect  in  decreasing  the  aggregate  demand 
for  labor,  but  there  is  strong  reason  to  believe  that  it  tends  to  make 
employment  more  unstable  and  precarious  of  tenure  and  more 
fluctuating. 

See  also  169.     The  Machine  and  the  Laborer. 

211.    THE  AMOUNT  OF  UNEMPLOYMENT 


On  these  facts  [testimony  of  employers  and  workmen,  data  with 
regard  to  the  number  of  unemployed  at  relief  agencies  and  the  number 
of  applicants  at  employment  offices,  data  from  censuses  and  special 
investigations,  trade-union  statistics,  etc.]  we  base  our  statement 
that  at  all  times  of  the  year  in  every  industrial  center  of  the  State 
able-bodied  men  are  forced  to  remain  idle  though  willing  to  work. 

1  From  the  New  York  State  Commission  on  Employers'  Liability  and  Unemploy- 
ment, Report  of  Committee  on  Unemployment,  191 1,  pp.  38,  53-54. 


THE  WAGE  SYSTEM  AND  THE  WORKER  545 

On  any  given  day  during  the  year  at  least  3  per  cent  of  our  wage- 
earners  are  involuntarily  idle.  Usually  there  are  10  per  cent.  These 
idle  men  must  always  be  on  hand  to  meet  the  fluctuating  demands  of 
the  industries  of  the  State. 

Summarizing  the  data  at  our  command,  we  should  say  that  in 
ordinary  years  of  business  prosperity,  taking  all  industries  into  con- 
sideration, out  of  every  100  persons,  60  will  be  steadily  employed;  40 
will  be  working  irregularly.  Of  those  who  have  irregular  employment 
3  will  always  be  out  of  work.  The  percentages  vary  with  the  different 
industries,  but  the  experience  is  characteristic  of  every  industry. 

It  has  been  suggested  that  fluctuation  in  the  amount  of  employ- 
ment does  not  necessarily  constitute  a  problem.  If  wages  are  high 
enough  during  the  working  period  to  carry  the  worker  over  the 
slack  times,  there  is  no  problem  at  all.  There  is,  however,  little 
evidence,  except  in  highly  organized  trades  like  building,  to  show  that 
wages  are  adjusted  in  such  a  manner  as  to  afford  an  adequate  annual 
income  to  the  wage-earner  despite  loss  of  time  through  unemployment. 
It  must  be  remembered,  too,  that  while  an  exceptionally  strong  union 
may  force  wages  up  to  cover  slack  seasons,  it  cannot  do  this  for  slack 
years,  and  these,  as  we  have  seen,  recur  just  as  regularly  as  do  slack 
seasons. 

An  idea  of  the  loss  of  earnings  by  trade  union  members  of  this 
State  through  unemployment  may  be  had  from  their  reports  to  the 
Commission.  The  average  possible  earnings  of  the  members  in  211 
unions  are  a  little  over  $1,000  per  year.  The  actual  earnings  are 
$800;  a  loss  of  20  per  cent.  Of  the  211  unions  there  were  72  whose 
members  lost  practically  no  earnings  except  through  voluntary 
idleness.  In  116  of  the  unions  the  loss  from  involuntary  unemploy- 
ment was  over  $100  annually  per  member,  while  in  about  one- third 
of  the  unions  the  average  amount  of  earnings  lost  per  member  was 
more  than  $300  a  year. 

Unorganized  wage-earners,  on  the  whole,  do  not  fare  as  well  as 
union  members.  Yet  these  people  lose  from  1 1  to  20  per  cent  of  their 
possible  working  time  every  year.  It  seems  plain  that  even  at  $3  per 
day  with  the  present  cost  of  living  few  can  afford  to  lose  this  time 
without  hardship.  When  we  remember  that  the  unorganized  workers 
earn  a  great  deal  less  than  the  union  men,  there  seems  no  doubt  that 
few  of  the  latter  can  lose  the  time  that  they  have  to  lose  every  year 
without  getting  into  debt,  reducing  their  standard  of  living,  or 
applying  for  charity. 


546 


INDUSTRIAL  SOCIETY 


BJ 


During  March  and  the  first  part  of  April,  1915,  investigations 
were  made  in  16  cities  in  the  East  and  Middle  West.  The  table  (I) 
gives  the  summary  of  the  investigation: 


TABLE  1 
Summary  of  Unemployment  Survey  in  16  Cities 


Number 

of 
Families 
Can- 
vassed 

Per- 
centage 
of  Fami- 
lies 
with 
Unem- 
ploy- 
ment 

Number 

of 
Persons 

in 
Families 

Number 

of 
Wage- 
Earners 

in 
Families 

Unemployed 

Part-Time 
Workers 

City 

Number 

Per- 
cent- 
age 

Number 

Per- 
cent- 
age 

Boston,  Mass 

Bridgeport,  Conn 

Chicago,  111 

Cleveland,  Ohio 

Duluth,  Minn 

Kansas  City,  Mo..  . . 

Louisville,  Ky 

Milwaukee,  Wis 

Minneapolis,  Minn.  . 
Philadelphia,  Pa.  . .  . 

Pittsburgh,  Pa 

St.  Louis,  Mo 

St.  Paul,  Minn 

Springfield,  Mo 

Toledo,  Ohio 

Wilkes-Barre,  Pa. . . . 

46,649 

8,144 

96,579 

16,851 

1,383 

14,890 

1,667 

8,813 

2,206 

79,058 

36,544 

65,979 

2,515 

1,584 

7,233 

ii,453 

14. 1 

6.1 
17-5 
n. 6 
24.7 
156 
19.7 

9  9 
175 
14.2 
13-6 
17.2 
17.9 

8.4 
12.8 

8.6 

207,956 

32,144 

414,675 

67,787 

6,596 

53,437 

7,238 

36,346 

8,571 

346,787 

155,763 

258,669 

10,782 

6,199 

28,045 

53,900 

77,4i9 

12,533 

157,616 

24,934 

2,089 

22,512 

3,036 

13,112 

3,449 

137,244 

53,336 

104,499 

4,135 

2,284 

10,312 

18,884 

7,863 

537 

20,952 

2,348 
425 

2,815 
399 

1,030 

495 

14,147 

5,942 

14,219 

582 

162 

1,102 

1,200 

10.2 

4-3 
13 -3 

9  4 
20.3 
12.5 
13. 1 

7-9 
14.4 
10.3 
11. 1 
13.6 
14. 1 

7.1 
10.7 

6.4 

13,426 

2,493 

i6,575 

3,060 

37i 

1,979 

842 

3,788 

183 

26,907 

15,474 

14,317 

142 

J2 
1,801 

6,104 

17-3 
19.9 
10. 5 
12.3 
17.8 

8.8 
27.7 
28.9 

5-3 
19.6 
29.0 
13-7 

3-4 

1-4 
17-5 
32.3 

Total 

401,548 

150 

1,694,895 

647,394 

74,2i8 

"•5 

107,494 

16  6 

In  the  table  on  page  547  (X),  the  percentage  of  wage-earners 
unemployed  from  each  specified  cause  in  each  city  is  shown,  the 
percentages  being  based  upon  the  number  of  wage-earners  reporting. 

During  June  and  July,  1914,  investigations  were  held  in  12  cities 
in  the  Rocky  Mountain  and  Pacific  Coast  States.  Table  XI,  on 
p.  547,  shows  in  summary  form  the  results  of  the  canvass. 

An  unemployment  survey  of  New  York  City  was  made  in  January 
and  February,  19 15,  by  the  Bureau  of  Labor  Statistics.  This  survey 
was  made  at  a  time  when  the  abnormal  extent  of  unemployment 
manifested  itself  in  a  number  of  different  ways.  By  the  end  of  the 
summer,  however,  the  feeling  was  general  that  conditions  had  greatly 
improved  since  the  preceding  winter,  but  no  measure  of  this  improve- 
ment had  been  determined.  In  order  to  determine  the  falling  off 
in  unemployment  between  the  winter  season,  when  the  number  of 
wage-earners  out  of  work  probably  reached  the  highest  point,  and  the 

1  Adapted  from  "Unemployment  in  the  United  States,"  Bulletin  of  the  United 
States  Bureau  of  Labor  Statistics,  No.  195  (July,  1916),  pp.  6,  92-100. 


THE  WAGE  SYSTEM  AND  THE  WORKER 


547 


summer  season,  when  the  number  unemployed  under  normal  condi- 
tions would  probably  be  the  smallest  of  the  year,  a  second  survey  was 

undertaken. 

table  x 

Summary  of  Causes  of  Unemployment  in  16  Cities 


Number 
of  Wage- 
Earners 
Report- 
ing 

Wage-Earners 
Unemployed 

Percentage  of  Wage-Earners  Unem- 
ployed from  Each  Specified  Cause 

City 

Number 

Percent- 
age 

No 
Work 
to  Be 
Found 

Sick- 
ness or 
Disabil- 
ity 

Strikes 
or  Lock- 
outs 

Other    ' 
Causes 

Boston,  Mass 

Bridgeport,  Conn 

Chicago,  111 

77,419 

12,533 

157,616 

24,934 

2,089 
22,512 

3,036 
13,112 

3,449 

137,244 

53,336 

104,499 

4,135 

2,284 
10,312 
18,884 

7,863 

537 

20,952 

2,348 
425 

2,815 
399 

1,030 

495 

14,147 

5,942 

14,219 

582 

162 

1,102 

1,200 

10.16 

4-  28 
1329 

942 
20.34 
12.50 
1314 

7.86 
14.40 
10.31 
11. 14 
13- 61 
1407 

7.09 
10.69 

6.35 

7.84 
2.98 

11. 16 
7.60 

17.II 
958 
8.91 
6.34 

"•54 
8.52 
9  49 

11.80 

II. 21 
5l6 
8.83 

4- 63 

1 

2 

1 
1 

1 
1 

1 
1 
1 
1 
1 
1 

73 
04 
21 
37 
SO 
83 
9i 
90 
26 
03 
00 
16 
88 
80 
19 
53 

0.09 
.01 
.11 

0.54 
.27 
.82 

•  42 
.69 

1.08 

2.24 

.65 

•  95 

•  72 
56 

.60 

•  93 

•  14 
.67 
.22 

Cleveland,  Ohio 

Duluth,  Minn 

Kansas  City,  Mo 

Louisville,  Ky 

Milwaukee,  Wis 

Minneapolis,  Minn. . .  . 

Philadelphia,  Pa 

Pittsburgh,  Pa 

bt.  Louis,  Mo 

St.  Paul,  Minn 

Springfield,  Mo 

.03 
•  04 
.01 
.06 
.02 
.06 
.04 
.08 

Toledo,  Ohio 

.01 

.02 

Wilkes-Barre,  Pa 

Total 

647,394 

74,2i8 

II.46 

951 

.06 

68 

*  Less  than  one -hundredth  of  1  per  cent. 

TABLE  XI  • 

Summary  of  Unemployment  Survey  in  12  Rocky  Mountain  and  Pacific  Coast  Cities 


Number 

of 
Fami- 
lies 
Can- 
vassed 

1 

Per- 
cent- 
age OF 
Fami- 
lies 
Having 
Unem- 
ploy- 
ment 

Number 
of  Per- 
sons in 
Fami- 
lies 

Number 

of 
Wage- 
Earners 
in 
Fami- 
lies 

Unemployed 

Part-Time 
Workers 

City 

Number 

Per- 
cent- 
age 

Number 

Per- 
cent- 
age 

Butte,  Mont 

3,557 
5,621 
2,927 
58i 
1,783 
1,288 
1,052 
1,466 
5,320 
10,112 
1,012 
1,818 

7-6 
13  •» 
15  1 

5-7 
23-4 
11. 8 
14-3 
18.3 
19-5 
150 
19.0 
21.3 

13,148 

21,414 

n,478 

2,668 

6,711 

4,856 

4,436 

5,682 

20,810 

36,242 

3,479 

6,977 

4,229 
7,227 
4,256 
887 
2,347 
1,856 
1,664 
1,828 
7,749 
13,473 
1,259 
2,558 

298 

822 

510 

40 

469 

170 

i73 

305 

1,206 

1,713 

210 

457 

7.0 
11. 4 
12.0 

4-5 
20.0 

9.2 
10.4 
16.7 
15-6 
12.7 
16.7 
17.9 

536 

i,744 

1,144 

127 

406 

439 

295 

533 

i,97i 

1,992 

257 

527 

Los  Angeles,  Cal 

Oakland,  Cal 

24.1 
26.9 

Ogden,  Utah 

14-3 

Portland,  Ore. .    . 

Sacramento,  Cal 

Salt  Lake  City,  Utah.  .  . 

San  Diego,  Cal 

San  Francisco,  Cal 

Seattle,  Wash 

Spokane,  Wash 

Tacoma,  Wash 

23-7 
17-7 
29.2 

2SS 
14.8 

20.4 

20.6 

Total 

36,537 

15-3 

137,901 

49,333 

6,373 

12.9 

9.971 

20.2 

Because  of  the  large  numbers  involved  it  is  safe  to  estimate  the 
total  number  unemployed  in  the  entire  city.     The  following  table 


548 


INDUSTRIAL  SOCIETY 


(XVI)  gives  the  estimates  of  the  total  number  out  of  work  in  New 
York  City,  by  sex,  with  unemployment  rates,  as  made  for  both  sur- 
veys. These  estimates  are  based  upon  the  number  of  wage-earners 
given  in  the  iqio  United  States  Census  (with  proper  allowance  for 
increase  in  population),  the  unemployment  rates  obtained  in  the 
surveys,  and  the  sex  distribution  of  the  unemployed  canvassed. 

TABLE  XVI 

Estimated  Number  and  Percentage  of  Unemployed  Wage -Earners  in  New  York  City, 
February  and  September,  1915,  by  Sex 


Males 

Females 

Total 

Time  of  Survey 

Estimated 

Un- 
employed 

Percentage 
of  Wage- 
Earners 

Estimated 

Un- 
employed 

Percentage 
of  Wage- 
Earners 

Estimated 

Un- 
employed 

Percentage 
of  Wage- 
Earners 

February,  1915 

September,  1915 

336,230 
127,842 

18.8 
7-1 

61,770 
37,094 

92 
5-5 

398,000 
164,936 

16.2 
6.7 

The  figures  above  show  that  the  distress  caused  by  unemployment 
conditions  in  February  was  to  a  large  extent  alleviated  by  September. 
The  total  number  unemployed  was  nearly  two  and  one-half  times 


TABLE  XVIII 

Cumulative  Number  and  Percentage  of  Wage -Earners  in  New  York  City,  February  and 
September,  1915,  Unemployed  over  Each  Specified  Number  of  Days 


February 

September 

Duration  of 
"   Unemployment 

Males 

Females 

Total 

Males 

Females 

Total 

Num- 
ber 

Per- 
cent- 
age 

Num- 
ber 

Per- 
cent- 
age 

Num- 
ber 

Per- 
cent- 
age 

Num- 
ber 

Per- 
cent- 
age 

Num- 
ber 

Per- 
cent- 

'  age 

Num- 
ber 

Per 
cent 
age 

Over  180  days. . . . 
Over  1 20  days .... 

Over  90  days 

Over  60  days 

Over  30  days 

Over  13  days ...... 

Over  7  days 

i  day  and  over .  .  . 

1,440 
3,408 
S,o94 
7,220 
9,79o 
11,259 
11,789 
12,555 

«.'s 

27.1 
40.6 
57-5 
78.0 
89.7 
93-9 
100. 0 

215 
536 
780 
1,119 
1,623 
1,947 
2,077 
2,298 

9 
23 
33 
48 
7o 

'  84 
90 

100 

4 
3 
9 
7 
6 
7 
4 
0 

1,655 
3,944 
5,874 
8,339 
n,4i3 
13,206 
13,866 
14,853 

11. 1 
26.6 
39 -.5 
56.1 
76.8 
88.9 
934 
100. 0 

1,254 
1,708 
2,147 
2,803 
3,54i 
4,208 
4,475 
4,797 

26 

35 
44 
58 
73 
87 
93 
100 

1 
6 
8 
4 
8 
7 
3 
0 

,    236 

368 

507 

722 

1, 005 

1,220 

1,294 

1,385 

17.0 
26.6 
36.6 
52.1 
72.6 
88.1 
93-4 
100. 0 

1,490 
2,076 
2,654 
3,525 
4,546 
5,428 
5,769 
6,182 

24 
33 
42 
57 
73 
87 
93 
100 

as  great  in  February  as  in  September.  However,  the  estimate  of 
about  165,000  unemployed  in  September  must  be  regarded  as  a 
minimum  because  a  similar  estimate  based  on  the  results  of  the 
September  survey  by  the  Metropolitan  Life  Insurance  Company 
gives  224,000  unemployed.  Similarly  the  unemployment  rate  of  6.7 
per  cent  must  be  regarded  as  a  minimum  because  the  corresponding 


THE  WAGE  SYSTEM  AND  THE  WORKER  549 

survey  by  the  Metropolitan  Life  Insurance  Company  showed  an 
unemployment  rate  of  9.1  per  cent. 

The  next  table  (XVIII)  shows  the  unemployed  in  September, 
19 1 5,  classified  by  sex  and  duration  of  unemployment  and  the  corre- 
sponding information  for  the  February  survey  given  in  parallel 
columns.  The  figures  give  the  cumulative  number  and  percentage 
of  wage-earners  out  of  employment  each  specified  number  of  days. 

D.     The  Worker  and  the  New  Technology 

See  also  Selections  165-170.     Some  Characteristic  Results  of  the 

Machine  Process. 
212.    THE  HAZARDOUS  NATURE  OF  MODERN  INDUSTRY1 

In  the  first  place,  a  high  degree  of  hazard  inheres  in  present-day 
methods  of  production.  Modern  technology  makes  use  of  the  most 
subtle  and  resistless  forces  of  nature — forces  whose  powers  of  destruc- 
tion when  they  escape  control  are  fully  commensurate  with  their 
beneficent  potency  when  kept  in  command.  Moreover,  these  forces 
operate,  not  the  simple  hand  tools  of  other  .days,  but  a  maze  of  compli- 
cated machinery  which  the  individual  workman  can  neither  compre- 
hend nor  control,  but  to  the  movements  of  which  his  own  motions 
must  closely  conform  in  rate,  range,  and  direction.  Nor  is  the 
worker's  danger  confined  to  the  task  in  which  he  is  himself  engaged, 
nor  to  the  appliances  within  his  vision.  A  multitude  of  separate 
operations  are  combined  into  one  comprehensive  mechanical  process, 
the  successful  consummation  of  which  requires  the  co-operation  of 
thousands  of  operatives  and  of  countless  pieces  of  apparatus  in  such 
close  interdependence  that  a  hidden  defect  of  even  a  minor  part,  or  a 
momentary  lapse  of  memory  or  of  attention  by  a  single  individual 
may  imperil  the  lives  of  hundreds.  A  tower  man  misinterprets  an 
order,  or  a  brittle  rail  gives  way,  and  a  train  loaded  with  human 
freight  dashes  to  destruction.  A  miner  tamps  his  "shot"  with  slack, 
and  dust  explosion  wipes  out  a  score  of  lives.  A  steel  beam  yields  to 
the  pressure  it  was  calculated  to.  bear,  and  a  rising  skyscraper  col- 
lapses in  consequence,  burying  a  small  army  of  workmen  in  the  ruins. 

In  the  second  place,  human  nature,  inherited  from  generations 
that  knew  not  the  machine,  is  imperfectly  fitted  for  the  strain  put 
upon  it  by  mechanical  industry.     Safely  to  perform  their  work  the 

1  Adapted  by  permission  from  E.  H.  Downey,  History  of  Work  Accident 
Indemnity  in  Iowa,  pp.  3-5.  (Published  by  the  State  Historical  Society  of  Iowa, 
1912.) 


55©  INDUSTRIAL  SOCIETY 

operatives  of  a  modern  mill,  mine,  or  railway  should  think  consistently 
in  terms  of  those  mechanical  laws  to  which  alone  present-day  industrial 
processes  are  amenable.  They  should  respond  automatically  to  the 
most  varied  mechanical  exigencies,  and  should  be  as  insensible  to 
fatigue  and  as  unvarying  in  behavior  as  the  machines  they  operate. 
Manifestly  these  are  qualities  which  normal  human  beings  do  not 
possess  in  anything  like  the  requisite  degree.  The  common  man  is 
neither  an  automaton  nor  an  animated  slide-rule. 

The  machine  technology,  in  fact,  covers  so  small  a  fraction  of  the 
life  history  of  mankind  that  its  discipline  has  not  yet  produced  a 
mechanically  standardized  race,  even  in  those  communities  and 
classes  that  are  industrially  most  advanced.  And  so  there  is  a  great 
number  of  work  injuries  due  to  the  "negligence  of  the  injured  work- 
man"— due,  that  is  to  say,  to  the  shortcomings  of  human  nature  as 
measured  by  the  standards  of  the  mechanician.  This  maladjustment 
is  aggravated  by  the  never-ceasing  extension  of  machine  methods  to 
new  fields  of  industry,  and  the  continued  influx  of  children,  women, 
and  untrained  peasants  into  mechanical  employments.  Accordingly, 
the  proportion  of  accidents 'attributable  to  want  of  knowledge,  skill, 
strength,  or  care  on  the  part  of  operatives  appears  everywhere  to  be 
increasing. 

There  is,  then,  no  prospect  that  the  "carnage  of  peace  "will  be 
terminated,  as  the  carnage  of  war  may  be,  within  the  predictable 
future.  An  industrial  community  must  face  the  patent  fact  that 
work  injuries  on  a  tremendous  scale  are  a  permanent  feature  of 
modern  life.  Every  mechanical  employment  has  a  predictable 
hazard;  of  a  thousand  men  who  climb  to  dizzy  heights  in  erecting 
steel  structures  a  certain  number  will  fall  to  death,  and  of  a  thousand 
girls  who  feed  metal  strips  into  stamping  machines  a  certain  number 
will  have  their  fingers  crushed.  So  regularly  do  such  injuries  occur 
that  every  machine-made  commodity  may  be  said  to  have  a  definite 
cost  in  human  blood  and  tears — a  life  for  so  many  tons  of  coal,  a 
lacerated  hand  for  so  many  laundered  shirts. 

213.    CAUSES  AND  VOLUME  OF  INDUSTRIAL  ACCIDENTS1 

The  number  of  salary-  and  wage-earners  in  the  United  States 
may  be  conservatively  estimated  for  1913  at  30,760,000  males  and 
7,200,000  females.     This  estimate  is  subject  to  correction  on  the 

1  From  F.  L.  Hoffman,  "Industrial  Accident  Statistics,"  Bulletin  of  the 
United  States  Bureau  of  Labor  Statistics,  No.  157  (March,  1915),  pp.  5-6,  145. 


THE  WAGE  SYSTEM  AND  THE  WORKER 


551 


GENERAL    CAUSES   OF    COMPENSATED    INDUSTRIAL    ACCIDENTS, 

EXPERIENCE    OF     GERMAN    INDUSTRIAL    ACCIDENT 

ASSOCIATIONS,  1885-1908 


Cause 


Compensated  Accidents 


Number 


Percentage 


Motors  and  transmission  of  power 

Lifts,  cranes,  etc 

Boiler  and  steam-pipe  explosions . 

Explosives 

Heats,  acids,  steam,  gases,  etc. .  . . 

Collapses  or  breakdowns 

Falls  from  ladders,  stairs,  etc 

Loading,  lifting,  and  carrying .... 

Teaming,  vehicles,  etc 

Railways 

Shipping 

Animals 

Tools 

All  others 

Total 


210,558 

3S,7i5 

3,572 

9,993 

33,689 

165,410 

162,074 

131,240 

61,808 

4o,355 
10,089 
13,968 
71,911 
5i,792 


,002,174 


21 .01 

3-56 

•36 

1. 00 
336 

16.51 

16.17 

13.10 

6.17 

403 

1. 01 

i-39 
7.18 

5-17 


100.00 


ESTIMATE  OF  FATAL  INDUSTRIAL  ACCIDENTS  IN  THE  UNITED 
STATES  IN  1913,  BY  INDUSTRY  GROUPS 


Industry  Group 

(Males) 

Metal  mining 

Coal  mining 

Fisheries 

Navigation 

Railroad  employees 

Electricians  (light  and  power) 

Navy  and  marine  corps 

Quarrying 

Lumber  industry 

Soldiers  (United  States  army) 

Building  and  construction 

Draymen,  teamsters,  etc 

Street  railway  employees 

Watchmen,  policemen,  firemen 

Telephone    and    telegraph    (including 

linemen) ,. . . . 

Agricultural  pursuits  (including  forestry 

and  animal  husbandry) 

Manufacturing  (general) 

All  other  occupied  males 

All  occupied  males 

All  occupied  females 


Number  of 
Employees 

Fatal  Industrial 
Accidents 

Rate  per  1,000 

1 70,000 

680 

4.00 

750,000 

2,625 

3-50 

150,000 

450 

3.00 

150,000 

450 

3.00 

1,750,000 

4,200 

2.40 

68,000 

153 

2.25 

62,000 

115       • 

1.85 

150,000 

255 

I.70 

531,000 

797 

I    SO 

73,000 

1,500,000 

686,000 

109 

1,875 
686 

1.49 
I    25 
I. OO 

320,000 

320 

I.  OO 

200,000 

150 

•75 

245,000 

123 

•50 

12,000,000 

4,200 

•35 

7,277,000 
4,678,000 

1,819 
3,5o8 

.25 
•75 

30,760,000 

22,515 

•73 

7,200,000 

540 

.075 

552  INDUSTRIAL  SOCIETY 

basis  of  the  census  returns  of  1910  when  this  estimate  was  made. 
The  probable  approximate  number  of  fatal  industrial  accidents 
among  American  wage-earners,  including,  both  sexes,  may  be  con- 
servatively estimated  at  25,000  for  the  year  19 13,  and  the  number  of 
injuries  involving  a  disability  of  more  than  four  weeks,  using  the 
ratio  of  Austrian  experience,  at  approximately  700,000.  This  estimate 
is  arrived  at  by  calculating  separately  the  probable  accident  rates 
for  the  more  important  groups  of  occupations,  of  which  the  foregoing 
table  may  be  considered  typical  and  representative. 

214.    SOCIAL  LOSS  THROUGH  ACCIDENTS1 

The  accident  loss  for  an  industrial  district  can  be  estimated  from 
the  standpoint  of  social  economy.  Frederick  Hoffman,  statistician 
of  the  Prudential  Insurance  Company,  estimates  that  the  net  economic 
gain  to  society  from  the  life  of  a  male  wage-earner  in  mechanical  and 
manufacturing  industries  averages  $300  per  year,  his  normal  period 
of  industrial  activity  extending  from  the  fifteenth  to  the  sixty-fifth 
year. 

Applying  this  method  of  calculation  to  the  actual  ages  of  the 
526  men  killed  in  Allegheny  County  during  the  year  under  considera- 
tion, but  using  $200  instead  of  $300  as  the  yearly  economic  gain, 
we  find  that  the  net  loss  to  the  community  at  this  reduced  estimate 
was  $3,828,090. 

In  a  similar  way  we  may  sum  up  the  net  economic  loss  to  society 
from  non-fatal  injuries.  According  to  our  estimate  2,000  men  injured 
in  industrial  accidents  were  sent  to  the  hospitals  of  the  county  during 
that  year.  Of  these,  roughly  60  were  totally  disabled  for  life;  192 
were  partially  disabled  for  life,  their  earning  capacity  reduced  on  an 
average  29  per  cent;  and  the  rest  were  totally  disabled  for  periods 
ranging  from  one  week  to  one  year.  Reckoning  the  loss  to  society 
from  the  total  or  temporary  disablement  of  all  these  workers  on  the 
same  basis,  but  including  the  cost  of  their  maintenance  during 
disability,  we  get  an  additional  social  loss  of  $1,320,636. 

Loss  to  society  from  men  totally  disabled  for  life $    734,928 

"       "       "        "        "    partially  disabled  for  life '       372,708 

"       "       "        "        "    temporarily  disabled 213,000 

$1,320,636 

1  Taken  by  permission  from  Crystal  Eastman,  Work- Accidents  and  the  Law, 
Appendix  IX,  pp.  315-17.     (Charities  Publication  Committee,  1910.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  553 

To  this  we  must  add  what  it  cost  the  community  to  care  for  all 
these  cases  of  injury  and  death.  Here,  however,  we  are  dealing  with 
an  unknown  quantity.  The  hospital  charges  for  the  year's  industrial 
accident  cases  would  amount  to  about  $80,000,  which  we  accept  as 
the  minimum  of  known  cost  for  the  medical  care  involved  in  a  year's 
industrial  accidents.  While  every  year  2,000  wealth  producers  are 
withdrawn  temporarily  from  any  occupation,  and  500  more  perma- 
nently, as  a  result  of  industrial  accidents  in  Allegheny  County,  a 
number  of  other  possible  wealth  producers  are  thus  permanently 
occupied,  non-productively,  in  the  business  of  patching  up,  repairing, 
putting  in  order,  those  who  are  injured. 

By  such  a  method  of  estimate  the  net  economic  loss  to  society 
from  one  year's  work-accidents  in  Allegheny  County  would  be  as 
follows: 

LOSS   TO   SOCIETY  FROM  ONE  YEAR'S  WORK-ACCIDENTS  IN 

ALLEGHENY  COUNTY 

Social  Loss 

From  deaths $3,828,090 

From  disablements 1,320,636 

Hospital  charges 80,000 

$5,228,726* 

215.    OCCUPATIONAL  DISEASES2 

Besides  the  danger  of  injury  from  machinery  and  from  general 
insanitary  conditions,  there  are  certain  specially  dangerous  or  injuri- 
ous trades,  in  which  injury  by  poisoning,  disease,  etc.,  is  incidental  to 
trade  processes  as  at  present  conducted.  Mr.  William  English 
Walling,  formerly  a  factory  inspector  in  Illinois,  in  a  paper  read 
before  the  Convention  of  Factory  Inspectors  in  1900,  classified  these 
dangerous  trades  as  follows: 

1.  Trades  in  which  lead  is  a  poisonous  element:  the  manufacture  of 
earthenware  and  china;  file  cutting;  the  manufacture  of  white  lead;  lead 
smelting;  the  use  of  lead  in  print  or  dye  works;  the  manufacture  of  red, 
orange,  or  yellow  lead;  glass  polishing;  enameling  of  iron  plates;  enameling 

1  This  estimate  takes  no  account,  it  should  be  noted,  of  the  loss  involved  in 
the  continuous  succession  of  small  injuries  not  serious  enough  to  be  taken  to  a 
hospital,  nor  of  injuries  more  serious,  but  occurring  too  far  away  from  a  hospital 
to  make  the  trip  advisable,  nor  of  injuries,  often  very  serious  in  the  matter  of 
disablement,  but  not  of  a  nature  to  require  hospital  care. 

2  Adapted  from  Final  Report  of  the  Industrial  Commission,  1902,  XIX,  901-2. 


554  INDUSTRIAL  SOCIETY 

and  tinning  of  hollow  metal  ware  and  cooking  utensils;  processes  in  which 
yellow  chromate  of  lead  is  made,  or  in  which  goods  dyed  with  it  undergo  the 
process  of  building,  winding,  weaving,  etc. 

2.  Trades  which  produce  other  chemical  poisons:  manufacture  of  paint 
and  color;  extraction  of  arsenic;  dry  cleaning;  paper  staining,  coloring,  and 
enameling;  hatters  and  furriers' work;  the  manufacture  of  matches;  chemi- 
cal works;  bronzing  and  metallochrome  powder  in  lithographic  works; 
india-rubber  work;  dyeing  with  certain  dyes;  mixing  and  casting  of  brass, 
gun  metal,  bell  metal,  white  metal,  phosphor-bronze,  and  manila  mixture. 

3.  Trades  in  which  anthrax  or  lockjaw  is  an  incident:  wool  sorting; 
the  handling  of  hides  and  skins;  hair  factories;  brush  making;  bone  fac- 
tories; fellmongers'  works;  furriers'  works;  tanneries;  wool  combing; 
blanket  stoving  and  tentering;  warp  dressing;  carbonizing  and  grinding  of 
rags;   flock  making;   feather  cleaning. 

4.  Trades  in  which  the  danger  arises  from  injurious  particles  in  the  air, 
or  from  dust:  basic  slag  works;  manufacture  of  silicate  of  cotton;  file 
cutting;  flour  mills;  trades  which  use  grindstones  or  emery  wheels;  china 
scouring;  silk  combing;  flax  scutching. 

5.  Trades  in  which  accidents  are  so  frequent  as  to  demand  special 
legislation:  metal  works  which  use  converters;  electrical  generating  works; 
bottling  and  bottle  testing;   quarries;  manufacture  of  salt. 

6.  Processes  which  require  a  sudden  change  from  great  heat  to  cold,  and 
vice  versa:  lacquering  and  japanning;  galvanizing  of  iron;  work  carried  on 
in  furnaces  and  foundries. 

7.  Processes  that  require  artificial  humidity:  cotton  spinning,  weaving, 
etc.;  flax  spinning,  weaving,  etc. ;  wool  spinning;  silk  spinning. 

As  an  example  of  disease  resulting  from  poisoning  may  be  men- 
tioned plumbism,  the  disease  caused  by  inhaling  particles  of  lead. 
One  of  its  first  symptoms  is  a  blue  gum,  followed  by  loosening  and 
dropping  out  of  the  teeth.  Blindness,  paralysis,  and  death  in  con- 
vulsions often  follow.  Besides  plumbism,  there  are  serious  indirect 
results  from  lead  poisoning  in  a  number  of  different  occupations. 

216.    FATIGUE1 

1.  Fatigue — the  most  common  and  subtle  danger  of  occupation:      » 

a)  It  may  be  regarded  as  a  chemical  process — a  continual  tearing 
down  of  muscle  and  nerve  tissues  without  building  them  up. 

b)  In  this  way,  fatigue  substances  or  toxins  come  to  circulate 
in  the  blood,  poisoning  brain  and  nervous  system,  muscles, 
glands,  and  other  organs:   When  blood  is  transferred  from  an 

1  Taken  by  permission  from  E.  S.  Bogardus,  An  Introduction  to  the  Social 
Sciences,  pp.  44-45.  (University  of  Southern  California,  1913.  Author's  copy- 
right.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  555 

exhausted  dog  to  a  frisky  one,  the  latter  immediately  droops 
and  shows  all  the  signs  of  fatigue. 

2.  Objective  causes  of  fatigue : 

a)  Long  hours— in  the  steel  industry,  the  working  day  is  usually 
twelve  hours,  seven  days  in  the  week. 

b)  Monotonous,  speeded-up  operations— at  many  machines  a 
quick  pressure  of  the  foot  and  accompanying  hand-movements 
are  repeated  "40  times  a  minute,  24,000  times  a  day." 

3.  Results  of  fatigue: 

a)  Fatigue  and  industrial  inefficiency— poorer  work  and  less  work 
is  done  in  the  last  hours  of  a  day's  labor  than  in  the  earlier  hours. 

b)  Fatigue  and  contagious  diseases — an  overworked  laboring 
man  or  woman  is  more  susceptible  to  pneumonia,  tuberculosis, 
typhoid  fever,  than  is  a  person  whose  vital  resistance  is  normal. 
A  typical  succession  of  events  is  first,  fatigue,  then  colds,  then 
tuberculosis,  then  death.    . 

c)  Fatigue  and  nervous  diseases — long  hours  of  labor  and  feverish 
haste  lead  to  nervous  breakdown. 

d)  Fatigue  and  future  generations — the  children  of  overworked 
parents  tend  to  be  physical  weaklings. 

e)  Fatigue  and  morals  of  working  people — long  hours  of  monoto- 
nous labor  increase  the  susceptibility  of  the  human  organism  to 
harmful  temptations.  The  exhausted  worker  tends  to  neglect 
all  family  duties. 

/)  Fatigue  and  industrial  accidents — the  liability  to  accident 
increases  with  the  daily  hours  of  labor.  Investigation:  In 
the  second  hour  of  work,  9,000  accidents  occur;  in  the  third 
hour,  12,000;    in  the  fourth  hour,  15,000. 

217.    LONG  HOURS1 

There  is  unmistakably  a  trend  toward  shorter  hours  in  some 
important  lines  of  industry.  But  side  by  side  with  those  who  have 
benefited  from  the  introduction  of  the  shorter  day,  other  workers 
in  various  trades  are  still  employed  twelve  hours  a  day  or  more. 
Thus,  for  instance: 

The  investigation  of  the  United  States  Bureau  of  Labor  showed 
that  in  1910,  62.79  per  cent  of  over  31,000  men  employed  in  blast 
furnaces  worked  84  hours  and  over  per  week,  that  is  12  hours  a  day  on 

1  Adapted  by  permission  from  Felix  Frankfurter  and  Josephine  Goldmark, 
The  Case  for  the  Shorter  Work  Day,  II,  940-41.  (Reprinted  by  National  Con- 
sumers' League.) 


556  INDUSTRIAL  SOCIETY 

*j  days  in  the  week.  Only  i  per  cent  were  customarily  employed  60 
hours  per  week.  Nearly  43  per  cent  of  the  173,000  employees  in  the 
iron  and  steel  industry  were  employed  at  least  72  hours  per  week,  or 
1 2  hours  per  day  on  6  days  in  the  week. 

While  these  are  examples  of  extreme  hours  of  employment  in  the 
absence  of  all  regulation,  such  extremes  are  not  confined  to  the  steel 
industry  alone. 

In  railroading,  for  instance,  during  the  year  19 13,  261,332  men 
are  recorded  as  exceeding  16  hours'  work.  Almost  200,000  of  these 
men  worked  between  16  and  21  hours  on  a  stretch. 

According  to  the  Census  of  19 10,  men  were  employed  72  hours 
and  over  per  week  in  the  following  among  other  industries : 

Sugar  and  molasses:    factories  (not 

including  sugar  refineries) 95      per  cent  of  4,127  employees 

Blast  furnaces 85. 9     "       "     "  38,429  " 

Ice 64.4     "       "     "  16,114 

Glucose  and  starch 57.8     "       "    "  4,773  " 

Gas 57-4     "       "    "  37,215 

According  to  the  Census,  men  were  employed  more  than  60  hours 
per  week  in  the  following  among  other  industries: 

Blast  furnaces 96. 4  per  cent  of  38,429  employees 

Sugar 95  "  "  «  4,127 

Ice....... 77.6  "  «  "  16,114 

Gas ■ 72.9  "  "  "  37,215 

Glucose  and  starch 71.9  "  "  "  4,773          " 

Sulphuric,  nitric,  and  mixed  acids . .  64.1  "  "  "  2,252          " 

Butter,  cheese,  and  milk 42  "  "  "  18,431          " 

Paper  and  wood  pulp 41 . 1  "  "  "  75,978          " 

Steel  works  and  rolling  mills 34. 2  "  "  "  240,076          " 

Flour  mill  and  grist  mill 30. 7  "  "  "  39,453          " 

Coke 24.5  "  "  "  29,273 

Petroleum 23 . 5  "  "  "  13,929          " 

Salt 23  "  ■  "  4,936 

218.    AN  OUTLINE  OF  THE  CASE  AGAINST  LONG  HOURS1 

I.  The  Dangers  of  Long  Hours 

A.  Bad  Effects  of  Long  Hours  on  Health 
1.  Relation  of  fatigue  to  disease 

a)  General  predisposition  to  disease 

b)  Fatigue  and  infectious  diseases 

c)  Fatigue  and  nervous  diseases 

1  Adapted  by  permission  from  Felix  Frankfurter  and  Josephine  Goldmark, 
The  Case  for  the  Shorter  Work  Day,  I,  iii-v.  (Reprinted  by  National  Consumers' 
League.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  557 

(1)  Nervous  diseases  and  statistics  of  foreign  sickness  insur- 
ance societies 

(2)  Ages  of  incidence 

(3)  Nervous  diseases  and  heredity 

(4)  Nervous  diseases  and  overstimulation 

d)  General  injuries  to  health 

e)  Injuries  to  eyes  and  ears 

/)  Injuries  to  other  organs  or  parts  of  the  body 

B.  Health-Hazards  in  Modern  Industry 

1.  The  new  strain  of  manufacture 

a)  Speed 

b)  Monotony 

c)  Piece-work 

2.  Injurious  physical  surroundings 

a)  Bad  air,  humidity,  extremes  of  temperature,  noise,  etc. 

b)  Exposure  to  dust,  gases,  fumes,  poisons,  etc. 

C.  The  Nature  and  Effects  of  Fatigue 

1.  The  chemical  nature  of  fatigue 

2.  The  toxin  of  fatigue 

3.  Muscular  fatigue 

4.  The  greater  strain  on  fatigued  muscles 

5.  Nervous  fatigue 

6.  The  physiological  function  of  rest 

a)  Rest  needed  to  repair  expenditure  of  energy 

D.  Bad  Effect  of  Long  Hours  on  Safety 

1.  Incidence  of  accidents 

2.  Fatigue  of  attention 

E.  Bad  Effect  of  Long  Hours  upon  Morals 

1.  General  loss  of  moral  restraints 

2.  Growth  of  intemperance 

F.  Bad  Effects  of  Long  Hours  on  General  Welfare 

1.  State's  need  of  preserving  health 

2.  Injuries  to  family  life  and  the  community 

II.  Benefits  of  Short  Hours 

A.  Good  Effect  on  Morals:   Growth  of  Temperance 

B.  Good  Effect  on  General  Welfare 

1.  General  benefit  to  society 

2.  Benefit  to  leisure  and  recreation 
a)  The  experience  of  Australasia 


558  INDUSTRIAL  SOCIETY 

C.  Benefit  to  Citizenship 
i.  Preparedness: 

a)  Political:  the  citizen  as  voter 

b)  Social:  Americanization  of  the  foreign-born 

c)  Military:  the  citizen  as  soldier 

III.  Economic  Aspect  of  Reducing  Hours 

A.  General  Benefit  to  Commercial  Prosperity 

B.  Effect  on  Production 

i.  Superior  output  in  shorter  hours 

a)  Some  recent  instances 

b)  Textile  trades:  cotton,  wool,  linen,  jute 

c)  Metal  trades:  iron  and  steel,  tin  plate 

d)  Mines  and  quarries:  coal,  slate,  etc. 

e)  Granite  and  stone  cutting 

/)  Glass  and  optical  instruments 

g)  Chemicals 

h)  Cigars 

i)  Shoes 

j)  Miscellaneous  instances 

k)  General  comments 

2.  Shorter  hours  increase  efficiency  on  the  part  of  the  workers 

3.  Shorter  hours  lead  to  improvement  in  management 

4.  Relation  of  short  hours  to  cost  of  production 

5.  Long  hours  reduce  efficiency  and  result  in  inferior  output 

C.  Relation  to  Wages 

D.  Relation  to  Regularity  of  Employment 

IV.  Uniformity  of  Restriction  Needed  for  Justice  to  Competing 
Employers* 

219.    CHILD  LABOR1 

1.  " Child,  labor"  usually  refers  to  manufacturing  rather  than  to 
agriculture: 

a)  The  great  manufacturing  states  (Pennsylvania,  New  York, 
Massachusetts,  Illinois)  have  the  largest  numbers  of  children  in 
manufacturing. 

b)  If  agriculture  be  included,  the  southern  states  have  the  greatest 
totals  of  child  laborers. 

1  Adapted  by  permission  from  E.  S.  Bogardus,  An  Introduction  to  the  Social 
Sciences,  pp.  71-72.  (University  of  Southern  California,  1913.  Author's  copy- 
right.) 


THE  WAGE  SYSTEM  AND  THE  WORKER 


559 


c)  Child  labor  is  found  chiefly  in  cotton  mills,  glass  factories, 
coal  mines,  agriculture. 

d)  Probably  1,750,000  children,  fifteen  years  of  age  and  under, 
who  are  "gainfully  employed"  in  the  United  States  at  the 
present  time. 

Things  are  not  really  cheap  because  they  cost  little  money: 

a)  Their  cost  may  have  been  very  great  because  of  the  necessity 
of  adding  the  child  life  that  has  been  expended  in  their  manu- 
facture. 

b)  Every  person  who  gets  " bargains"  that  are  cheap  because 
they  are  child-made  is  partly  responsible  for  child  labor. 

c)  If  the  forces  of  the  dollar  win,  the  child's  life  is  hardened  into 
a  money-making  machine,  grinding  for  a  space,  and  then 
giving  way  to  another. 

d)  For  every  dollar  earned  by  a  child  under  fourteen  years  of  age, 
tenfold  will  be  taken  from  his  earning  capacity  in  later  years. 

e)  Child  labor  is  undoubtedly  cheap  labor,  but  the  product  is 
cheaper  than  the  labor  involved  in  its  creation. 

Child  labor  is  a  process  of  mind  stunting : 

a)  The  child  is  removed  from  the  possibility  of  an  education. 

b)  Grind,  monotony,  and  degeneration  are  substituted  for  enthusi- 
asm, play,  and  life. 

c)  The  child's  body  is  forming  at  fourteen,  and  its  growth  should 
not  be  marred  by  imposing  upon  it  the  restrictions  which  come 
from  factory  life.  .  \ 

Child  labor  is  demoralizing : 

a)  The  child  ceases  to  be  a  child  in  knowledge  while  he  or  she  is 
still  a  child  in  ideas. 

b)  No  adequate  home  influence  or  school  influence  to  ward  off 
the  dangers. 

c)  The  child  is  his  own  pilot,  but  how  easily  misguided. 

d)  Is  often  surrounded  with  unbearable  monotony,  unsanitary 
conditions,  wayward  companions,  and  every  other  form  of 
undesirable  influence. 

e)  The  nervous  strain  is  very  great;  the  child  is  often  "speeded 
up"  with  the  adults.  He  seeks  relief  for  his  strained  nervous 
system  in  some  kind  of  activity  which  leads  ultimately  to  the 
police  court. 


560  INDUSTRIAL  SOCIETY 

5.  Child  labor  helps  to  destroy  family  life: 

a)  The  girl  in  the  factory  is  frequently  untrained  in  the  mainte- 
nance of  a  home. 

b)  Factory  work  makes  of  the  girl  a  wife  and  mother  incapable  by 
knowledge  or  training  of  doing  her  duty  by  her  children,  her 
home,  or  her  husband. 

c)  It  makes  of  the  boy  an  unskilled  worker,  incapable  of  earning 
large  means,  or  of  becoming  a  worthy  father. 

E.     The  Danger  of  Economic  Insufficiency 

See  also  262.    Why  Wealth  Should  Be  in  the  Hands  of  the  Many. 
263.     Evils  of  the  Concentration  of  Wealth. 
272.    The  Nature  and  Extent  of  Poverty. 

220.    SUPPLY  AND  DEMAND  IN  THE  CASE  OF  LABOR1 

Some  peculiarities  in  this  action  of  demand  and  supply  in  the  case 
of  labor  must  be  studied  because  they  affect,  not  merely  the  form,  but 
also  the  substance  of  the  action;  and  to  some  extent  they  limit  and 
hamper  the  free  action  of  those  forces. 

1.  The  first  point  to  which  we  have  to  direct  our  attention  is  the 
fact  that  human  agents  of  production  are  not  bought  and  sold  as 
machinery  and  other  material  agents  are.  The  worker  sells  his  work, 
but  he  himself  remains  his  own  property :  those  who  bear  the  expenses " 
of  rearing  and  educating  him  receive  but  very  little  of  the  price  that  is 
paid  for  his  services  in  later  years. 

In  the  lower  ranks  of  society  the  evil  is  great.  For  the  slender 
means  and  education  of  the  parents,  and  the  comparative  weakness  of 
their  power  of  distinctly  realizing  the  future,  prevent  them  from  invest- 
ing capital  in  the  education  and  training  of  their  children  with  the  same 
free  and  bold  enterprise  with  which  capital  is  applied  to  improving  the 
machinery  of  any  well-managed  factory.  Many  of  the  children  of  the 
working  classes  are  imperfectly  fed  and  clothed;  they  are  housed  in  a 
way  that  promotes  neither  physical  nor  moral  health;  they  receive  a 
school  education  which,  though  in  modern  England  it  may  not  be 
very  bad  so  far  as  it  goes,  yet  goes  only  a  little  way;  they  have  few 
opportunities  of  getting  a  broader  view  of  life  or  an  insight  into  the 
nature  of  the  higher  work  of  business,  of  science,  or  of  art;    they 

1  Adapted  by  permission  from  Alfred  Marshall,  Principles  of  Economics,  I, 
638-51.     (Macmillan  &  Co.,  Ltd.,  19 12.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  561 

meet  hard  and  exhaustive  toil  early  on  the  way,  and  for  the  greater 
part  keep  to  it  all  their  lives.  At  last  they  go  to  the  grave  carrying 
with  them  undeveloped  abilities  and  faculties,  which,  if  they  could 
have  borne  full  fruit,  would  have  added  to  the  material  wealth  of  the 
country— to  say  nothing  of  higher  considerations— many  times  as 
much  as  would  have  covered  the  expense  of  providing  adequate 
opportunities  for  their  development. 

But  the  point  on  which  we  have  specially  to  insist  now  is  that  this 
evil  is  cumulative.  The  worse  fed  are  the  children  of  one  generation, 
the  less  will  they  earn  when  they  grow  up,  and  the  less  will  be  their 
power  of  providing  adequately  for  the  material  wants  of  their  chil- 
dren; and  so  on;  and  again,  the  less  fully  their  own  faculties  are 
developed,  the  less  will  they  realize  the  importance  of  best  faculties 
of  their  children,  and  the  less  will  be  their  power  of  doing  so. 

2.  The  next  of  those  characteristics  of  the  action  of  demand  and 
supply  peculiar  to  labor  which  we  have  to  study  lies  in  the  fact  that 
when  a  person  sells  his  services  he  has  to  present  himself  where  they 
are  delivered.  It  matters  nothing  to  the  seller  of  bricks  whether  they 
are  to  be  used  in  building  a  palace  or  a  sewer;  but  it  matters  a  great 
deal  to  the  seller  of  labor,  who  undertakes  to  perform  a  task  of  given 
difficulty,  whether  or  not  the  place  in  which  it  is  to  be  done  is  a  whole- 
some and  a  pleasant  one,  and  whether  or  not  his  associates  will  be  such 
as  he  cares  to  have. 

Since  no  one  can  deliver  his  labor  in  a  market  in  which  he  is  not 
himself  present,  it  follows  that  the  mobility  of  labor  and  the  mobility 
of  the  laborer  are  convertible  terms;  and  the  unwillingness  to  quit 
home,  and  to  leave  old  associations,  including  perhaps  some  loved 
cottage  and  burial  ground,  will  often  turn  the  scale  against  a  proposal 
to  seek  better  wages  in  a  new  place.  And  when  the  different  members 
of  a  family  are  engaged  in  different  trades,  and  a  migration  which 
would  be  advantageous  to  one  member  would  be  injurious  to  others, 
the  inseparability  of  the  worker  from  his  work  considerably  hinders 
the  adjustment  of  the  supply  of  labor  to  the  demand  for  it. 

3.  Again,  labor  is  often  sold  under  special  disadvantages,  arising 
from  the  closely  connected  group  of  facts  that  labor  power  is  "perish- 
able," that  the  sellers  of  it  are  commonly  poor  and  have  no  reserve 
fund,  and  that  they  cannot  easily  withhold  it  from  the  market. 

Perishableness  is  an  attribute  common  to  the  labor  of  all  grades: 
the  time  lost  when  a  worker  is  thrown  out  of  employment  cannot  be 
recovered,  though  in  some  cases  his  energies  may  be  refreshed  by 
rest. 


562  INDUSTRIAL  SOCIETY 

4.  The  want  of  reserve  funds  and  of  the  power  of  long  withholding 
their  labor  from  the  market  is  common  to  nearly  all  grades  of  those 
whose  work  is  chiefly  with  their  hands.  But  it  is  especially  true  of 
unskilled  laborers,  partly  because  their  wages  leave  very  little  margin 
for  saving,  partly  because  when  any  group  of  them  suspends  work 
there  are  large  numbers  who  are  capable  of  filling  their  places.  The 
effects  of  the  laborer's  disadvantage  in  bargaining  are  cumulative  in 
two  ways.  It  lowers  his  wages;  and,  as  we  have  seen,  this  lowers 
his  efficiency  as  a  worker,  and  thereby  lowers  the  normal  value  of  his 
labor.  And  in  addition  it  diminishes  his  efficiency  as  a  bargainer, 
and  thus  increases  the  chance  that  he  will  sell  his  labor  for  less  than 
its  normal  value. 

5.  The  next  peculiarity  in  the  action  of  demand  and  supply  with 
regard  to  labor  which  we  have  to  consider  is  closely  connected  with 
some  of  those  we  have  already  discussed.'  It  consists  in  the  length  of 
time  that  is  required  to  prepare  and  train  labor  for  its  work,  and  in  the 
slowness  of  the  returns  which  result  from  this  training. 

Independently  of  the  fact  that,  in  rearing  and  educating  their 
children,  parents  are  governed  by  motives  different  from  those  which 
induce  a  capitalist  undertaker  to  erect  a  new  machine,  the  period 
over  which  the  earning  power  extends  is  generally  greater  in  the  case 
of  a  man  than  a  machine;  and  therefore  the  circumstances  by  which 
the  earnings  are  determined  are  less  capable  of  being  foreseen, 
and  the  adjustment  of  supply  to  demand  is  both  slower  and  more 
imperfect. 

Not  much  less  than  a  generation  elapses  between  the  choice  by 
parents  of  a  skilled  trade  for  one  of  their  children,  and  his  reaping  the 
full  results  of  their  choice.  And  meanwhile  the  character  of  the  trade 
may  have  been  almost  revolutionized  by  changes. 

221.    CRAFT  SKILL  AND  THE  COMPETITIVE  STRUGGLE1 

In  the  past,  for  the  most  part,  the  skilful  manipulation  of  the 
tools  and  materials  of  a  craft  and  this  craftsmanship  of  the  brain 
have  been  bound  up  together  in  the  person  of  the  worker  and  have 
been  his  possession.  And  it  is  this  unique  possession  of  craft  knowl- 
edge and  craft  skill  on  the  part  of  a  body  of  wage-workers,  that  is, 
their  possession  of  these  things  and  the  employers'  ignorance  of 

1  An  editorial  taken  by  permission  from  the  International  Molders'  Journal, 
LI  (1915),  197-98. 


THE  WAGE  SYSTEM  AND  THE  WORKER  563 

them,  that  has  enabled  the  workers  to  organize  and  force  better 
terms  from  the  employers. 

This  being  true,  it  is  evident  that  the  greatest  blow  that  could  be 
delivered  against  unionism  and  the  organized  workers  would  be  the 
separation  of  craft  knowledge  from  craft  skill.  For  if  the  skilled  use 
of  tools  could  be  secured  from  workmen,  apart  from  the  craft  knowl- 
edge which  only  years  of  experience  can  build  up,  the  production 
of  "skilled  workmen"  from  unskilled  hands  would  be  a  matter,  in 
almost  any  craft,  of  but  a  few  days  or  weeks;  any  craft  would  be 
thrown  open  to  the  competition  of  an  almost  unlimited  labor  supply; 
the  craftsmen  in  it  would  be  practically  at  the  mercy  of  the  em- 
ployer. 

Of  late,  this  separation  of  craft  knowledge  and  craft  skill  has 
actually  taken  place  in  an  ever- widening  area  and  with  t  an .  ever- 
increasing  acceleration.  Its  process  is  shown  in.  the  two  main  forms 
which  it  has  been  taking.  The  first  of  these  is  the  introduction  of 
machinery  and  the  standardization  of  tools,  materials,  product,  and 
process,  which  make  production  possible  on  a  large  scale,  and  the 
specialization  of  the  workmen.  Each  workman  under  such  circum- 
stances needs  and  can  exercise  only  a  little  craft  knowledge  and  a 
little  craft  skill.  But  he  is  still  a  craftsman,  though  only  a  narrow 
one  and  subject  to  much  competition  from  below.  The  second  form, 
more  insidious  and  more  dangerous  than  the  first,  but  to  the  signifi- 
cance of  which  most  of  us  have  not  yet  become  aroused,  is  the  gather- 
ing up  of  all  this  scattered  craft  knowledge,  systematizing  it,  and 
concentrating  it  in  the  hands  of  the  employer  and  then  doling  it  out 
again  only  in  the  form  of  minute  instructions,  giving  to  each  worker 
only  the  knowledge  needed  for  the  mechanical  performance  of  a  par- 
ticular relatively  minute  task.  This  process,  it  is  evident,  separates 
skill  and  knowledge  even  in  their  narrow  relationship.  When  it  is 
completed,  the  worker  is  no  longer  a  craftsman  in  any  sense,  but  is  an 
animated  tool  of  the  management.  He  has  no  need  of  special  craft 
knowledge  or  craft  skill,  or  any  power  to  acquire  them  if  he  had,  and 
any  man  who  walks  the  street  is  a  competitor  for  his  job. 

There  is  no  body  of  skilled  workmen  today  safe  from  the  one  or 
the  other  of  these  rorces  tending  to  deprive  them  of  their  unique 
craft  knowledge  and  skill.  Only  what  may  be  termed  frontier  trades 
are  dependent  now  on  the  all-round  craftsman.  These  trades  are 
likely  at  any  time  to  be  standardized  and  systematized  and  to  fall 
under  the  influence  of  this  double  process  of  specialization.    The 


564  INDUSTRIAL  SOCIETY 

problem  thus  raised  is  the  greatest  one  which  organized  labor  faces. 
For  if  we  do  not  wish  to  see  the  American  workmen  reduced  to  a  great 
semi-skilled  and  perhaps  little  organized  mass,  a  new  mode  of  pro- 
tection must  be  found  for  the  working  conditions  and  standards  of  liv- 
ing which  unions  have  secured,  and  some  means  must  be  discovered 
of  giving  back  to  the  worker  what  he  is  fast  losing  in  the  narrowing 
of  the  skill  and  the  theft  of  his  craft  knowledge.  It  is  another  prob- 
lem which  the  organized  workmen  must  solve  for  themselves  and  for 
society.  

See  also  166.  The  Transfer  of  Thought,  Skill,  and  Intelligence. 
169.  The  Machine  and  the  Laborer. 

222.  THE  LOT  OF  THE  WORKINGMAN1 
You  are  a  workingman.  All  your  life  you  have  known  the  con- 
ditions which  surround  the  lives  of  working  people  like  yourself. 
You  know  how  hard  it  is  for  the  most  careful  and  industrious  work- 
man properly  to  care  for  his  family.  If  he  is  fortunate  enough  never 
to  be  sick,  or  out  of  work,  or  on  strike,  or  to  be  involved  in  an  acci- 
dent, or  to  have  sickness  in  his  family,  he  may  become  the  owner  of 
a  cheap  home,  or,  by  dint  of  much  sacrifice,  his  children  may  be  edu- 
cated and  enabled  to  enter  one  of  the  professions.  Or  given  all  the 
conditions  stated,  he  may  be  enabled  to  save  enough  to  provide  for 
himself  and  wife  a  pittance  to  keep  them  from  pauperism  and  beggary 
in  their  old  age. 

That  is  the  best  the  workingman  can  hope  for  as  a  result  of  his 
own  labor  under  the  very  best  conditions.  To  attain  that  level  of 
comfort  and  decency  he  must  deny  himself  and  his  wife  and  children 
many  things  which  they  ought  to  enjoy.  It  is  not  too  much  to  say 
that  none  of  your  fellow-workmen  in  Pittsburgh,  men  known  to  you, 
your  neighbors  and  comrades  in  labor,  have  been  able  to  attain  such  a 
condition  of  comparative  comfort  and  security  except  by  dint  of  much 
hardship  imposed  upon  themselves,  their  wives,  and  children.  They 
have  had  to  forego  many  innocent  pleasures;  to  live  in  poor  streets, 
greatly  to  the  disadvantage  of  the  children's  health  and  morals; 
to  concentrate  their  energies  on  the  narrow  and  sordid  aim  of  saving 
money;  to  cultivate  the  instincts  and  feelings  of  the  miser. 

The  wives  of  such  men  have  had  to  endure  privations  and  wrongs 
such  as  only  the  wives  of  the  workers  in  civilized  society  ever  know. 

1  Adapted  by  permission  from  John  Spargo,  The  Common  Sense  of  Socialism, 
pp.  5-7.     (Charles  H.  Kerr  &  Co.,  191 1.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  565 

Miserably  housed,  cruelly  overworked,  toiling  incessantly  from  morn 
till  night,  in  sickness  as  well  as  in  health,  never  knowing  the  joys  of  a 
real  vacation,  cooking,  scrubbing,  washing,  mending,  nursing,  and 
pitifully  saving,  the  wife  of  such  a  worker*  is  in  truth  the  slave  of  a 
slave. 

At  the  very  best,  then,  the  lot  of  the  workingman  excludes  him 
and  his  wife  and  children  from  most  of  the  comforts  which  belong  to 
modern  civilization.  A  well-fitted  home  in  a  good  neighborhood — 
to  say  nothing  of  a  home  beautiful  in  itself  and  its  surroundings — 
is  out  of  the  question;  foreign  travel,  the  opportunity  to  enjoy  the 
rest  and  educative  advantages  of  occasional  journeys  to  other  lands, 
is  likewise  out  of  the  question.  Even  though  civic  enterprise  provides 
public  libraries  and  art  galleries,  museums,  lectures,  concerts,  and 
other  opportunities  of  recreation  and  education,  there  is  not  the 
leisure  for  their  enjoyment  to  .any  extent.  For  our  model  workman, 
with  all  his  exceptional  advantages,  after  a  day's  toil  has  little  time 
left  for  such  things,  and  little  strength  or  desire,  while  his  wife  has 
even  less  time  and  even  less  desire. 

The  best  that  the  most  industrious, .  thrifty,  persevering,  and 
fortunate  workingman  can  hope  for  is  to  be  decently  housed,  decently 
fed,  decently  clothed.  That  he  and  his  family  maf  always  be  cer- 
tain of  these  things,  so  that  they  go  down  to  their  graves  at  last 
without  having  experienced  the  pangs  of  hunger  and  want,  the 
worker  must  be  exceptionally  fortunate.  And  yet,  my  friend,  the 
horses  in  the  stables  of  the  rich  men  of  this  country,  and  the  dogs  in 
their  kennels,  have  all  these  things,  and  more!  For  they  are  pro- 
tected against  such  overwork  and  such  anxiety  as  the  workingman 
and  the  workingman's  wife  must  endure.  Greater  care  is  taken  of 
the  health  of  many  horses  and  dogs  than  the  most  favored  working- 
man  can  possibly  take  of  the  health  of  his  boys  and  girls. 

223.    THE  SHARE  OF  WAGES 

A1 

That  wages  in  the  United  States  as  a  rule  have  a  higher  monetary 
value  than  the  corresponding  wages  in  Europe  may  readily  be 
admitted.  But  the  numerous  investigations  made  in  connection 
with  workmen's  compensation,  with  minimum  wage  legislation,  and 

1  Adapted  by  permission  from  I.  M.  Rubinow,  Standards  of  Health  Insurance, 
pp.  12-16.     (Henry  Holt  &  Co.,  1916.) 


566  INDUSTRIAL  SOCIETY 

so  forth,  have  demonstrated  a  very  frequent  lack  of  correspondence 
between  customary  earnings  and  necessary  minimum  expense. 

The  conclusions  to  which  the  writer  came  some  years  ago  may 
perhaps  be  stated  here. 

i.  From  two- thirds  to  three-fourths  of  all  productive  workers 
in  the  United  States  depend  upon  wages  or  small  salaries  for  their 
existence. 

2.  From  four-fifths  to  nine- tenths  of  the  wage- workers  receive 
wages  which  are  insufficient  to  meet  the  cost  of  a. normal  standard 
of  health  and  efficiency  for  a  family,  and  about  one-half  receive  very 
much  less  than  that. 

3.  If  a  certain  proportion  of  wage- workers'  families  succeed  in 
attaining  such  a  standard,  it  is  made  possible  only  by  the  presence 
of  more  than  one  worker  in  this  family.  This  condition,  however, 
can  be  only  temporary  in  the  history  of  any  workingman's 
family. 

4.  An  annual  surplus  in  the  workingman's  budget  is  a  very  rare 
thing  and  is  very  small. 

5.  The  growth  of  savings-bank  deposits  in  the  United  States  is 
not  sufficient  evidence  of  the  ability  of  the  American  workingman  to 
make  substantial  savings.  A  large  proportion  of  these  savings 
belongs  to  other  classes  of  population,  and  in  so  far  as  informa- 
tion is  available,  the  average  workingman's  deposits  are  very 
small. 

While  these  are  all  statements  of  static  conditions,  the  investi- 
gations of  the  dynamics  of  the  condition  of  the  wage-working  class 
lead  to  even  more  striking  facts.  It  is  but  too  often  complacently 
assumed  that  the  rise  of  American  wages  offers  an  almost  auto- 
matic corrective  to  all  economic  problems  of  the  wage- worker's 
existence. 

A  comparison  of  wages  and  retail  prices  from  1890  to  191 2  led 
to  the  following  conclusions,  at  present  universally  accepted  by 
various  shades  of  economic  opinion:  "In  years  of  falling  or  even 
slowly  rising  prices,  the  American  wage-worker  was  able  to  hold  his 
own  or  to  improve  his  condition  to  a  slight  extent.  But  when  con- 
fronted with  a  rapidly  rising  price  movement  (accompanied  as  it  was 
by  a  violent  growth  of  profits)  the  American  wage-worker,  notwith- 
standing his  strenuous  effort  to  adjust  wages  to  these  new  price 
conditions,  notwithstanding  all  his  strikes,  boycotts,  and  riots,  not- 
withstanding all  this  picturesque  I.W.W.-ism,  new  unionism,  and  the 


THE  WAGE  SYSTEM  AND  THE  WORKER 


567 


modish  sabotage,  has  been  losing  surely  and  not  even  slowly,  so  that 
the  sum  total  of  economic  progress  of  this  country  for  the  last  quarter 
of  a  century  appears  to  be  a  loss  of  from  10  to  15  per  cent  in  his 
earning  power." 

B1 

But,  after  all,  absolute  figures  are  of  but  little  interest  to  most 
of  us.  Which  has  been  gaining  at  the  expense  of  the  others  ?  Which 
has  been  losing  in  the  race  ?  The  answer  to  these  questions  is  pre- 
sented in  Table  XXXI. 


TABLE  XXXI 

The   Estimated  Percentages  of  the  Total  National  Income  Received 
Respectively  by  Labor,  Capital,  Land,  and  the  Entrepreneur 


Census  Year 


Shares  of  Product 


Wages  and 
Salaries 


Interest 


Rent 


Profits 


Total 


1850 
i860 
1870 
1880 
1890 
1900 
1910 


35 
37 
48 

Si 
-53 
47 
46 


44.0 

39-3 
31.6 

21.3 
24.6 
30.0 

27-5 


100.  o 

IOO.  o 
IOO.  o 
IOO.  I 
IOO.  I 
IOO. I 

100. o 


We  have  observed  that  labor  has  been  fairly  successful  in  retaining 
about  a  half  of  the  total  product,  but  this  tells  us  nothing  about  the 
portion  going  to  each  individual  and  this  is  a  question  of  vastly  more 
importance  than  the  study  of  the  share  obtained  by  labor  en  masse. 
Has  the  compensation  for  the  efforts  of  the  average  laborer  inWeased 
as  fast  as  should  be  the  case  considering  the  tremendous  improvements 
in  industrial  processes  ?  Has  the  entrepreneur  distanced  the  employee 
in  the  race,  constantly  securing  the  lion's  share  of, the  added  spoils? 
Some  light  will  be  thrown  upon  these  questions  by  reference  to 
Table  XXXII. 

The  purchasing  power  of  wages  has  remained  stationary  or 
declined  slightly  during  the  last  sixteen  years.  But  it  must  not  be 
inferred  from  this  that  the  present  condition  of  the  American  laboring 
class  is  bad  as  compared  to  that  of  the  working  classes  elsewhere. 

1  Adapted  by  permission  from  W.  I.  King,  The  Wealth  and  Income  of  the 
People  of  the  United  States,  pp.  160-202.     (The  Macmillan  Co.,  1915.) 


568 


INDUSTRIAL  SOCIETY 


On  the  contrary,  the  workingman  of  this  country  is  far  more  pros- 
perous than  in  most  nations  of  the  globe.     We  have  seen  that  in  191 2 


TABLE  XXXII 

The  Estimated  Returns  for  Personal  Efforts  in  the  Continental 
United  States 


Census 
Year 

Index  of 
Price 
Level 

Total  Wages 
and  Salaries 
in  Millions 
of  Dollars 

Number 
of  Em- 
ployees in 
Thou- 
sands 

Average 
Money 
Wage 
per  Em- 
ployee 

per 
Annum 

Average 

Wage 
per  Em- 
ployee 
in  Pur- 
chasing 
Power 

Total 

Profits  in 
Millions 
of  Dollars 

Number 
of 
Entre- 
preneurs 
in  Thou- 
sands 

Average 
Money- 
Profits 
in  Dol- 
lars per 
Entre- 
preneur 

Average 
Profits 

per 
Entre- 
preneur 
in  Pur- 
chasing 
Power 

1850.... 

139.2 

792.8 

3,88o 

$204 

147 

973-9 

2,200 

443 

318 

i860...  . 

I4I-3 

1,351- 1 

5,090 

265 

188 

1,430.7 

3,150 

454 

321 

1870.... 

221.6 

3,269.5 

8,240 

397 

179 

2,122.9 

4,270 

497 

224 

1880.... 

132.4 

3,803.6 

11,790 

323 

244 

i,57i-6 

5,600 

281 

212 

1890 

II3-6 

6,461.8 

16,220 

398 

350 

2,967.1 

7,lOO 

418 

368 

1900...  . 

101.7 

8,490.7 

20,350 

4i7 

410 

5,382.1 

8,720 

617 

607 

1910...  . 

126.5 

14,303  -6 

28,200 

507 

401 

8,408.1 

9,350 

899 

711 

1 

TTfl 

?no 

1 

\ 

1 

lrto 

\ 

} 

fr 

110 

%- 

• 

12ft 

V 

*\ 

\ 

y 

P 

inn 

fj 

\ 

J 

~\ 

r^      J 

,f~ 

BO 

„4 

**£ 

L£«i 

?°«u 

i/> 

*& 

fin 

*7 

^  \ 

t& 

vo> 

40 

^m*' 

- — 

„/ 

/c° 

u 

W 

vo 

I 

I  \ 

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I 

1  i 

!   1 

i  i 

1  I 

\     5 

!  ! 

>              M 

\     s 

«               T- 

i  i 

\  i 

«  * 

Year 


Fig.  21.— Relative  prices  of  men's  labor  and  commodities,  base  1890-99. 
Continental  United  States. 


THE  WAGE  SYSTEM  AND  THE  WORKER  569 

his  average  Wage  in  all  industries  was  approximately  $11  per  week. 
If  we  figure  his  average  annual  employment  as  49  weeks,  he  is  paid  in 
the  neighborhood  of  $547  per  year,  by  no  means  a  princely  sum,  but 
more  than  double  the  amount  earned  by  a  European  workman  and 
probably  four  times  what  the  laborer  of  China,  Japan,  or  India  can 
hope  to  receive.  When  we  remember  that  this  is  supplemented,  in  a 
very  large  percentage  of  cases,  by  the  earnings  of  the  wife  or  children 
or  by  income  from  property,  the  income  of  the  average  American 
working  family  cannot  be  considered  niggardly.  Education  has 
intensified  the  worker's  feeling  of  dissatisfaction  with  the  environ- 
ment by  which  he  must  often  perforce  be  surrounded,  but  it  has,  at 
the  same  time,  sharpened  his  appreciative  faculties,  thus  increasing 
the  amount  of  real  income  derived  from  a  given  unit  of  expenditure. 
The  advent  of  the  motion  picture  has  furnished  an  extensive  field  of 
enjoyment  at  comparatively  slight  expense.  Other  consumers 
besides  the  working  class  have  been  compelled  to  share  in  the  expense 
of  compensating  unfortunate  workers  for  time  lost  because  of  acci- 
dents. The  decline  in  the  purchasing  power  of  wages  has  also  been 
offset  by  an  increased  income  from  public  sources.  Better  streets 
and  lights,  better  hospitals,  better  libraries,  better  parks  and  play- 
grounds, and  better  schools  have  all  enhanced  the  real  income  of  the 
common  people,  and  the  tax-burden  of  the  ordinary  laborer  for  these 
purposes  is  comparatively  light. 

F.     Insecurity  through  Inadequate  Social  Control 

[Note. — The  selections  in  this  section  deal  only  with  the  legal 
phase  of  social  control.  The  student  should  consider  whether  there 
are  other  forms  of  social  control  which  are  "inadequate"  and  thus 
promote  insecurity  of  the  worker.] 

224.  AN  OUTGROWN  LEGAL  PHILOSOPHY1 
As  President  Hadley  has  well  pointed  out,  our  constitutional 
guaranties  have  largely  been  developed  and  applied  by  the  courts  for 
he  protection  of  property  rights.  Under  the  social  and  industrial 
:onditions  that  prevailed  before  the  Civil  War  this  development 
vas,  at  least  to  some  extent,  justifiable,  for  property  was  then  prac- 
ically  within  the  reach  of  all  and  its  protection  was  clearly  a  matter 
k  general  interest.  Where  the  acquisition  of  property  is  measurably 
rithin  the  reach  of  all  there  can  be  no  conflict  between  property  rights 
nd  individual  rights. 

1  Taken  by  permission  from  W.  F.  Dod'd,  "Social  Legislation  and  the  Courts," 
'olitical  Science  Quarterly,  XXVIII  (1913),  2_3- 


57©  INDUSTRIAL  SOCIETY 

But  since  the  Civil  War  there  has  been  developing  in  this  country 
a  larger  and  larger  class  to  whom  the  acquisition  of  even  a  small 
amount  of  property  is  less  and  less  possible.  And  at  the  same  time 
there  have  appeared  large  accumulations  of  property  in  the  hands 
of  a  small  number  of  persons.  Thus  has  arisen  a  conflict  between 
property  rights  and  individual  rights.  More  accurately,  perhaps, 
the  conflict  may  be  described  as  one  between  the  claims  of  those 
owning  or  controlling  large  masses  of  property  and  the  claims  of 
those  having  little  or  no  property.  The  claims  of  those  having  large 
accumulations  of  property  are  based  upon  the  plea  of  the  sacred- 
ness  of  property;  and  this  plea  finds  recognition  in  our  earlier  consti- 
tutional principles.  The  claims  of  those  having  little  or  no  property 
are  based  on  the  plea  that  the  individual,  even  though  without 
property,  is  of  more  moment  than  property;  and  this  plea  is  supported 
by  the  humanitarian  philosophy  of  the  present  day.  These  positions 
in  the  long  run  should  not  prove  irreconcilable,  but  certain  it  is  that 
the  interests  of  owners  of  large  property  as  such  must  give  way  to  the 
broader  interests  of  society.  The  individual,  whether  with  or  without 
property,  is  the  object  of  the  new  social  and  industrial  legislation. 

Our  legal  philosophy  and  our  whole  system  of  constitutional 
guaranties  were  developed  to  fit  conditions  when  property  was  the 
most  general  interest  of  the  community,  and  the  highly  individualistic 
philosophy  of  our  laws  was  one  not  unadapted  to  the  conditions  of 
this  country  in  the  early  days.  For  at  least  a  generation,  however, 
we  have  been  living  in  a  state  of  social  and  industrial  development 
to  which  the  earlier  individualistic  philosophy  does  not  fit  itself,  and 
the  adjustment  of  legal  principles  and  legal  philosophy  to  these  new 
conditions  is  a  slow  one. 

See  also  233.     The  Socialization  of  Law. 

407.  Dissatisfaction  with  Present  Formal  Social  Control. 

408.  Dissatisfaction  with  Present  Informal  Social  Con- 

trol. 

225.  DIFFICULTIES  OF  CONTRACT  LN  LABOR1 
Throughout  the  period  of  westward  expansion  the  homestead  laws 
were  the  underpinnings  by  which  men  adjusted  themselves  to  the 
land,  as  the  basis  for  subsistence.  On  them,  and  on  contractual 
relations  which  smacked  of  the  soil,  they  built  up  the  great  common- 
wealths of  the  Mississippi  Valley  and  beyond. 

1  Adapted  by  permission  from  P.  U.  Kellogg,  "The  Field  before  the  Commission 
on  Industrial  Relations,"  Political  Science  Quarterly,  XXVIII  (1913),  594-606. 


THE  WAGE  SYSTEM  AND  THE  WORKER  571 

With  the  development  of  manufacturing,  the  currents  have  set 
in  new  directions;  cities  have  piled  up;  the  people  have  massed  in 
great  trade  groups;  employments  embedded  in  corporate  industry 
have  become  the  basis  for  subsistence  for  vaster  and  vaster  numbers 
of  Americans.     On  the  contract  of  hire  depends  their  prosperity. 

Now,  the  laws  and  customs  of  adjusting  rights  and  interests 
among  agricultural  peoples  have  been  the  development  of  centuries. 
They  have  become  molded  in  forms  conformable  to  democracy.  But 
while  organic  social  changes  have  come  in  with  modern  industry,  as 
radical  as  the  change  in  tools  from  wheelbarrows  to  electric  cranes, 
the  terms  of  the  contract  of  hire  have  not  been  reconsidered  in  rela- 
tion to  the  new  conditions. 

If  we  apply  to  the  farming  life  of  America  the  words  "equity," 
"tenure,"  and  "security,"  we  obtain  a  fairly  clear  idea  of  the  economic 
base  upon  which  households  and  granges,  counties  and  states,  have  been 
built  up.  But  if  we  apply  the  test  of  the  same  words  to  the  working 
life  of  American  industrial  districts,  we  get  at  once  a  vivid  impression 
of  the  insecure  footing  of  our  wage-earners. 

Not  merely  the  sudden  massing  of  industrial  workers  but  the 
unevenness  in  the  size  and  strength  of  the  parties  to  the  work  con- 
tract put  strains  upon  it.  Corporate  bargainers  range  from  small 
concerns,  which  retain  much  of  the  old  personal  contact  between 
master  and  man,  to  far-flung  enterprises  governed  by  wire,  which 
have  injected  a  system  of  absentee  capitalism  into  American  indus- 
trial life  as  definite  in  its  effects  as  is  absentee  landlordism.  In 
strength  of  position  these  corporate  bargainers  range  from  the  isolated 
contractor,  whose  work  must  be  prosecuted  on  an  exposed  corner  and 
at  a  rate  of  speed  enforced  by  real-estate  owner  and  prospective 
tenant,  to  the  manufacturer  whose  walled  plant  enables  him  to  store 
up  finished  goods  to  tide  over  a  strike.  They  range  from  associations 
of  such  manufacturers,  which  can  put  a  strike-breaking  force  into  the 
plant  of  any  member  and  break  the  back  of  a  local  strike  regardless 
of  its  merits,  to  nationalized  industries,  which  can  effect  the  same  end 
by  closing  down  a  plant  here  and  operating  elsewhere.  They  range 
from  manufacturers. who  view  organized  labor  as  nothing  more  than 
1  disrupter  of  orderly  administration  to  be  fought  at  every  turn,  to 
manufacturers  who  not  only  bargain  with  it,  but  look  to  it  to  aid  in  the 
discipline  of  unsteady  workers  to  settle  disputes  between  crafts. 

There  is  equal  unevenness  in  the  ranks  of  labor.  The  workers 
•ange   from    those   in  sedentary  trades,  thick  with  traditions,   to 


572  INDUSTRIAL  SOCIETY 

those  in  new  and  hazardous  callings  like  that  of  the  structural  iron 
workers,  which  attract  foot-loose  men  of  the  same  devil-may-care 
stamp  as  did  our  frontier  settlements.  They  range  from  old  employ- 
ees, indispensable  core  of  an  industry,  to  the  machine  hands  of  the 
loft  districts  of  the  cities,  whose  employers  take  them  on  and  lay 
them  off  with  no  more  sense  of  responsibility  than  they  feel  when  they 
throw  the  switch  that  turns  on  their  electric  power.  They  range  from 
mass  organizations  which  embrace  every  worker  in  an  industry, 
from  common  labor  up,  to  craft  organizations  hedged  in  by  appren- 
ticeships from  competition  with  the  common  laborers;  from  ele- 
mental, unorganized  bodies  of  men  who  strike  spontaneously  under 
some  common  spur,  as  at  McKees  Rocks  and  Lawrence,  to  highly 
disciplined  orders,  like  the  railroad  brotherhoods,  whose  stages  of 
development  have  been  as  distinct  in  character,  ideals,  and  methods 
as  are  those  of  thoroughly  organized  business  concerns.  The  organi- 
zations of  workers  range  from  isolated  local  bodies  to  international 
unions  with  staffs  of  paid  organizers;  from  irresponsible  associations 
with  unitemized  accounts  and  a  ring  control  which  matches  that  of 
machine  politics,  to  organizations  on  a  business  basis  with  large 
benefit  funds  and  responsible  executives. 

We  have  thus  reviewed  rapidly  some  of  the  social  bearings  of  the 
work  contract  to  which  we,  singly,  in  groups,  and  as  a  whole  are 
parties;  the  inequalities  in  the  organizations  which  participate, 
the  injection  of  women  and  children  and  immigrants  into  the  situa- 
tion to  complicate  the  bargains  of  men,  the  revolutions  in  manu- 
facturing methods  which  make  the  work  bargain  an  ever-recurring 
fact,  the  technical  development  which  makes  it  difficult,  the  social 
pressure  which  distorts  or  molds  it,  the  laws  which  apply  to  it  with 
uncertainty.  As  Professor  Hoxie  puts  it:  "  It  will  not  do  to  attribute 
the  resulting  conditions  and  actions  to  ignorance,  selfishness,  or  per- 
versity on  the  part  of  employers  or  workers.  They  but  act  as  the 
inherent  forces  of  the  modern  industrial  system  dictate."  The 
situation  is  one  at  best  filled  with  organic  change,  adjustment,  and 
readjustment.  It  would  put  to  the  test  the  most  firmly  woven  and 
clearly  defined  fabric  of  industrial  relations.  But  as  a  matter  of 
fact  our  industrial  relations  are  not  firmly  woven  nor  clearly  defined. 
The  economic  motive  has  been  the  only  element,  sure,  certain, 
omnipresent.  Under  pressure  from  it,  as  a  natural  consequence, 
men  have  taken  things  into  their  own  hands;  singly  and  in  groups 
they  have  applied  remedies  which  at  worst  gouged  their  fellows  and 


THE  WAGE  SYSTEM  AND  THE  WORKER  573 

at  best  have  been  but  a  partial  solution.  Encroachment  from  one 
quarter  has  been  answered  by  encroachment  from  another.  The 
leadership  which  has  been  the  subject  of  most  serious  public  criticism 
has  been  of  the  sort  which  has  forged  to  the  front  among  men  on  a  war 
footing  from  the  beginning  of  time.  The  excesses  on  both  sides 
have  been  of  the  sort  which  are  inevitable  when  the  fabric  of  fair 
play  is  not  strong  enough  nor  well  enough  devised  to  stand  the 
tension. 

226.  FREEDOM  OF  CONTRACT  AND  LABOR1 

The  list  appended  was  bulletined  at   the   Chicago  Industrial 
Exhibit  of  1906  and  reprinted  in  Charities  and  the  Commons. 
What  "Freedom  of  Contract"  has  meant  to  Labor: 

1.  Denial  of  eight-hour  law  for  women  in  Illinois. 

2.  Denial  of  eight-hour  law  for  city  labor  or  for  mechanics  and 
ordinary  laborers. 

3.  Denial  of  ten-hour  law  for  bakers. 

4.  Inability  to  prohibit  tenement  labor. 

5.  Inability  to  prevent  by  law  employer  from  requiring  employee, 
as  condition  of  securing  work,  to  assume  all  risk  from  injury  while 
at  work. 

6.  Inability  to  prohibit  employer  selling  goods  to  employees  at 
greater  profit  than  to  non-employees. 

7.  Inability  to  prohibit  mine  owners  screening  coal  which  is 
mined  by  weight  before  crediting  same  to  employees  as  basis  of 
wage. 

8.  Inability  to  legislate  against  employer  using  coercion  to  prevent 
employee  becoming  a  member  of  a  labor  union. 

9.  Inability  to  restrict  employer  in  making  deductions  from 
wages  of  employees. 

10.  Inability  to  compel  by  law  payment  of  wages  at  regular 
intervals. 

11.  Inability  to  provide  by  law  that  laborers  on  public  works  shall 
be  paid  prevailing  rate  of  wages. 

12.  Inability  to  compel  by  law  payment  of  extra  compensation 
for  overtime. 

13.  Inability  to  prevent  by  law  employer  from  holding  back  part  of 
wages. 

1  Taken  by  permission  from  John  Dewey  and  J.  H.  Tufts,  Ethics,  pp.  505-6, 
note.     (Henry  Holt  &  Co.,  1910.) 


574  INDUSTRIAL  SOCIETY 

14.  Inability  to  compel  payment  of  wages  in  cash;  so  that 
employer  may  pay  in  truck  or  scrip  not  redeemable  in  lawful 
money. 

15.  Inability  to  forbid  alien  labor  on  municipal  contracts. 

16.  Inability  to  secure  by  law  union  label  on  city  printing. 
Labor  representatives  speak  of  "the  ironic  manner  in  which  the 

courts  guarantee  to  the  workers:  The  right  to  be  maimed  and  killed 
without  liability  to  the  employer;  the  right  to  be  discharged  for 
belonging  to  a  union;  the  right  to  work  as  many  hours  as  employers 
please  and  under  any  considerations  which  they  may  impose."  The 
"irony"  is,  of  course,  not  intended  by  the  courts.  It  is  the  irony 
inherent  in  a  situation  when  rules  designed  to  secure  justice  become 
futile  if  not  a  positive  cause  of  injustice,  because  of  changed  conditions. 


See  also  339.     Some  Interpretations  of  the  Content  of  Freedom. 

227.    SOME  COMMON-LAW  DOCTRINES1 

We  must  begin  with  a  word  or  two  about  the  common  law  in 
personal  injury  cases  generally.  If  one  person  injures  another, 
unintentionally  but  through  want  of  due  care  (and  due  care  is  what 
the  average  prudent  man  would  use  in  similar  circumstances),  he  is 
civilly  liable  to  the  injured  one  for  the  amount  of  harm,  estimated  in 
money,  which  his  want  of  care  has  caused.  This  seems  a  natural  and 
fair  adjustment  of  burdens.  When  one  is  unduly  careless,  and  thereby 
hurts  another,  he  should  make  up  for  it  in  so  far  as  money  can. 

There  are  three  important  additional  features  of  this  law: 

First,  contributory  negligence  on  the  part  of  the  injured  person 
defeats  recovery. 

Second,  as  a  rule  of  negligence — and  it  is  important  to  bear  this 
in  mind — a  master  is  responsible  for  the  negligence  of  his  servant 
while  engaged  in  the  master's  work.  This  is  on  the  principle  of 
"respondeat  superior."  It  is  the  master  who  is  having  the  work  done ; 
he  must  insure  its  being  done  with  reasonable  care.  Whether  he 
does  the  work  himself,  or  through  an  agent,  the  burden  of  responsi- 
bility is  manifestly  well  placed. 

Third,  the  burden  of  proving  negligence  is  upon  the  plaintiff; 
of  proving  contributory  negligence  upon  the  defendant. 

1  Adapted  by  permission  from  Crystal  Eastman,  W ork- Accidents  and  the  Law, 
pp.  169-88.     (Charities  Publication  Committee,  1910.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  575 

Now  in  the  application  of  this  general  law  to  an  employer's 
liability  for  negligence  which  results  in  injury  to  his  employees  while 
they  are  carrying  on  his  work,  some  rather  material  modifications 
and  changes  occur.  All  these  modifications  are  based  on  one  idea. 
The  law  holds  that  the  employer  is  in  a  different  relation  to  his 
employees,  because  they  have  made  a  contract  with  him  in  which 
certain  elements  are  implied.  The  law  assumes  that  the  two  parties 
are  free  and  on  an  equal  footing  in  making  this  contract.  It  is  the 
contract  of  hire.  The  servant  is  not  obliged  to  work  for  the  master, 
he  can  take  work  or  leave  it,  as  he  likes;  but  if  he  takes  the  work 
he  makes  a  contract  in  which  the  law  implies  that  he  assumes  certain 
risks.  (1)  He  assumes  the  risk  of  all  the  ordinary  dangers  of  the- 
employment.  (2)  He  assumes  the  risk  of  all  extraordinary  dangers, 
such  as  those  which  arise  from  defective  machinery  and  an  unsafe 
place  to  work  or  from  hasty  and  dangerous  methods,  if  he  knew  about 
these,  or  might  reasonably  be  expected  to  know  about  "them  and 
accepts  the  work  in  spite  of  them,  or  if  he  finds  out  about  them,  or 
might  have  found  out  about  them  with  the  exercise  of  ordinary  care, 
and  continues  working  in  spite  of  them.  (3)  Finally,  he  assumes  the 
risk  of  all  dangers  arising  from  the  carelessness,  ignorance,  or  incom- 
petency of  his  fellow-employees. 

1*.  The  first  is  simple  and,  comparatively  speaking,  reasonable. 
In  a  large  number  of  modern  industries  certain  accidents  are  inevi- 
table. It  is  not  as  safe  to  mine  coal,  make  steel  rails,  or  manufacture 
explosives,  as  it  is  to  practice  law.  or  dig  potatoes.  If  a  man  chooses 
one  calling  rather  than  another,  the  danger  is  his  own  lookout. 

However,  it  is  not  merely  the  risk  of  accidents  happening  in  spite 
of  every  safety  precaution  and  protection,  which  the  employee 
assumes;  he  assumes  the  risk  of  the  work  as  it  is  ordinarily  carried  on. 
Thus,  a  telephone  lineman  gets  a  shock  from  an  uncovered  electric 
light  wire  that  he  touches  in  passing,  and  this  is  an  incident  of  his 
employment.  Or  a  laborer  working  in  a  quarry  is  badly  injured 
by  a  heavy  stone  falling  on  him;  this  is  a  risk  which  a  quarry  work- 
man assumes.  But  again,  the  handle  of  a  bucket  hauling  4,000 
pounds  of  iron  out  of  the  hold  of  a  vessel,  pulls  out,  letting  the  whole 
mass  of  iron  fall  on  a  workman  in  the  hold.  Upon  this  bucket,  which 
had  been  used  for  eighteen  years,  the  handle  was  merely  clamped, 
while  upon  newer  buckets  the  handle  is  forged.  Nevertheless,  since 
the  plaintiff  cannot  show  that  the  old  and  less  safe  buckets  are  not 
still  in  common  use,  he  cannot  hold  the  employer  liable  for  his  injury. 


576  INDUSTRIAL  SOCIETY 

He  has  suffered  from  an  ordinary  danger  of  his  employment,  and  he 
took  the  risk.  So  much  then  for  this  first  exception — the  employee 
undertakes  to  suffer  all  the  risks  of  his  employment  as  it  is  usually 
carried  on. 

2.  The  second  exception  goes  farther.  The  employee  assumes  all 
extraordinary  and  unusual  risks,  not  incident  to  his  employment,  if 
he  knew  or  could  reasonably  be  expected  to  have  known  of  the  danger, 
and  continued  working.  He  assumes  all  patent  risks  and  all  latent 
risks  of  which  he  is  informed.  For  instance,  a  seventeen-year-old 
girl  working  in  a  laundry  called  the  attention  of  a  foreman  to  a  loose 
board  in  front  of  the  rolls  where  she  was  working.  She  said  it  inter- 
fered with  her  work,  but  made  no  definite  complaint  with  regard  to 
its  danger,  and  she  went  on  working.  Nothing  was  done.  Finally, 
while  she  was  cleaning  the  machine,  the  loose  board  flew-  up  and 
threw  her  hands  between  the  rolls,  where  they  were  crushed.  She 
could  not  recover  damages  for  this  injury,  because  she  had  assumed 
the  risk  of  a  condition  which  she  ought  to  have  known  was  dangerous. 
Or  again,  a  man  working  near  a  defective  crane  is  injured  by  its 
breaking.  There  is  no  evidence  that  he  knew  of  the  defect,  but  it  had 
been  plain  for  three  months.  "He  ought  to  have  known  of  it."  In 
this  case,  as  in  many,  we  see  how  the  very  obviousness  of  the  defect, 
which  it  seems  should  fix  the  responsibility  upon  the  employer,  is  a 
means  o'f  his  avoiding  responsibility. 

There  is,  however,  one  exception  to  this  rule  of  the  law.     If  an 
employee,  when  he  sees  a  defect  or  a  possible  danger,  complains  of  it  to 
his  employer  or  to  his  superior  who  is  directing  the  work,  and  if  the 
employer  or  his  superior  promises  to  repair  it,  and  if  the  employee 
relies  upon  the  promise,  and  if  the  danger  is  not  imminent — then  the 
servant  is  relieved  of  his  assumption  of  risk  even  though  he  continues 
to  work;  provided,  however,  that  if  the  employee  continues  to  work 
after  a  reasonable  time  has  passed  without  the  promise  to  repair' 
being  carried  out,  then  he  is  deemed  to  have  "waived"  his  objections, » 
and  "assumed  the  risk"  again.     This  valuable  exception  is  well' 
hedged  about  with  "ifs." 

3.  Finally,  the  employee  assumes  all  risk  due  to  the  negligence  of 
fellow-employees.  This  is  the  most  vital  distinction  between  the 
general  law  of  negligence,  and  the  law  of  negligence  as  between  master 
and  servant.  "A  master  is  responsible  for  the  negligence  of  his 
servants  in  course  of  employment  without  regard  for  their  reputation 
except  in  case  of  fellow-servants."     As  between  the  master  and  a 


THE  WAGE  SYSTEM  AND  THE  WORKER  577 

servant  injured,  it  is  only  demanded  of  the  master  that  he  shall  have 
taken  due  care  in  employing  fellow-servants  of  ordinary  skill  and 
carefulness.  To  illustrate:  Suppose  a  yard  master  in  Philadelphia, 
by  reputation  a  reasonably  careful  man,  puts  a  car  of  dynamite  at 
the  end  of  a  train  of  cars  instead  of  in  the  middle,  as  the  rule  of  the 
company  requires,  and  because  of  this  carelessness  the  dynamite  is 
blown  up  in  a  collision  many  miles  from  Philadelphia.  A  cow  brows- 
ing in  a  field  near  the  track  and  a  station  agent  keeping  his  lonely 
post  in  a  small  country  station  are  both  blown  to  pieces.  Now  in 
such  a  case  the  farmer  could  recover  for  the  loss  of  his  cow;  but  the 
station  agent's  widow  could  not  recover  for  the  loss  of  her  husband 
because  he  was  a  fellow-servant  of  the  man  whose  mistake  or  care- 
lessness caused  the  accident.  Yet  he  had  no  more  to  do  with  that 
fellow-servant's  act,  or  with  the  employment  of  him,  than  the 
farmer's  cow  had. 

Almost  every  element  of  unfairness  in  this  law  arises,  I  think,  from 
one  misconception;  namely,  that  the  two  parties  are  on  an  equal 
footing.  In  the  eyes  of  the  law,  every  workingman,  from  the  trained 
American  locomotive  engineer  with  a  strong  union  behind  him,  to 
the  newly-landed  "Hunkie,"  tongue-tied  and  bewildered,  is  on  an 
equal  footing  with  the  United  States  Steel  Corporation  in  all  its 
masterfully  concentrated  power.  In  the  contract  of  hire,  the  law 
assumes  that  the  workman  is  as  free  to  accept  or  refuse  a  job  as  the 
employer  is  to  take  or  drop  him.  In  the  matter  of  the  release,  the 
law  assumes  that  the  stricken  and  terrified  widow  of  an  ignorant 
laboring  man  is  in  a  position  of  equal  understanding  and  enlighten- 
ment, in  regard  to  the  respective  interests  of  the  parties,  with  the 
hardened  claim  agent  employed  by  the  corporation.  The  law^ 
is  behindhand,  and  the  lawmakers  have  been  blind.  With  their 
minds  thoroughly  steeped  in  old  ideas  of  theoretical  equality  and 
freedom  of  contract,  they  have  gone  on,  content  with  the  "  logic 
of  the  law,"  oblivious  to  the  actual  facts. 

G.  Some  Structures  Designed  to  Meet  the  Difficulties 
228.  A  PROGRAM  OF  REFORM 
The  Federal  Council  of  the  Churches  of  Christ  in  America  is  a 
national  federation  of  30  church  denominations  and  communions. 
The  following  principles,  which  have  come  to  be  known  as  "The 
Social  Creed  of  the  Churches,"  were  adopted  by  the  Federal  Council 
at  its  meeting  in.Chicago  on  December  9,  191 2. 


578  INDUSTRIAL  SOCIETY 

The  Churches  must  stand: 

For  equal  rights  and  complete  justice  for  all  men  in  all  stations 
of  life. 

For  the  protection  of  the  family,  by  the  single  standard  of  purity, 
uniform  divorce  laws,  proper  regulation  of  marriage,  andproper  housing. 

For  the  fullest  possible  development  for  every  child,  especially 
by  the  provision  of  proper  education  and  recreation. 

For  the  abolition  of  child  labor. 

For  such  regulation  of  the  conditions  of  toil  for  women  as  shall 
safeguard  the  physical  and  moral  health  of  the  community. 

For  the  abatement  and  prevention  of  poverty. 

For  the  protection  of  the  individual  and  society  from  the  social, 
economic,  and  moral  waste  of  the  liquor  traffic. 

For  the  conservation  of  health. 

For  the  protection  of  the  worker  from  dangerous  machinery, 
occupational  disease,  and  mortality. 

For  the  right  of  all  men  to  the  opportunity  for  self -maintenance, 
for  safeguarding  this  right  against  encroachments  of  every  kind,  and 
for  the  protection  of  workers  from  the  hardships  of  enforced  unem- 
ployment. 

For  suitable  provision  for  the  old  age  of  workers,  and  for  those 
incapacitated  by  injury. 

For  the  right  of  employees  and  employers  alike  to  organize  for 
adequate  means  of  conciliation  and  arbitration  in  industrial  disputes. 

For  a  release  from  employment  one  day  in  seven. 

For  the  gradual  and  reasonable  reduction  of  the  hours  of  labor  to 
the  lowest  practicable  point,  and  for  that  degree  of  leisure  for  all 
which  is  a  condition  of  the  highest  human  life. 

.    For  a  living  wage  as  a  minimum  in  every  industry,  and  for  the 
highest  wage  that  each  industry  can  afford. 

For  a  new  emphasis  upon  the  application  of  Christian  principles 
to  the  acquisition  and  use  of  property,  and  for  the  most  equitable 
division  of  the  product  of  industry  that  can  ultimately  be  devised. 

229.     THE  ORGANIZATION  OF  THE  LABOR  MARKET1 
Any  comprehensive  and  workable  campaign  for  the  prevention 
of  unemployment  should  emphasize  the  following  lines  of  activity: 
(I)  establishment  of  public  employment  exchanges;    (II)  systematic 

1  Adapted  by  permission  from  J.  B.  Andrews,  "A  Practical  Program  for 
the  Prevention  of  Unemployment  in  America,"  American  Labor  Legislation  Review, 
V  (1915),  176-92. 


THE  WAGE  SYSTEM  AND  THE  WORKER  579 

distribution  of  public  work;    (III)  regularization  of  industry;    and 
(IV)  unemployment  insurance. 

I.    Establishment  of  Public  Employment  Exchanges     - 

An  essential  step  toward  a  solution  of  the  problem  of  unemploy- 
ment is  the  organization  of  the  labor  market  through  a  connected 
network  of  public  employment  exchanges.  This  is  vitally  important 
as  a  matter  of  business  organization  and  not  of  philanthropy.  It  is 
of  as  much  importance  for  the  employer  to  find  help  rapidly  and 
efficiently  as  it  is  for  the  worker  to  find  work  without  delay.  The 
necessity  of  organized  markets  is  recognized  in  every  other  field 
of  economic  activity,  but  we  have  thus  far  taken  only  timid  and 
halting  steps  in  the  organization  of  the  labor  market.  The  peddling 
method  is  still,  even  in  our  "efficient"  industrial  system,  the  prevalent 
method  of  selling  labor.  Thus  a  purely  business  transaction  is 
carried  on  in  a  most  unbusinesslike,  not  to  say  mediaeval,  manner. 

The  system  of  employment  exchanges  in  order  to  be  thoroughly 
effective  should  be  organized  not  only  by  municipalities  and  states,  but 
also  by  the  federal  government. 

I.      LOCAL  EMPLOYMENT   EXCHANGES 

The  local  bureaus — state  and  municipal — should  aim  at  a  rapid 
connection  between  the  "right  man  for  the  job  and  the  right  job  for 
the  man."  Their  watchword  should  be  efficient  service  to  both 
employer  and  worker,  and  they  should  aim  to  extend  this  service 
as  completely  as  possible  into  all  industries  and  all  occupations.  In 
establishing  and  operating  these  exchanges  the  following  points  are 
important: 

(1)  Location  ■  and  character  of  offices. — Well-arranged,  roomy, 
easily  accessible  offices  should  be  chosen,  in  good  neighborhoods. 

(2)  Departments. — Offices  should  be  divided  into  separate  depart- 
ments for  (a)  men,  women,  and  children;  (b)  separate  industrial 
groups,  such  as  skilled  and  unskilled  labor,  farm  labor,  domestic, 
clerical  and  factory  labor,  and  the  handicapped.  In  time,  as  their 
organization  improves,  they  may  need  to  establish  special  depart- 
ments for  certain  large  skilled  trades. 

(3)  Vocational  guidance. — There  should  be  a  special  department 
for  vocational  guidance,  to  co-operate  with  educational  and  health 
officials,  with  unions  and  with  employers,  in  endeavoring  to  place 
young  workers  where  they  will  have  an  opportunity  for  industrial 


580  INDUSTRIAL  SOCIETY 

training  and  for  real  advancement,  instead  of  leaving  them  to  drift 
into  blind-alley  occupations. 

(4)  Selection  of  applicants. — Applicants  should  be  placed  on  the 
basis  of  fitness  alone.  The  offices  should  not  be  allowed  to  become 
resorts  for  sub-standard  labor. 

(5)  Decasualization  of  casual  labor. — One  of  the  most  important 
functions  of  a  public  labor  exchange  should  be  the  decasualization 
of  casual  labor.  The  New  York  Commission  on  Unemployment 
reported  in  191 1  that  two  out  of  every  five  wage-earners  are  obliged 
to  seek  new  places  one  or  more  times  every  year.  When  all  casual 
workers  are  hired  through  a  common  center,  employment  can  be  con- 
centrated upon  the  smallest  possible  number  instead  of  being  spread 
over  a  large  group  of  underemployed. 

(6)  Dovetailing  of  seasonal  industries. — The  dovetailing  of  seasonal 
trades,  so  as  to  provide  continued  employment  for  workers  during 
the  slack  seasons  of  their  ordinary  occupation,  offers  a  promising 
field  for  public  employment  exchange  activity. 

(7)  Neutrality  in  trade  disputes. — These  agencies  should  be  held 
true  to  their  public  character  and  remain  neutral  in  all  trade  dis- 
putes. 

(8)  Advancement  of  transportation. — The  officers  should  be 
empowered  to  advance,  under  careful  safeguards,  railroad  fares  to 
workers  when  necessary. 

(9)  Co-operation  with  other  agencies. — Offices  should  co-operate 
with  other  employment  bureaus,  municipal,  state,  and  federal,  in 
exchanging  applications  for  help  and  for  work,  and  in  adopting  uni- 
form systems  of  records. 

(10)  Civil  service. — Only  persons  qualifying  through  civil  service 
examinations  should  be  employed  in  the  work  of  the  offices. 

(n)  Representative  committee. — Each  office  should  work  under 
the  supervision  and  advice  of  a  representative  committee  composed 
of  representatives  selected  by  both  employers  and  workers. 

2.      STATE    SYSTEMS 

The  most  advantageous  working  of  the  local  exchanges  requires 
that  these  be  united  in  efficient  state  systems,  among  whose  duties 
would  be: 

(1)  Establishment  of  local  exchanges. — The  state  should  open  local 
exchanges  at  all  important  industrial  or  agricultural  centers,  except 
where  this  has  already  been  done  by  the  local  authorities. 


THE  WAGE  SYSTEM  AND  THE  WORKER  581 

(2)  Co-operation  with  local  authorities. — Wherever  it  is  possible, 
the  state  system  should  co-operate  with  the  local  authorities  in  estab- 
lishing and  conducting  the  local  exchange. 

(3)  Regulation  of  private  exchanges. — Except,  perhaps,  in  the 
largest  cities,  needful  supervision  and  regulation  of  private  exchanges 
are  best  carried  on  by  state  authorities  closely  connected  with  the 
public  system. 

(4)  Statistics. — As  a  basis  for  future  preventive  action,  for  voca- 
tional guidance,  and  for  other  purposes,  the  exchanges  should  carefully 
collect  data,  comparable  from  year  to  year. 

(5}  Bulletins. — Periodical  bulletins  should  be  issued,  showing  the 
state  of  the  demand  for  labor  and  the  supply  in  the  various  districts 
a,nd  industries  within  their  field. 

3.      FEDERAL  EMPLOYMENT  BUREAU 

The  federal  employment  bureau  would  have  a  valuable  function 
in  co-ordinating  the  work  of  the  local  bureaus  and  in  organizing 
the  labor  market  on  a  national  basis.  Such  a  federal  system  would 
tiave  the  following  functions: 

(1)  Establishment  of  public  exchanges. — With  careful  regard  to 
existing  state  and  municipal  exchanges,  the  federal  bureau  might 
find  it  advantageous  to  open  offices  of  its  own  where  needed. 

(2)  Assistance  to  local  bureaus. — Among  the  means  by  which  the 
federal  bureau  could'  assist  the  work  of  the  local  exchanges  are: 
[a)  interchange  of  information;  (b)  standard  record  system;  (c)  dis- 
;rict  clearing-houses. 

(3)  Regulation  of  private  agencies. — In  so  far  as  private  employ  - 
nent  agencies  do  an  interstate  business  they  are  properly  subject 
:o  federal  supervision  and  regulation  under  the  interstate  commerce 
:lause  of  the  Federal  Constitution.  Complete  regulation  might  be 
ecured  through  the  use  of  the  federal  taxing  power.     . 

II.  Systematic  Distribution  of  Public  Work 
A  well-developed  system  of  labor  exchanges  will  not,  of  course, 
reate  jobs,  but  in  addition  to  bringing  the  jobless  workers  quickly  and 
moothly  in  contact  with  such  opportunities  as  exist,  it  will  register  the 
ise  and  fall  in  the  demand  for  labor.  This  knowledge  will  make 
'ossible  intelligent  action  for  the  prevention  and  relief  of  unemploy- 
lent  through  the  systematic  distribution  of  public  work  and  the 
ushing  of  necessary  projects  when  private  industry's  demand  for 


582  INDUSTRIAL  SOCIETY 

labor  is  at  a  low  level.  Public  work  will  then  act  as  a  sponge,  absorb- 
ing the  reserves  of  labor  in  bad  years  and  slack'  seasons,  and  setting 
them  free  again  when  the  demand  for  them  increases  in  private 
business. 

I.      ADJUSTMENT   OF   REGULAR  WORK 

Even  at  slightly  additional  cost  regular  public  work  should  be 
conducted  in  years  of  depression  and  seasons  of  depression.  A  pro- 
gram of  the  amount  of  public  work  contemplated  for  several  years 
in  advance  should  be  laid  out  and  then  carefully  planned  to  be  pushed 
ahead  in  the  lean  years  which  experience  has  shown  to  recur  periodi- 
cally, and  in  the  months  when  private  employment  is  at  a  low  ebb. 
European  experience  shows  that  it  is  essential  to  the  success  of  such 
a  program  that  the  work  be  done  in  the  ordinary  way,  the  workers 
being  employed  at  the  standard  wage  and  under  the  usual  working 
conditions  and  hired  bn  the  basis  of  efficiency,  not  merely  because 
they  happen  to  be  unemployed. 

2.      EMERGENCY  WORK 

In  communities  which  have  not  yet  developed  such  a  program,  or 
in  times  of  special  emergency,  it  is  a  much  wiser  policy  to  start  large 
projects  for  public  works  than  to  support  the  unemployed  through 
private  charity  or  public  relief.  This  should  not  be  "relief  work" 
or  "made  work"  simply  to  keep  idle  hands  busy,  but  should  be  neces- 
sary public  work  which  would  have  been  undertaken  normally  in  the 
course  of  time,  but  which  can  be  concentrated  in  the  time  of 
emergency. 

III.    Regularization  of  Industry 

Side  by  side  with  the  movements  for  public  labor  exchanges  and 
for  systematic  distribution  of  public  work  should  go  the  movement 
for  the  regularization  of  industry  itself,  through  the  combined  efforts 
of  employers,  employees,  and  the  consuming  public. 

I.      REGULARIZATION  BY  EMPLOYERS 

In  the  regularization  of  industry  a  large  responsibility  lies  directly 
upon  employers  to  regularize  their  own  businesses.  Every  attempt 
should  be  made  within  the  limits  of  each  business  to  make  every  job  a 
steady  job.  Sincere  efforts  in  this  direction  on  the  part  of  the  employer 
can  accomplish  much.    Among  the  things  which  he  can  do  are: 


THE  WAGE  SYSTEM  AND  THE  WORKER  583 

(1)  Establishment  of  an  employment  department. — The  employer 
should  establish,  as  part  of  his  organization,  an  employment  depart- 
ment, having  at  its  head  an  employment  manager  whose  special  duty 
it  is  to  study  the  problems  of  unemployment  in  the  individual  shop 
and  to  devise  ways  of  meeting  them.  Such  a  department  would 
aim  at: 

a)  Reduction  of  the  "turnover"  of  labor:  By  a  study  of  its 
causes  through  records  of  "hiring  and  firing,"  reduction  could  be  made 
in  the  "turnover"  of  labor  which  is  at  present  so  excessive  that 
factories  frequently  hire  and  discharge  1,000  men  in  a  year  to  keep  up 
a  force  of  300. 

b)  Reduction  of  fluctuations  of  employment  inside  the  shop: 
Among  the  methods  that  might  be  used  for  this  purpose  are :  (i)  sys- 
tematic transfer  of  workers  between  departments;  (ii)  employing  all 
on  part  time  rather  than  laying  off  part  of  the  force;  (iii)  arranging 
working  force  in  groups  and  keeping  higher  groups  employed  con- 
tinuously; those  in  lower  groups  will  then  be  encouraged  to  keep  out 
of  the  industry  altogether,. or  to  combine  it  with  some  other  occupa- 
tions to  which  they  can  regularly  turn  in  the  dull  season;  (iv)  keeping 
before  the  attention  of  the  rest  of  the  organization  the  importance 
of  regularizing  employment. 

(2)  Regulation  of  output. — The  employer  should  regulate  his 
output  and  distribute  it  as  evenly  as  possible  throughout  the  year: 

a)  Record  keeping  and  forward  planning:  Yearly  curves  should 
be  kept,  showing  production,  sales,  and  deliveries  day  by  day,  week 
by  week,  and  month  by  month;  and  an  effort  should  be  made  each 
year  to  level  the  curve  and  to  smooth  out  the  "peak  load." 

b)  Building  up  slack  season  trade:  Special  instructions  should  be 
given  to  sales  departments  and  to  traveling  salesmen  to  urge  customers 
to  place  orders  for  delivery  during  the  slack  season.  Special  advertis- 
ing also  stimulates  trade  in  dull  periods. 

c)  Keeping  a  stock  department  and  making  to  stock  as  liberally 
as  possible  in  the  slack  season:  The  making  of  goods  to  stock  requires 
the  tying-up  of  a  certain  amount  of  capital,  but  many  employers  feel 
this  to  be  balanced  by  the  gain  in  contentment  among  the  workers  and 
the  increase  of  efficiency  and  team  spirit  in  the  organization.  They 
have  the  further  advantage  of  being  able  to  supply  goods  immediately 
on  order. 

d)  "Going  after"  steady  rather  than  speculative  business:  Well- 
organized  business  with  a  steady  demand  and  a  regular  and  sure 


584  INDUSTRIAL  SOCIETY 

profit  can  afford  to  dispense  with  the  irregular  and  unreliable  gains  of  a 
speculative  business  which  often  involve  disorganization  and  irregular- 
ity of  production. 

e)  Careful  study  of  market  conditions  and  adjustment  of  the 
business  to  take  advantage  of  them:  A  broad  market  provides  more 
regular  business  than  a  narrow  one.  Foreign  trade  supplements 
domestic  trade,  and  orders  often  arrive  from  southern  and  far  western 
markets  when  the  eastern  market  is  slack.  A  diversity  of  customers 
will  usually  provide  a  more  regular  demand  than  concentration  on  one 
or  two  large  buyers.  The  retail  trade  will  often  take"  a  manufacturer's 
goods  just  when  the  wholesale  season  has  stopped. 

/)  Developing  new  lines  and  complementary  industries:  A  diver- 
sity of  products  will  often  help  to  regularize  a  business.  Many 
manufacturers  study  their  plant,  the  nature  of  their  material,  and  the 
character  of  the  market  to  see  whether  they  cannot  add  new  lines  to 
supplement  those  they  have  and  fill  in  business  in  the  slack  seasons. 

g)  Overcoming  weather  conditions:  Special  refrigerating,  heating, 
moistening,  drying,  or  other  apparatus  proves  effective  in  many  indus- 
tries in  enabling  operations  to  be  continued  even  in  unfavorable 
weather. 

(3)  Co-operation  with  other  employers. — Employers  could  by  col- 
lective action  do  much  to  diminish  the  extent  of  unemployment  and  to 
abolish  trade  abuses  which  lead  to  it.  For  instance,  they  could  co- 
operate to: 

a)  Arrange  for  interchange  of  workers:  A  number  of  employers 
in  the  same  or  in  related  industries  could  arrange  to  take  their  labor 
from  a  central  source  and  to  transfer  workers  between  establishments 
according  to  the  respective  fluctuations  in  business.  This  would 
prevent  the  wasteful  system  of  maintaining  a  separate  reserve  of  labor 
for  each  plant.  The  best  agency  for  effecting  this  transfer  is,  of 
course,  the  public  labor  exchange. 

b)  Provide  diversity  of  industries:  Through  chambers  of  com- 
merce or  similar  organizations  an  effort  should  be  made  to  provide 
communities  with  diversified  industries  whose  slack  seasons  come  at 
different  times,  so  as  to  facilitate  dovetailing  of  employments. 

c)  Prevent  development  of  plant  and  machinery  far  beyond 
normal  demand:  An  installation  of  equipment,  the  capacity  of 
which  is  far  in  excess  of  orders  normally  to  be  expected,  is  not  only  a 
financial  burden,  but  it  is  a  continual  inducement  toward  rush  orders 
and  irregular  operation. 


THE  WAGE  SYSTEM  AND  THE  WORKER  585 

d)  Prevent  disorganization  of-  production  due  to  cut-throat 
competition:  Agreements  can  in  some  cases  be  made  to  restrict 
extreme  styles  and  other  excessively  competitive  factors  which  serve 
to  disorganize  production. 

(4)  Co-operation  with  other  efforts  to  regularize  employment. — 
Employers  should  co-operate  with  all  other  efforts  put  forth  in  the 
community  to  regularize  employment,  especially  with  the  public 
employment  exchanges.  Employers  should  make  a  special  point 
of  securing  as  much  of  their  help  as  possible  from  these  exchanges. 

2.      REGULARIZATION   BY   THE   WORKERS 

The  workers  themselves  have  a  special  opportunity  and  responsi- 
bility in  the  campaign  against  unemployment.  As  measures  against 
unemployment  individually  and  through  their  organizations  they 
should : 

(1)  Support  the  general  program  here  outlined. — Parts  especially 
recommending  themselves  for  support  by  the  workers  are: 

a)  Establishment  of  the  principle  of  elasticity  of  working  time 
rather  than  elasticity  of  working  force.  Double  pay  should  be  en- 
forced for  overtime,  however,  thus  compelling  the  employer  to  spread 
out  production  more  evenly  through  the  year. 

b)  Encouragement  of  public  employment  exchanges  as  the 
recognized  agency  for  securing  employment  and  for  registering 
unemployment  statistics. 

c)  Systematic  distribution  of  public  work  and  provision  of 
emergency  work. 

d)  Public  unemployment  insurance. 

e)  Foundation  of  a  thorough  system  of  economic  education  and 
industrial  training. 

(2)  Place  less  insistence  on  strong  demarcations  between  the  trades. — 
This  would  make  possible  the  keeping  of  reserves  for  the  industry  as  a 
whole  rather  than  as  at  present  for  each  separate  trade,  for  each  shop, 
and  even  for  each  separate  operation  within  the  shop.  It  would 
also  permit  a  more  comprehensive  program  of  industrial  education. 

3.      REGULARIZATION   BY   CONSUMERS 

Consumers  should  arrange  their  orders  and  purchases  to  assist  in 
the  regularization  of  production  and  employment.  The  principle  of 
"shop  early,"  which  has  proven  useful  in  diminishing  the  Christmas 
rush,  should  be  extended.     Employers  could  do  much  more  toward 


586  INDUSTRIAL  SOCIETY 

regularizing  their  output  if  consumers  were  more  responsive  to  solici- 
tations to  buy  in  the  slack  season. 

IV.    Unemployment  Insurance 

The  final  link,  which  unites  into  a  practical  program  the  four 
main  methods  for  the  prevention  of  unemployment,  is  insurance. 
Just  as  workmen's  compensation  has  already  resulted  in  the  nation- 
wide movement  for  "safety  first,"  and  just  as  health  insurance  will 
furnish  the  working  basis  for  a  similar  movement  for  the  conservation 
of  the  national  health,  so  the  "co-operative  pressure"  exerted  by 
unemployment  insurance  can  and  should  be  utilized  for  the  preven- 
tion of  unemployment.  For  although  much  regularization  of  industry 
can  be  accomplished  through  the  voluntary  efforts  of  enlightened 
employers,  there  is  also  needed  that  powerful  element  of  social  com- 
pulsion which  can  be  exerted  through  the  constant  financial  pressure 
of  a  carefully  adjusted  system  of  insurance.  The  adjustment  of 
insurance  rates  to  the  employment  experience  of  the  various  industries, 
and  then  the  further  adjustment  of  costs  to  fit  the  practices  of  indi- 
vidual trades  and  establishments  even  within  given  industries,  is 
well  within  the  range  of  possibility. 

To  be  regarded  as  secondary  to  this  function  of  regularization  is 
the  important  provision  of  unemployment  insurance  for  the  main- 
tenance, through  out-of-work  benefits,  of  those  reserves  of  labor 
which  may  still  be  necessary  to  meet  the  unprevented  fluctuations 
of  industry.  The  financial  burden  of  this  maintenance  should 
properly  fall  on  the  industry  (employers  and  workers  as  a  whole) 
and  upon  the  "consuming  public,  rather  than  upon  the  fraction  of 
the  workers  who  are  in  no  way  responsible  for  industrial  fluctuations 
and  who  are  as  essential,  even  in  their  periods  of  unemployment,  to 
the  well-being  of  industry  as  are  the  reserves  of  an  army.  Further- 
more, it  is  as  important  for  industry  as  for  the  workers  themselves 
that  their  character  and  physique  be  preserved  during  periods  of 
unemployment  so  that  they  may,  when  called  for,  return  to  industry 
with  unimpaired  efficiency,  and  may  be  preserved  from  dropping  into 
the  ranks  of  the  unemployable  where  they  will  constitute  a  much 
more  serious  problem. 

I.      ORGANIZATION  OF  OUT-OF-WORK  BENEFITS  BY  TRADE  UNIONS 

This  method  has  proven  successful  to  some  extent  in  Europe  and 
has  been  used  to  a  limited  degree  in  the  United  States. 


THE  WAGE  SYSTEM  AND  THE  WORKER  5S7 

2.      PUBLIC   SUBSIDIES   TO   TRADE   UNION   OUT-OF-WORK  BENEFITS 

As  the  "  Ghent  System,"  invented  by  Dr.  Varlez,  the  inter- 
national secretary  of  the  Association  on  Unemployment,  this  method 
of  administering  unemployment  insurance  has  become  well  known 
throughout  Western  Europe. 

3.      PUBLIC   UNEMPLOYMENT  INSURANCE 

In  this  employers,  workers,  and  the  state  should  become  joint 
contributors.  Such  a  system  should  be  carried  on  in  close  connection 
with  the  labor  exchanges,  for  the  exchanges  furnish,  particularly  when 
their  knowledge  of  opportunities  for  private  employment  is  supple- 
mented by  an  intelligent  adjustment  of  public  works,  the  best  possible 
"work  test"  for  the  unemployed  applicant  for  insurance  benefits. 
Possible  abuses  of  the  insurance  system  may  thus  be  thwarted. 
During  the  process  both  employers  and  workers  learn  to  make  use 
of  the  exchanges  as  centers  of  information  and  thereby  help  to  organize 
the  labor  market.  And  of  crowning  importance  in  the  movement 
toward  regularization  of  industry  is  the  careful  development  of  this 
form  of  insurance  with  its  continuous  pressure  toward  the  prevention 
of  unemployment. 

V.    Other  Helpful  Measures 

In  addition  to  the  foregoing  measures,  which  are  directly  aimed 
at  the  prevention  of  unemployment,  the  following  policies,  initiated 
primarily  for  a  variety  of  other  social  purposes,  would  also  prove 
helpful: 

1.  Industrial  training,  both  of  young  people  and  of  adults,  should 
be  encouraged.  Every  advance  in  his  skill  strengthens  the  hold 
of  the  worker  upon  his  job,  and  a  wider  industrial  training  makes 
possible  for  him  adaptation  to  various  kinds  of  work.  Children, 
especially,  should  not  be  permitted  to  go  to  work  without  sufficient 
industrial  training  to  prevent  their  being  used  as  casual  labor,  and 
should  be  discouraged  from  entering  "blind-alley"  employments 
which  destroy  rather  than  develop  industrial  ability.  For  those  who 
go  to  work  early,  the  system  of  continuation  schools,  now  found  in 
many  states,  should  be  still  further  developed.  The  idea,  also, 
that  industrial  training  and  education  are  not  feasible  for  the  adult 
worker  should  be  abandoned. 

2.  An  agricultural  revival  should  be  promoted  to  make  rural  life 
more  attractive  and  to  keep  people  on  the  land. 


588  INDUSTRIAL  SOCIETY 

3.  A  constructive  immigration  policy,  concerned  with  both  indus- 
trial and  agricultural  aspects  of  the  problem,  should  be  developed 
for  the  proper  distribution  of  America's  enormous  immigration. 

4.  Reducing  the  number  of  young  workers  by  excluding  child  labor 
up  to  sixteen  years  of  age  and  restricting  the  hours  of  young  people 
under  eighteen  would  lessen  the  number  of  the  unskilled. 

5.  Reduction  of  excessive  working  hours,  especially  in  occupa- 
tions where  the  time  of  attendance  and  not  the  speed  of  the  worker 
is  the  essential  factor  (such  as  ticket  chopping  and  'bus  driving) 
would  increase  to  a  certain  extent  the  demand  for  labor. 

6.  Constructive  care  of  the  unemployable,  who  are  themselves  largely 
the  product  of  unemployment,  must  be  devised,  with  the  aim  of 
restoring  them,  whenever  possible,  to  normal  working  life.  The 
problem  of  these  persons  is  distinct  from  that  of  the  capable  unem- 
ployed, and  should  not  be  confused  with  it.  For  the  different  groups 
appropriate  treatment  is  required,  including  (1)  adequate  health 
insurance  for  the  sick,  (2)  old-age  pensions  for  the  aged,  (3)  industrial 
or  agricultural  training  for  the  inefficient,  (4)  segregation  for  the 
feebleminded,  and  (5)  penal  farm  colonies  for  the  "won't  works" 
and  semi-criminal. 

230.    SOCIAL  INSURANCE1 

Social  insurance  sets  to  itself  the  task  of  meeting  the  problem  of 
the  economic  insecurity  of  labor. 

Now  what  are  the  contingencies  causing  this  economic  insecurity 
against  which  provision  must  be  made  in  some  way  ?  On  examina- 
tion we  find  that  a  man's  ability  to  support  himself,  and  to  make  due 
provision  for  those  dependent  upon  him,  is  lessened  or  cut  off:  (1)  by 
his  meeting  with  an  accident  incapacitating  him,  temporarily  or  per- 
manently, partially  or  completely,  for  labor;  (2)  by  his  falling  sick; 
(3)  by  his  becoming  permanently  disabled  for  labor  as  the  result  of 
old  age  or  failing  powers;  (4)  by  his  death,  leaving  a  widow,  children, 
or  others  without  adequate  means  for  their  support;  and  (5)  by  his 
inability  to  secure  remunerative  work. 

To  meet  each  of  these  contingencies  resort  has  been  had  to  the 
principles  of  insurance.  Social  insurance  is  thus  a  term  that  has  been 
coined  to  serve  as  a  collective  designation  of:  (1)  insurance  against 
accidents;    (2)  insurance  against  sickness;    (3)  insurance  against  old 

'Adapted  by  permission  from  W.  F.  Willoughby,  "The  Problem  of  Social 
Insurance:  An  Analysis,"  American  Labor  Legislation  Review,  III  (1913),  159-60. 


THE  WAGE  SYSTEM  AND  THE  WORKER  589 

age  and  invalidity;  (4)  insurance  against  death,  or,  as  it  is  more 
usually  called,  life  insurance;  and  (5)  insurance  against  unemploy- 
ment. 

Could  a  just  and  workable  plan  of  insurance  covering  these 
several  points  be  worked  out,  the  problem  of  the  economic  security 
of  labor,  one  of  the  greatest  with  which  society  now  has  to  deal,  would 
be  solved.  Is  there  any  social  problem  more  fundamental  or  more 
deserving  of  unremitting  effort  ? 

Each  of  these  five  branches  of  social  insurance  has  its  own  special 
problems  and  considerations;  they  are  united  only  in  respect  to  their 
ultimate  social  end.  These  special  problems  can,  in  each  case,  be 
distinguished,  for  purposes  of  consideration,  into  three  distinct 
classes:  (a)  the  social,  (b)  the  administrative,  (c)  the  technical.  Of 
these  the  first  is  the  most  fundamental.  Under  this  head  falls  the 
great  question  of  upon  whom  shall  fall  the  burden  of  making  the  con- 
tributions required  for  the  support  of  the  system.  No  real  progress 
can  be  made  until  we,  the  public,  have  reached  a  conclusion  regard- 
ing the  problem  of  justice  that  is  here  involved.  As  a  matter  purely 
of  right,  of  justice,  of  bringing  about  the  widest  possible  distribution 
of  welfare,  how  shall  the  financial  burden  entailed  by  the  system  be 
distributed  ?  In  seeking  to  reach  an  answer  to  this  question  we  find 
that  the  choice  lies  between  placing  the  burden  in  whole  or  in  part 
upon  either:  (1)  the  beneficiary,  or  workman,  (2)  the  employer,  (3)  the 
industry  in  which  the  workman  is  employed,  or  (4)  the  state. 

231.    A    SURVEY    OF    WORKINGMEN'S    INSURANCE    IN    THE 
UNITED  STATES1 

There  are  already  various  systems  of  industrial  insurance  in  the 
United  States  which  witness  to  the.  universal  sense  of  need  of  such 
protection  even  among  those  workers  who  have  least  developed  habits 
of  thrift.  These  imperfect  and  unrelated  schemes  are  yet  tb  be 
developed,  co-ordinated,  regulated,  and  combined  so  as  to  form  a 
consistent,  comprehensive,  and  adequate  system.  The  hope  of 
progress  lies  in  these  germinal  beginnings,  and  the  problem  immedi- 
ately before  the  nation  is  one  of  synthesis. 

Systems  and  schemes  of  industrial  insurance. -^(1)  The  working- 
men  have  themselves  created  organizations  for  insurance,  and  thereby 
express  a  universal  sense  of  need  of  this  protection;    local  mutual 

1  Adapted  by  permission  from  C.  R.  Henderson,  Industrial  Insurance  in  the 
United  States,  chap.  xii.     (The  University  of  Chicago  Press,  1909.) 


590  INDUSTRIAL  SOCIETY 

benefit  societies,  with  or  without  aid  from  employers,  nation; 
brotherhoods  or  fraternals,  and  trade  unions  with  local  branches 
(2)  Employers  have  promoted  the  movement  by  various  methods: 
local  societies  of  employees,  insurance  departments  of  great  firms 
or  corporations'  contracts  between  firms  and  casualty  companies, 
pension  schemes  of  employing  corporations.  (3)  Private  insurance 
companies  which  sell  sickness  and  accident  insurance  to  workmen, 
"  industrial  insurance  companies,"  collecting  small  premiums  weekly 
or  monthly,  and  furnishing  chiefly  burial  benefits  to  the  low-paid 
workman,  and  regular  life  insurance  to  those  who  have  higher  wages. 
(4)  Organizations  of  municipal,  state,  and  federal  employees  for 
pension  funds,  as  those  of  teachers,  firemen,  policemen;  the  national 
and  state  military  pensions;  homes  for  invalid  veterans.  .Here  also 
may  be  counted  as  auxiliary  and  supplementary  government  activities, 
poor  relief,  liability  laws,  protective  factory  laws  and  inspection, 
and  state  supervision  of  fraternal  societies  and  insurance  corporations. 
Every  one  of  these  agencies  and  organizations  represents  some  begin- 
ning of  a  movement  toward  obligatory  insurance. 

Sickness  insurance. — The  present  organs  of  sickness  insurance  are: 
local  mutual  benefit  societies,  lodges  of  the  trade  unions  and  fraternal 
societies,  relief  departments  of  railroads,  and  casualty  companies. 
Naturally  this  form  of  insurance  is  most  widely  developed  among  the 
workmen  of  cities.  Everywhere  the  organization  is  voluntary, 
unless  we  may  speak  of  constraint  to  enter  the  relief  departments  and 
other  similar  arrangements  as  a  condition  of  employment  as  com- 
pulsion. The  local  societies  are  seldom  united  in  groups,  and  each 
bears  its  burden  alone. 

Accident  insurance. — The  employers'  liability  law  remains  in  its 
ancient  limits;  it  is  behind  the  British  compensation  act  of  1897 
and  much  farther  behind  the  German  insurance  law  of  1884.  The 
principle  that  social  care  in  any  explicit  way  is  a  duty  of  the  com- 
munity has  never  been  openly  recognized.  Compulsory  insurance 
or  even  compensation  is  not  a  part  of  the  legal  provisions.  Volun- 
tary organizations,  fragmentary  and  unfair  in  character,  are  further 
developed  with  the  railroads  than  elsewhere.  In  agriculture  there 
is  hardly  a  discoverable  attempt  in  this  direction. 

The  railroads  have  generally  sought  to  insure  their  employees 
either  through  agreements  with  casualty  companies  or  by  relief 
departments;  but  the  employees  must  carry  the  greater  part  of 
the  burden.     The  employers  in  other  dangerous  trades  have  often 


THE  WAGE  SYSTEM  AND  THE  WORKER  591 

organized  accident  insurance,  but  generally  the  schemes  load  the 
employees  with  premiums,  cover  only  a  part  of  the  real  loss,  and  lack 
full  actuarial  basis.  There  is  nowhere  state  supervision  or  direction, 
no  obligation  to  insure,  no  unity  or  uniformity  of  method;  mostly 
anarchy.  The  administration  varies  with  the  form  of  organization; 
in  the  mutual  benefit  associations  the  matter  is  directed  by  a  com- 
mittee with  officers  and  clerks;  in  the  trade  unions  the  lodge  governs 
the  direction;  and  in  casualty  companies  all  is  administered  by  the 
central  office. 

In  the  relief  departments  of  railroads  and  in  the  casualty  com- 
panies the  fund  is  provided  by  payment  of  premiums  at  intervals  in 
advance.  No  example  has  been  found  of  groups  of  employers  feder- 
ated to  provide  accident  insurance;  and,  indeed,  the  motive  is  lack- 
ing for  such  organization. 

Old  age  and  invalidism. — A  few  of  the  trade  unions  have  begun  to 
establish  funds  for  old-age  retirement  benefits.  The  fraternal  societies 
exhibit  a  serious  defect  at  this  point.  Under  their  system  they  can 
carry  life  insurance  only  to  the  region  of  old  age  and  then  the 
" brother"  must  care  for  himself,  a  very  inconsistent  kind  of  fra- 
ternity, yet  inseparable  from  present  methods.  Some  of  the  railroad 
corporations  and  even  private  firms  have  founded  funds  for  old-age 
pensions  and  this  movement  seems  to  be  growing  in  the  country. 
Cities  have  pension  funds  for  policemen,  firemen,  and  to  some  extent 
for  teachers.  The  nation  and  the  states  have  made  the  old  age  of 
veterans  comfortable.  It  is  perfectly  clear  that  the  common  laborers 
of  cities  can  never  on  present  wages  provide  for  old  age  without  help 
of  employers  and  the  public;  the  outlook  is  simply  hopeless. 

Various  are  the  methods  of  providing  funeral  funds  and  life 
insurance.  The  poorest  workmen  of  America  count  among  their 
most  necessary  expenses  the  premiums  which  will  provide  money  for  a 
respectable  funeral.  Sickness  and  accident  insurance  come  later, 
and  the  contingency  of  need  in  old  age  is  to  their  imagination  far 
more  remote.  The  colossal  sums  poured  annually  from  slender 
incomes  into  the  coffers  of  the  "industrial  insurance"  companies 
are  witness  of  the  spirit  of  sacrifice  which  is  inspired  by  the  sentiment 
of  repugnance  to  burial  at  public  expense.  The  benefit  departments 
of  the  fraternal  societies  and  fraternal  insurance  societies  prove  the 
interest  of  skilled  artisans  in  providing  for  future  wants  by  insurance. 

Comparatively  little  has  been  done  for  unemployment  insurance. 
Apart  from  occasional  gifts  of  cities,  or  hastily  planned  emergency 


592  INDUSTRIAL  SOCIETY 

works,    the   public    has    manifested    no    interest    in    this    burning 
question. 

232.    SOME  ASPECTS  OF  THE  MINIMUM  WAGE1 

The  principle  of  the  minimum  wage  has  been  accepted  by  at  least 
nine  of  our  state  legislatures  and  provision  made  for  the  regulation  of 
the  wages  of  women  and  minors  employed.  Massachusetts  led  the 
way  by  adopting  an  emasculated  measure  in  191 2.  Wisconsin, 
Minnesota,  Washington,  Oregon,  California,  Colorado,  Nebraska, 
and  Utah  have  followed  in  19 13 — all  of  these  adopting  laws  for  the 
authoritative  fixation  and  enforcement  of  minimum  standards. 
Though  they  have  acted  adversely  or  adjourned  without  action,  the 
legislatures  of  several  other  states,  among  them  Illinois,  New  York, 
Pennsylvania,  Ohio,  Kansas,  Missouri,  and  Tennessee,  have  had 
similar  measures  under  consideration.  The  minimum-wage  move- 
ment is  making  great  headway,  and,  unless  checked  by  the  courts  or 
found  undesirable  in  practice,  seems  destined  to  become  fairly  general 
in  the  United  States. 

Speaking  generally,  the  minimum-wage  laws  would  make  a 
" living  wage"  a  first  charge  upon  the  industries  brought  under  regula- 
tion, special  cases  excepted.  They  contemplate  the  imposition  of  a 
standard  rate  or  of  standard  rates  like  those  established  by  collective 
agreements  between  employers  and  labor  unions,  except  that  in  this 
particular  case  the  minimum  established  for  adults  is  based  upon  the 
necessary  cost  of  living  of  the  individual  of  a  kind  that  will  safeguard 
health  and  morals.  For  the  young  and  inexperienced,  for  learners 
and  apprentices,  suitable  standards  shall  be  imposed.  The  expecta- 
tion usually  is  that  this  will  be  done  so  far  as  possible  by  a 
method  not  far  removed  from  collective  bargaining,  the  three 
parties  to  the  matter — employers,  employees,  and  the  public — being 
represented. 

Though  the  first  of  our  American  minimum-wage  laws  are  just 
now  going  into  effect,  the  world  has  had  seventeen  years'  experience 
in  such  regulation.  It  began  in  Australia  in  the  state  of  Victoria  in 
1896,  and  has  since  become  fairly  general  as  regards  both  men  and 
women  in  most  of  the  other  states  of  that  country.  In  view  of  foreign 
experience  and  general  considerations,  What  are  likely  to  be  the  results 
of  our  legislation  ?    What  will  it  accomplish  ?    What  new  problems 

1  Adapted  by  permission  from  H.  A.  Millis,  "Some  Aspects  of  the  Minimum 
Wage,','  Journal  of  Political  Economy,  XXII  (1914),  132-53. 


THE  WAGE  SYSTEM  AND  THE  WORKER  593 

will  the  attempt  to  solve  the  problem  of  low  wages  probably  raise  ?  Is 
it  wise  legislation  so  far  as  it  goes  ?v  If  so,  are  additional  measures 
called  for  to  supplement  it  ?  If  not,  where  shall  we  look  for  a  solution 
of  the  serious  problem  of  low  wages  ? 

The  first  result  to  be  expected  is  that  the  formation  of  wages 
boards  will  bring  about  a  certain  amount  of  organization  of  the 
employees  in  the  trades  regulated.  ' 

The  second  and  perhaps  the  most  important  result  will  be  that 
wages  will  be  standardized  to  an  extent,  and  exploitation  by  un- 
scrupulous employers  will  be  checked. 

A  third  result  will  be  a  leveling  up  of  wages  in  the  regulated 
trades. 

A  fourth  result  will  probably  be  that  some  of  those  who  are  now 
earning  more  than  a  living  wage  on  a  time  basis  will  have  their  wages 
reduced.  The  union  rate  has  had  that  effect;  some  of  those  of  more 
than  average  efficiency  have  been  sacrificed  to  an  extent. 

As  a  fifth  result,  various  petty  abuses  by  the  less  scrupulous 
employers  will  be  checked,  such  as  exacting  payment  for  this,  that, 
and  the  other  thing — drinking-water  in  the  mills  at  Lawrence,  Massa- 
chusetts, for  example — and  the  imposition  of  arbitrary  and  exorbitant 
fines.  The  methods  of  the  better  employers  will  be  imposed  to  a 
considerable  extent  upon  others. 

As  a  sixth  result,  business  will  be  injured  at  certain  points.  Home 
work  will  be  curtailed,  for  its  chief  advantage  is  found  in  the  fact 
that  the  labor  supply  is  obtained  for  less  than  is  paid  in  factories  and 
shops.  Likewise,  those  employers  whose  business  is  poorly  managed 
or  whose  methods  are  antiquated  will  suffer  loss  unless  they  can  over- 
come the  handicaps  under  which  they  labor.  The  net  result  will  be 
that  the  more  efficient  firms  and  the  more  efficient  forms  of  organiza- 
tion will  gain  at  the  expense  of  the  less  efficient  when  the  subsidy  of 
cheap  labor  is  denied  the  latter.  Though  this  will  work  a  certain 
amount  of  hardship,  it  is  improper  to  subsidize  inefficient  manage- 
ment and  antiquated  methods  at  the  expense  of  the  health  and 
efficiency  of  the  employees. 

As  a  seventh  result,  this  legislation,  being  confined  to  certain 
states,  may  be  expected  to  depress  the  industries  of  the  regulated 
localities  and  build  up  those  of  other  localities  where  such  regulation 
does  not  obtain,  in  so  far  as  competition  is  effective  beyond  state 
boundaries.  Such  has  been  the  effect  of  the  regulation  of  the  hours 
ii  labor  and  of  child-labor  legislation. 


I 


594  INDUSTRIAL  SOCIETY 

To  a  certain  extent  prices  will  be  increased  and  the  cost  of  living 
will  rise.  Frequently  when  labor  has  been  organized  and  has  secured 
higher  wages  and  better  labor  conditions  through  the  pressure  of  the 
strike  and  the  boycott,  consumers  have  had  to  pay  more  for  the 
laborers'  services  and  products. 

As  a  ninth  effect,  some  of  those  who  work  will  be  displaced  and 
will  be  unemployable  at  the  standard  rates  set.  The  employer  will  not, 
for  any  great  length  of  time,  continue  to  employ  persons  who  are 
not  worth  to  him  the  price  he  must  pay. 

In  the  tenth  place,  the  regulation  of  the  wages  of  women  and 
minors  will  protect  male  adults  to  some  extent  against  the  disastrous 
effects  of  the  underbidding  by  these  classes.  It  will,  tend  to  remove 
the  premium  which  has  been  placed  upon  the  labor  of  women  and 
youths  because  of  the  low  wages  they  accept. 

An  eleventh  result  would  be  that  the  number  of  strikes  in  the 
textile  and  the  garment  trades  will  be  diminished  and  the  advance 
of  such  revolutionary  organizations  as  the  Industrial  Workers  of  the 
World  checked. 

And,  finally,  a  difficult  administrative  problem  in  the  enforcement 
of  wage  standards  will  certainly  develop.  The  setting  of  standards 
for  the  hours  of  labor,  sanitary  conditions,  and  child  labor  has  brought 
with  it  acute  problems  of  this  kind.  To  meet  them,  legislation  has 
become  more  and  more  rigid  in  its  details  designed  to  secure  enforce- 
ment, and  the  inspection  service  has  had  to  be  strengthened.  And 
yet,  it  cannot  be  said  that  we  have  been  more  than  indifferently  suc- 
cessful in  those  states  which  have  made  the  greatest  advance  in  the 
matter. 

In  concluding  this  discussion  of  the  minimum  wage,  it  may  be 
noted  that  its  more  advanced  advocates  plead  for  its  application  to 
adult  males. 

233.    THE  SOCIALIZATION  OF  LAW1 

A  developed  legal  system  is  made  up  of  two  elements,  a  tra- 
ditional element  and  an  enacted  or  imperative  element.  Although 
at  present  the  balance  in  our  law  is  shifting  gradually  to  the  side  of  the 
enacted  element,  the  traditional  element  is  still  by  far  the  more  impor- 
tant. In  the  first  instance,  we  must  rely  upon  it  to  meet  all  new 
problems,  for  the  legislator  acts  only  after  they  attract  attention. 

1  Adapted  by  permission  from  Roscoe  Pound,  "Social  Problems  and  the 
Courts,"  American  Journal  of  Sociology,  XVIII  (191 2-13),  334-38. 


THE  WAGE  SYSTEM  AND  THE  WORKER  595 

But  even  after,  the  legislator  has  acted,  it  is  seldom  if  ever  that  his 
foresight  extends  to  all  the  details  of  his  problem  or  that  he  is  able 
to  do  more  than  provide  a  broad,  if  not  a  crude,  outline.  Hence,  even 
in  the  field  of  the  enacted  law,  the  traditional  element  of  the  legal 
system  plays  a  chief  part.  We  must  rely  upon  it  to  fill  the  gaps  in 
legislation,  to  develop  the  principles  introduced  by  legislation,  and  to 
interpret  them. 

Moreover,  a  large  field  is  always  unappropriated  by  enactment, 
and  here  the  traditional  element  is  supreme.  In  this  part  of  the  law 
fundamental  ideas  change  slowly.  The  alterations  wrought  here  and 
there  by  legislation,  not  always  consistent  with  one  another,  do  not 
produce  a  general  advance.  Indeed,  they  may  be  held  back,  at  times, 
in  the  interests,  real  or  supposed,  of  uniformity  and  consistency, 
through  the  influence  of  the  traditional  element.  It  is  obvious, 
therefore,  that  above  all  else  the  condition  of  the  law  depends  upon  the 
condition  of  this  element  of  the  legal  system.  If  the  traditional  ele- 
ment of  the  law  will  not  hear  of  new  ethical  ideas,  or  will  not  hear  of  the 
usages  of  the  mercantile  community,  or  will  not  hear  of  new  economics 
or  of  the  tenets  of  the  modern  social  sciences,  legislation  will  long  beat 
its  ineffectual  wings  in  vain. 

If,  however,  the  causes  of  the  backwardness  of  the  law  with  respect 
to  social  problems  and  the  unsocial  attitude  of  the  law  toward  ques- 
tions of  great  import  in  the  modern  community  are  to  be  found  in  the 
traditional  element  of  the  legal  system,  the  surest  means  of  deliver- 
ance are  to  be  found  there  also.  The  infusion  of  morals  into  the  law 
through  the  development  of  equity  was  not  an  achievement  of  legis- 
lation, but  the  work  of  courts.  The  absorption  of  the  usages  of 
merchants  into  the  law  was  not  brought  about  by  statutes,  but  by 
judicial  decisions.  When  once  the  current  of  juristic  thought  and 
judicial  decision  is  turned  into  the  new  course,  our  Anglo-American 
method  of  judicial  empiricism  has  always  proved  adequate. 

There  are  many  signs  that  fundamental  changes  are  taking 
place  in  our  legal  system  and  that  a  shifting  is  in  progress  from  the 
individualist  justice  of  the  nineteenth  century,  which  has  passed  so 
significantly  by  the  name  of  legal  justice,  to  the  social  justice  of 
today. 

Six  noteworthy  changes  in  the  law,  which  are  in  the  spirit  of 
recent  ethics,  recent  philosophy,  and  recent  political  thought,  may  be 
referred  to.  First  among  these  we  may  note  limitations  on  the  use 
of  property,  attempts  to  prevent  the  anti-social  exercise  of  rights. 


596  INDUSTRIAL  SOCIETY 

Second,  we  may  note  limitations  upon  freedom  of  contract,  such 
as  requirement  of  payment  of  wages  in  cash,  regulations  of  hours 
and  conditions  of  labor,  and  limitations  upon  the  power  of  employers 
to  restrain  membership  in  unions.  These  have  been  matters  of  legis- 
lation. But  our  courts  have  taken  the  law  of  insurance  practically 
out  of  the  law  of  suretyship,  and  have  established  that  the  duties  of 
public  service  companies  are  not  contractual,  flowing  from  agreements, 
but  are  quasi-contractual,  flowing  from  the  calling  in  which  the  public 
servant  is  engaged.  Not  merely  in  labor  legislation,  but  in  judicial 
decision  with  respect  to  public  callings,  the  whole  course  of  modern 
law  is  belying  the  famous  individualist  generalization  of  the  nine- 
teenth century  that  the  growth  of  law  is  a  progress  from  status  to 
contract. 

Third,  we  may  note  limitations  on  the  power  of  disposing  of 
property.  These  are  chiefly  legislative.  Examples  are  the  require- 
ment in  many  states  that  the  wife  join  in  a  conveyance  of  the  family 
home;  the  statutes  in  some  jurisdictions  requiring  the  wife  to  join 
in  a  mortgage  of  household  goods;  the  statute  of  Massachusetts 
requiring  the  wife  to  join  in  an  assignment  of  the  husband's  wages. 

Fourth,  reference  may  be  made  to  limitations  upon  the  power  of 
the  creditor  or  injured  party  to  secure  satisfaction.  In  the  United 
States,  the  homestead  exemption  statutes  which  prevail  in  so  many 
states,  and  the  personalty  exemptions  which  in  some  states  go  so  far  as 
to  exempt  five  hundred  dollars  to  the  head  of  the  family,  and  usually 
make  liberal  exemptions  of  tools  to  the  artisan,  library  to  the  pro- 
fessional man,  animals  and  implements  to  the  farmer,  and  wages 
to  the  head  of  a  family,  will  serve  as  illustrations'.  There  is  a  notable 
tendency  in  recent  legislation  and  in  recent  discussion  to  insist,  not 
that  the  debtor  keep  faith  in. all  cases,  even  if  it  ruin  him  and  his 
family,  but  that  the  creditor  must  take  a  risk  also — either  along  with, 
or  even  in  some  cases  instead  of,  the  debtor. 

Fifth,  there  is  a  tendency  to  revive  the  primitive  idea  of  liability 
without  fault,  not  only  in  the  form  of  wide  responsibility  for  agencies 
employed,  but  in  placing  upon  an  enterprise  the  burden  of  repairing 
injuries  incident  to  the  undertaking  without  fault  of  him  who  con- 
ducts it.  What  Dean  Ames  called  "the  unmoral  standard  of  acting 
at  one's  peril"  is  coming  back  into  the  law  in  the  form  of  employers' 
liability  and  workmen's  compensation.  There  is  a  strong  and  grow  - 
ing  tendency,  where  there  is  no  blame  on  either  side,  to  ask,  in  view 
of  the  exigencies  of  social  justice,  who  can  best  bear  the  loss. 


THE  WAGE  SYSTEM  AND  THE  WORKER  597 

Finally,  recent  legislation  and,  to  some  extent,  judicial  decision 
have  begun  to  change  the  old  attitude  of  the  law  with  respect  to  depend- 
ent members  of  the  household.  Courts  no  longer  make  the  natural 
rights  of  parents  with  respect  to  children  the  chief  basis  of  their 
decisions.  The  individual  interest  of  parents  which  used  to  be  the 
one  thing  regarded  has  come  to  be  almost  the  last  thing  regarded 
as  compared  with  the  interest  of  the  child  and  the  interest  of  society. 
In  other  words,  here  also  social  interests  are  now  chiefly  regarded. 

See  also  407.     Dissatisfaction  With  Present  Formal  Social  Control. 

234.     REFORM   WITH  RESPECT  TO  EMPLOYERS'  LIABILITY' 

The  study  of  the  situation  at  home  and  abroad  suggests  a  pro- 
gram for  reform,  and  its  ultimate  accomplishment  should  be  held 
constantly  in  view. 

a)  Employers  should  be  held  accountable  for  the  safety  of  surround- 
ings and  equipment. — This  is  now  recognized  in  Great  Britain,  and  in 
most  of  the  states  of  Continental  Europe.  In  nine  American  states 
this  principle  is  applied  to  all  industries;  in  five  others,  to  railways; 
and  in  nineteen  more,  responsibility  is  thrown  upon  employers  who 
fail  to  comply  with  legal  requirements  concerning  stated  safety 
devices  and  precautions.  Its  general  acceptance  in  the  United  States 
would  largely  abolish  the  doctrine  of  assumed  risk,  and  greatly  reduce 
litigation.  * 

b)  Employers  should  be  held  accountable  for  the  negligent  acts  of  their 
employees. — This  principle  also  is  accepted  in  most  of  the  countries 
of  Europe  and  in  three  American  states.  In  ten  others  it  is  recog- 
nized in  part,  and  in  eighteen  more  it  applies  to  specified  industries. 
Its  general  acceptance  would  abolish  the  fellow- servant  doctrine  and 
restore  the  principle  of  respondeat  superior  to  the  full  range  of  legal 
application  that  it  should  properly  have. 

c)  The  employer's  defense  of  contributory  negligence  should  be 
denied. — The  workingman's  environment  makes  constant  care  impos- 
sible, and  this  general  defense  against  liability  works  grave  injustice. 
Industry  should  bear  its  inevitable  accident  losses,  as  it  bears  its 
inevitable  fire  losses  and  maintenance  charges.  No  part  of  the 
burden  should  be  thrown  upon  those  whose  earning  power  is  sacrificed. 
In  most  European  nations  only  such  contributory  negligence  as  is 

1  Adapted  by  permission  from  G.  L.  Campbell,  Industrial  Accident  Compensa- 
tion, chaps,  iv  and  vi.     (Houghton  Mifflin  Co.,  191 1.) 


m 


598  INDUSTRIAL  SOCIETY 

wilful,  unreasonable,  or  unlawful  bars  the  victim  from  the  right  to 
compensation,  and  recognition  of  the  same  principle  should  be  an  early 
reform  in  American  legislation. 

d)  Employers  should  be  held  accountable  for  unpreventable  accidents. 
— In  spite  of  all  possible  precaution,  many  workingmen  are  sure  to  be 
killed  and  injured.  Neither  employers  nor  employees  are  at  fault  in 
such  cases,  but  since  such  accidents  seem  necessary  in  the  creation  of 
economic  goods,  the  burden  should  be  placed,  through  the  employer, 
upon  the  ultimate  consumer  of  the  finished  product.  This  principle 
is  fully  recognized  in  Europe,  and  is  faintly  suggested  by  a  recent 
law  in  Montana.  Its  general  acceptance  in  the  United  States,  together 
with  the  recognition  of  the  first  and  second  principles  outlined,  would 
completely  abolish  the  doctrine  of  assumed  risk. 

e)  Compensations  should  be  paid  according  to  a  definite  scale  fixed 
by  law  and  varying  according  to  the  age  and  pecuniary  situation  of 
dependents. — The  principle  of  fixed  compensation  was  recognized 
by  the  English  Act  of  1897;  it  has  spread  to  the  British  colonies,  and 
the  definite  but  variable  scale  of  payments  and  pensions  is  a  meri- 
torious feature  of  the  compensation  laws  of  the  states  on  the  Continent. 
In  America  a  few  states  set  maximum  limits  to  the  liability  of  em- 
ployers on  account  of  any  one  casualty,  but  that  is  all.  One  of  the 
most  flagrant  abuses  under  the  existing  system  of  law  is  the  spirit  of 
speculation  that  is  fostered  by  the  ever-dazzling  possibility  of  a  large 
award.  The  establishment  of  a  definitely  variable  scale,  together 
with  the  greater  certainty  of  award  that  would  be  lent  by  the  other 
reforms  outlined,  would  go  far  in  reducing  the  volume  and  expense 
of  litigation.  Fewer  cases  would  come  to  trial,  and  jury  awards  would 
be  more  readily  accepted  without  appeal. 

/)  Payment  should  be  guaranteed  by  adequate  insurance. — A  great 
catastrophe  or  some  other  cause  often  leads  to  the  insolvency  of  the 
employer  at  a  time  when  the  injured  men  and  their  dependents  are 
most  in  need  of  assistance.  Certain  methods  of  guaranty  are  there- 
fore used  in  Germany,  Austria,  France,  and  Italy,  and  more  or  less 
effective  plans  are  followed  in  other  countries.  First  lien  on  assets 
and  compulsory  state  insurance  are  most  frequently  resorted  to.  The 
statutes  of  Massachusetts  and  New  York  provide  that  any  employer 
may  partially  disburden  himself  of  liability  by  insuring  his  men  in 
private  insurance  companies,  but  he  is  not  obliged  to  do  so.  In 
Montana  a  law  passed  in  1909  provides  a  special  tax  of  1  per  cent 
on  the  earnings  of  coal-miners  and  of  one  cent  per  ton  on  all  coal 


THE  WAGE  SYSTEM  AND  THE  WORKER  599 

mined.     The  proceeds  make  up  a  state  fund  for  the  generous  com- 
pensation of  accidents  in  the  coal-mining  industry. 

g)  Compensation  payments  should  be  conserved. — Many  persons  left 
dependent  are  incompetent  to  care  for  large  sums  of  money  suddenly 
acquired.  Courts  of  proper  jurisdiction  should  be  given  authority 
to  determine  whether  lump  payments  should  be  made  or  the  sum 
invested  in  annuities.  The  pension  systems  of  the  continental  Euro- 
pean states  are  rich  in  the  suggestion  of  administrative  methods  for 
accomplishing  this  purpose. 

235.    LABOR  LEGISLATION  IN  ONE  STATE1 

That  the  public  has  a  stake  in  industrial  questions  and  should 
shoulder  its  responsibility  was  recognized  in  a  substantial  manner 
in  Illinois  when  in  1893  a  State  Department  of  Factories  and  Work- 
shops was  created  and  laws  were  enacted  prohibiting  employment 
of  children  under  fourteen  years  of  age,  or  of  women,  in  the  manu- 
facture of  wearing  apparel,  for  more  than  eight  hours  a  day  and 
forty-eight  a  week.2  Previously  in  1877  and  again  in  1891  there 
had  been  efforts  at  child  labor  legislation,  but  failure  to  provide  state 
inspectors  to  enforce  the  laws  rendered  the  acts  ineffective.  Since 
1893,  the  extension  of  state  control  over  industry  has  been  almost 
continuous.  Following  are  some  of  the  more  important  acts  which 
mark  this  development: 

1897.  Child  labor  law  enacted  covering  not  only  factories  but  offices, 
laundries,  mercantile  establishments,  and  stores,  and  fixing  maximum 
hours  of  labor  of  children  under  sixteen  years  of  age  at  ten  per  day  and 
sixty  per  week. 

1897.  Act  passed  requiring  the  installation  of  blowers  to  remove  dust 
from  metal  polishing,  buffing,  and  grinding  wheels. 

1 901.  Child  labor  law  strengthened  and  all  establishments  required 
to  provide  suitable  seats  for  women  and  girls. 

1903.     Present  child  labor  law  enacted. 

1907.  Factory  Inspection  Department  established  as  separate  depart- 
ment of  the  state  government  and  its  powers  extended. 

1907.  Present  law  providing  for  health,  safety,  and  comfort  of  workers 
in  factories,  mercantile  establishments,  mills,  and  workshops  enacted. 

1  Adapted  by  permission  from  Industrial  Conditions  in  Springfield,  Illinois, 
pp.  141-43.     (Russell  Sage  Foundation,  1916.) 

2  In  1895  the  latter  provision  was  held  unconstitutional  by  the  state  supreme 
court.  In  19 10  the  same  court  declared  a  ten-hour  law  for  women  constitutional 
(Ritchie  d*  Co.  v.  Wayman  and  Davies). 


600  INDUSTRIAL  SOCIETY 

1907.  Act  passed  to  provide  for  the  safety  of  persons  engaged  in  con- 
struction, alteration,  or  repair  of  buildings,  bridges,  viaducts,  and  other 
structures. 

1908.  Act  passed  preventing  employment  in  coal  mines  of  persons 
who  have  not  been  passed  by  a  State  Miners'  Examining  Board. 

1909.  Law  enacted  fixing  hours  of  work  of  women  in  factories  and 
laundries  at  ten  per  day. 

1910.  Act  passed  providing  for  fire-fighting  equipment  in  coal  mines. 
Later  amended  and  strengthened. 

191 1.  Women's  ten-hour  law  extended  to  cover  mercantile  establish- 
ments, hotels,  restaurants,  offices,  and  other  enumerated  places. 

191 1.     Law  enacted  to  protect  workers  from  occupational  diseases. 
19 13.     Act  passed  consolidating  and  strengthening  laws  to  provide 
for  safety  and  welfare  of  workers  in  coal  mines. 

1913.     Present  workingmen's  compensation  law  enacted. 

Examination  of  this  list  shows  a  fairly  rapid  extension  of  the  field 
of  labor  laws  and  a  gradual  strengthening  of  requirements — but  an 
extension  that  is  not  at  all  unique  for  an  industrial  state.  Othei 
states  have  legislated  in  fields  not  yet  entered  in  Illinois,  as  seen,  foi 
example,  in  their  establishment  of  minimum  wage  boards,  the  pro- 
hibition of  night  work  by  women,  the  limitation  of  the  workday 
to  eight  hours  for  women,  the  guaranty  of  one  day  of  rest  in  seven 
to  all  workers,  the  enactment  of  compulsory  compensation  laws,  and 
other  measures.  That  the  public  will  exercise  increasing  influence 
through  legislation  for  improved  industrial  conditions  appears 
certain,  and  should  be  encouraged,  particularly  with  reference  to  the 
strengthening  of  the  child  labor  laws,  the  reduction  of  the  hours  of 
working  women,  the  protection  of  workers  from  physical  hazards, 
and  the  establishment  of  minimum  wage  boards. 

236.     OTHER  FORMS  OF  COMMUNITY  CONTROL1 

The  influence  of  the  community  is  potent  in  ways  other  than 
through  legislation.  Important,  in  this  connection,  is  the  existence 
of  a  public  opinion  that  insists  upon  the  fair  and  full  enforcement 
of  legislation  touching  industrial  matters ;  that  demands  intelli- 
gent and  even  treatment  of  the  interests  of  both  employer  and 
employee  before  the  courts  and  by  court  officers;  that,  in  other  dis- 
puted issues  where  no  official  tribunal  has  jurisdiction,  will  guarantee 
to  both  sides  equal  consideration  before  claims  are  decided;    that 

1  Adapted  by  permission  from  Industrial  Conditions  in  Springfield,  Illinois, 
pp.  143-144.     (Russell  Sage  Foundation,  1916.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  60 1 

would  make  it  hard  for  industries  and  commercial  enterprises  main- 
taining conditions  below  a  reasonable  standard  to  do  business  in  the 
community;  and  that  would  work  through  other  channels  as  occasion 
demands.  Some  of  these  may  take  form  in  the  establishment  and 
maintenance  of  agencies  to  furnish  pertinent  information  on  the 
quality  of  present  law  enforcement  (through  bureaus  of  government 
research,  committees  and  commissions  on  public  efficiency,  industrial 
surveys,  etc.) ;  in  the  selection  of  persons  for  judicial  positions  who 
recognize  the  importance  and  qpmplexity  of  industrial  questions  and 
have  gone  to  some  pains  to  make  themselves  intelligent  upon  them; 
in  the  creation  of  machinery  for  arbitration  and  conciliation  of 
industrial  differences;  and  in  the  organization  and  support  of  quasi- 
public  institutions,  such  as  consumers'  leagues,  civic  improvement 
societies,  and  an  independent  press,  which  afford  opportunity  in 
the  public  interest  to  thresh  out  acute  industrial  situations  and  to 
take  organized  action. 

At  the  same  time  the  community  must  be  willing  and  expect  to 
bear  its  share  of  the  legitimate  cost  of  maintaining  good  industrial 
standards.  There  undoubtedly  are  many  cases  in  which  employers 
are  already  doing  all  that  they  can.  In  such  cases,  where  the  cost 
of  necessary  improvements  cannot  be  financed  out  of  the  reasonable 
proceeds  of  the  business,  the  public,  granting  that  the  business 
satisfies  a  real  need  in  the  community,  must  be  prepared  to  assume  its 
part  of  the  extra  charges,  which  in  most  cases  would  take  the  form 
of  increased  prices.  In  other  words,  in  addition  to  giving  its  prefer- 
ence to  establishments  meeting  good  standards  as  to  work  conditions, 
the  public  should  be  ready  to  pay  its  just  share  of  the  costs  involved. 

We  have  then  these  three  main  forces  or  groups  of  interested 
parties — the  employer,  the  worker,  and  the  public — which  may  be 
expected  to  act  toward  making  industry  contribute  toward,  and  not 
detract  from,  the  general  welfare. 

237.    CONTROL  OF  POPULATION1 

Of  late  we  have  heard  a  tremendous  demand  from  would-be 
social  reformers  for  a  "living  wage."  We  hear  the  employers  on  all 
sides  denounced  as  heartless  villains  because  they  do  not  pay  enough 
to  allow  their  employees  to  live  in  decency  and  comfort.  But  this 
sentiment  seems  to  arise  from  a  superficial  analysis  of  the  difficulty. 

1  Taken  by  permission  from-  W.  I.  King,  The  Wealth  and  Income  of  the  People 
of  the  United  Slates,  pp.  249-52.     (The  Macmillan  Co.,  1915.) 


602  INDUSTRIAL  SOCIETY 

Why  are  the  employees  not  in  a  position  to  demand  a  satisfactory 
return  for  their  services?  Whose  fault  is  it?  And  the  ultimate 
blame  must  be  laid,  not  upon  their  employers,  but  upon  the  parents 
and  grandparents  of  the  workers  themselves.  Why  did  these  ances- 
tors of  the  present  generation  bring  into  the  world  children  whom  they 
could  afford  neither  to  educate  nor  to  train  for  some  occupation  the 
products  of  which  were  sufficiently  in  demand  to  make  a  living  wage 
easily  secured?  Why  indeed!  Simply  because  these  same  parents 
and  grandparents  were  either  incompttent,  ignorant,  or  unwilling  to 
restrain  their  animal  passions.  Here  we  have  an  excellent  example 
of  "visiting  the  iniquity  of  the  father  upon  the  children  unto  the  third 
and  fourth  generation."  But  this  fact  is  not  recognized  by  many  of 
the  radical  "social  uplifters"  of  the  present  day,  and,  as  a  result,  we 
hear  American  employers  and  American  society  in  general  denounced 
in  unmeasured  terms  for  misdeeds  committed  across  the  ocean  by 
men  the  most  of  whom  are  long  since  in  their  graves.  Yes,  we  should 
have  a  living  wage,  but  we  shall  not  get  it  by  demanding  that  people 
pay  for  a  limitless  supply  of  labor  which  does  not  know  how  to  produce 
the  articles  and  services  which  consumers  are  willing  to  buy.  The 
situation  may  be  remedied  by  scientific  treatment  of  the  causes  but 
never  by  bitter  invective  and  passionate  denunciation  of  those  who 
are  not  primarily  to  blame.  The  price  of  any  sort  of  labor  will  go 
up  easily  and  naturally*  enough  when  the  supply  of  that  kind  of  labor 
becomes  scarce,  and  will  go  down  when  more  laborers  appear  upon 
the  scene.  In  this  respect  labor  does  not  differ  from  wheat  or  steel 
or  cotton.  If,  therefore,  we  are  desirous  of  bettering  the  condition 
of  the  workers  in  poorly  paid  occupations,  we  must,  in  some  way, 
diminish  the  numbers  desiring  those  kinds  of  employment.  The 
wages  will  then  take  care  of  themselves. 

It  has  been  shown  that  the  per  capita  income  of  the  American 
people  has  been  increasing  steadily  and  rapidly  during  the  period 
covered  by  our  study;  that  it  now  amounts  to  the  comfortable  sum  of 
$1,500  per  family,  but  that  it  is  very  unequally  distributed;  that 
fairly  equal  distribution  is  at  present  impracticable  because  the  lower 
classes  of  our  population  have,  as  yet,  failed  to  substitute  preventive 
for  positive  checks  in  controlling  the  population  supply,  and  the 
general  elevation  of  the  standard  of  living  of  these  lower  classes  has 
been  prevented  by  the  rapid  multiplication  of  the  defective  and  in- 
competent and  the  still  more  rapid  influx  of  the  ignorant  and  unpro- 
gressive  classes  of  Europeans;  that,  as  a  result,  a  large  section  of  our 


THE  WAGE  SYSTEM  AND  THE  WORKER  603 

people  still  remains  in  poverty;  that  the  members  of  the  unskilled 
wage-earning  class  have,  during  the  last  two  decades,  been  compelled 
to^satisfy  their  needs  with  a  lower  rather  than  a  higher  real  wage;  and 
that,  in  the  meantime,  the  property-holding  classes  have  seen  their 
income  in  purchasing  power  continue  to  increase  at  a  satisfactory 
rate. 


See  also  271.  The  Standard  of  Living. 

238.    RESTRICTION  OF  IMMIGRATION1 

1.  The  general  policy  adopted  by  Congress  in  1882  of  excluding 
Chinese  laborers  should  be  continued. 

The  question  of  Japanese  and  Korean  immigration  should  be 
permitted  to  stand  without  further  legislation  so  long  as  the  present 
method  of  restriction  proves  to  be  effective. 

An  understanding  should  be  reached  with  the  British  Govern- 
ment whereby  East  Indian  laborers  should  be  effectively  prevented 
from  coming  to  the  United  States. 

2.  The  investigations  of  the  Commission  show  an  oversupply  of 
unskilled  labor  in  basic  industries  to  an  extent  which  indicates 
an  oversupply  of  unskilled  labor  in  the  industries  of  the  country 
as  a  whole,  and  therefore  demand  legislation  which  will  at  the 
present  time  restrict  the  further  admission  of  such  unskilled 
labor. 

It  is  desirable  in  making  the  restriction  that — 

a)  A  sufficient  number  be  debarred  to  produce  a  marked  effect 
upon  the  present  supply  of  unskilled  labor. 

b)  As  far  as  possible,  the  aliens  excluded  should  be  those  who 
come  to  this  country  with  no  intention  to  become  American 
citizens  or  even  to  maintain  a  permanent  residence  here,  but 
merely  to  save  enough  by  the  adoption,  if  necessary,  of  low 
standards  of  living,  to  return  permanently  to  their  home 
country.  Such  persons  are  usually  men  unaccompanied  by 
wives  or  children. 

c)  As  far  as  possible  the  aliens  excluded  should  also  be  those 
who,  by  reason  of  their  personal  qualities  or  habits,  would 
least  readily  be  assimilated  or  would  make  the  least  desirable 
citizens. 

1  Taken  from  the  Reports  of  the  Immigration  Commission,  I  (191 1),  45-48. 


6©4  INDUSTRIAL  SOCIETY 

The  following  methods  of  restricting  immigration  have  been 
suggested : 

a)  The  exclusion  of  those  unable  to  read  or  write  in  some  language. 

b)  The  limitation  of  the  number  of  each  race  arriving  each  year 
to  a  certain  percentage  of  the  average  of  that  race  arriving 
during  a  given  period  of  years. 

c)  The  exclusion  of  unskilled  laborers  unaccompanied  by  wives 
or  families. 

d)  The  limitation  of  the  number  of  immigrants  arriving  annually 
at  any  port. 

e)  The  material  increase  in  the  amount  of  money  required  to  be 
in  the  possession  of  the  immigrant  at  the  port  of  arrival. 

/)  The  material  increase  of  the  head  tax. 

g)  The  levy  of  the  head  tax  so  as  to  make  a  marked  discrimination 

in  favor  of  men,  with  families. 

All  these  methods  would  be  effective  in  one  way  or  another  in 
securing  restrictions  in  a  greater  or  less  degree.  A  majority  of  the 
Commission  favor  the  reading  and  writing  test  as  the  most  feasible 
single  method  of  restricting  undesirable  immigration. 

The  Commission  as  a  whole  recommends  restriction  as  de- 
manded by  economic,  moral,  and  social  considerations,  furnishes  in 
its  report  reasons  for  such  restriction,  and  points  out  methods  by 
which  Congress  can  attain  the  desired  result  if  its  judgment 
coincides  with  that  of  the  Commission. 

239.  THE  WINNING  OF  INDUSTRIAL  SUCCESS1 
The  reason  that  some  men  are  rich  and  some  are  poor  has  nothing 
to  do  with  their  goodness ;  a  good  man  may  be  stupid,  or  he  may  have 
an  artistic  temperament  unaccompanied  by  practical  business  sense; 
while  another  man,  just  as  honest,  may  have  foresight,  good  judg- 
ment, a  cool  head,  executive  ability,  and  great  business  sagacity. 
The  former  is  likely  to  remain  poor;  while  the  latter  may  amass  a 
great  fortune.  The  former  may  be  a  great  artist,  and,  from  the  side  of 
culture,  he  may  be  a  more  valuable  man  to  society  than  the  latter: 
it  all  depends  on  whether  we  rate  creative  art  higher  than  riches.  It  is 
no  disparagement  to  be  poor,  if  one  can  serve  society  in  other  ways 
than  by  gaining  wealth;  and  many  men  gain  wealth  who  do  nothing 
for  the  well-being  of  others  in  society.     Now,  without  attempting 

'Adapted  by  permission  from  J.  L.  Laughlin,  "Business  and  Democracy," 
Atlantic  Monthly,  CXVI  (1915),  91-92.  * 


THE  WAGE  SYSTEM  AND  THE  WORKER  605 

to  grade  the  pursuits  of  men,  whether  the  accumulation  of  wealth  is 
higher  or  lower  in  value  than  other  pursuits,  most  of  us  are  obliged 
to  face  the  practical  problem  of  income. 

By  unthinking  persons  discrimination  is  thrown  to  the  wind.  If 
they  hear  of  one  rich  man  who  is  evil,  all  rich  men  are  evil.  Without, 
any  economic  examination,  it  is  assumed  that,  if  a  man  is  rich,  it  can' 
only  be  because  he  has  got  riches  at  the  expense  of  others,  and  espe- 
cially of  his  laborers.  Hence  the  theory— already  alluded  to— that 
workmen  are  right  in  pressing  for  higher  wages  until  all  shall  become 
equally  rich.     That  is  in  essence  the  hope  of  industrial  democracy. 

Among  the  cowboys  on  a  southwestern  ranch  was  one  quiet, 
silent  fellow  of  eighteen;  he  rode  well,  knew  the  nature  of  a  cow,  took 
a  joke  on  himself  good-naturedly,  and  said  nothing.  At  the  end 
of  the  month  the  "bunch  blew  in"  the  month's  wages  at  the  saloons 
in  the  nearest  town;-  but  our  young  man,  in  a  lonesome  way,  stayed 
on  the  ranch  and  did  not  go  to  town.  He  took  the  usual  jibes,  grinned, 
and  said  nothing.  He  was  fed  and  found  on  the  ranch,  and  at  the 
end  of  the  year  he  had  $360  to  his  credit.  This  went  on  three  or 
four  years.  Suddenly  he  was  known  to  have  pre-empted  160  acres 
of  the  best  land  in  the  region;  he  built  his  shack  and  stocked  his  farm 
from  his  savings.  He  was  a  good  judge  of  horses  and  cattle,  and 
worked  indefatigably  on  his  farm— which  was  truly  his  "  savings 
bank."  In  one  year  his  wheat  sold  for  $3,500.  His  " stand"  of 
alfalfa  was  as  good  as  any  in.the  country.  He  needed  more  help  and 
employed  some  of  the  boys  he  had  known  on  the  old  ranch,  and 
paid  them  more  than  they  had  earned  in  the  saddle.  Then,  after 
having  paid  for  his  farm,  he  had  enough  to  buy  an  adjoining  160  acres 
for  cash;  he  had  a  rapidly  increasing  herd  on  the  open  range. 

In  a  very  few  years  he  became  the  owner  of  1,200  acres  of  alfalfa 
in  Texas,  apart  from  his  other  farms  and  herds.  His  annual  income 
at  one  time  some  years  ago  from  wheat  alone  was  over  $10,000. 
Then  he  invested  in  more  land,  bought  bank  stock,  helped  build  new 
railways,  and  was  in  recent  years  popularly  acclaimed  a  millionaire. 
Now,  did  this  man  gain  his  fortune  at  the  expense  of  others? 
Any  other  of  those  mad-riding,  reckless  cowboys  could  have  done  the 
same,  if  they  had  had  the  qualities  that  industrial  success  demands. 
Aye:  there's  the  rub.  Industrial  success  is  personal,  not  social. 
Society  is  not  holding  a  man  down;  the  existing  social  system  is  not 
keeping  men  at  the  bottom ;  it  is  their  own  personal  deficiencies  that 
keep  them  there.     Industrial  success  can  be  won  at  a  price;  and  the 


606  INDUSTRIAL  SOCIETY 

price  is  observance  of  the  inevitable  rules  of  the  game — namely, 
sobriety,  industry,  saving,  avoidance  of  speculation,  knowledge  of 
human  nature,  good  judgment,  common  sense,  persistence,  intelli- 
gence, and  integrity.  No  social  system  ever  keeps  a  man  down  who 
,  has  these  qualities.  Is  it  not  the  best  thing  for  the  world  to  find  out 
that  industrial  success  can  be  won  only  by  the  display  of  these  quali- 
ties? Is  it  "social  justice"  to  proclaim  to  the  thriftless  or  careless 
that  the  social  system  is  responsible  for  their  scanty  means,  and  that 
they  should  claim  a  share  in  the  wealth  of  our  rich  and  successful 
cowboy  ? 

240.    PRODUCTIVE  CO-OPERATION1 

No!  Co-operation,  considered  as  a  question  in  the  distribution 
of  wealth,  is  nothing  more  or  less  than  getting  rid  of  the  employer, 
the  entrepreneur,  the  middleman.     It  does  not  get  rid  of  the  capitalist. 

What,  then,  is  the  attitude  of  laborers  in  co-operation  ?  To  the 
employer  they  say:  You  have  performed  an  important  part  in  pro- 
duction, and  you  have  performed  it  well;  but  you  are  now  relieved. 
You  have  charged  too  high  for  your  services.  Your  annual  profits, 
taking  good  years  and  bad  together,  are  greater  than  we  need  to  pay 
-to  get  the  work  done,  if  we  will  take  the  responsibilities  of  business  on 
ourselves,  and  exercise  a  forethought,  patience,  and  pains  we  have 
had  no  call  to  exercise  while  you  were  in  charge.  Up  to  this  time  the 
state  of  the  case  has  been  this: 

1.  A  product,  varying  with  seasons  and  circumstances  multi- 
farious. 

2.  Our  wages,  fixed;  you  making  yourself  responsible  for  their 
payment,  whatever  be  the  character  of  the  season  or  the  state  of  the 
market,  yourself  receiving  nothing  till  we  are  paid. 

3.  From  a  variable  quantity  deducting  a  fixed  quantity  leaves  a 
variable  remainder,  viz.,  your  profits  fluctuating  with  good  or  bad 
fortune,  good  or  bad  management. 

Hereafter  the  state  of  the  case  will  be: 

1.  A  product,  variable,  so  long  as  the  laws  of  nature  remain  the 
same. 

2.  A  fixed  salary  paid  to  a  manager  whom  we  select,  and  to  whom 
we  make  ourselves  responsible  with  whatever  we  possess,  meanwhile 
receiving  nothing  till  he  is  paid. 

1  Taken  by  permission  from  F.  A.  Walker,  The  Wages  Question,  pp.  265-72. 
(Henry  Holt  &  Co.,  1891.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  607 


•  a  variable  result;  our  earnings,  no  longer  called  wages,  greater  in 
good  years,  smaller  in  bad  years;  greater  as  we  labor  with  zeal  and 
conduct  our  business  with  discretion,  smaller  as  we  fail  in  either 
respect. 

This  is,  in  effect,  what  the  laborers,  by  co-operation,  say  to  the 
entrepreneur.  Do  they  give  the  capitalist  his  conge  after  the  same 
fashion  ?  Do  they  assert  independence  of  him,  and  ability  to  go  along 
without  him  ?  Not  in  the  least.  Not  a  word  of  it.  Co-operation  is 
not  going  to  rid  them  of  dependence  on.  capital.  They  are  to  be  just 
as  dependent  on  the  capitalist  as  were  their  employers  whose  places 
they  aspire  to  fill.  They  know  that  they  have  just  as  much  and  just 
as  good  machinery,  just  as  abundant  and  good  materials,  as  competing 
establishments  under  entrepreneur  management.  So  far  as  they 
themselves  have  capital,  the  results  of  their  savings  out  of  past  wages, 
they  will  employ  these  and  receive  the  returns  therefrom  directly, 
instead  of  lending  it  to  the  entrepreneur  through  the  savings  bank  and 
getting  interest  therefor.  So  far  as  they  want  capital  for  their  opera- 
tions over  what  they  can  scrape  together,  they  must  go  to  the  banks 
or  to  private  lenders,  and  pay  as  high  a  price  for  its  use  as  their 
quondam  employer  was  wont  to  do;  indeed,  for  a  while  at  least, 
probably  a  higher  price,  as  their  credit  will  not  be  likely  to  be  so  good 
at  first  as  his.  And  if  co-operation  should  start  earliest,  and  make 
most  progress,  in  those  industries  where  the  amount  of  capital  required 
is  comparatively  small,  this  would  be  but  a  recognition  of  the  fact  that 
co-operation  has  no  tendency  to  free  the  laboring  class  from  any 
domination  of  capital,  of  which  complaint  may  have  been  made, -but 
that  its  sole  object  is  to  get  rid  of  the  entrepreneur. 

What,  then,  might  we  fairly  look  to  co-operation  to  accomplish  ? 

Considering  the  scheme  from  the  laborer's  point  of  view,  we  say: 

First,  to  reap  the  profits  of  the  entrepreneur,  which  are  very  large, 
large  enough  if  divided  among  the  wages  class  to  make  a  substantial 
addition  to  their  means  of  subsistence. 

Second,  to  secure  employment  independently  of  the  will  of  the 
''middleman." 

Such,  as  we  understand  the  matter,  are  the  two  economical  advan- 
tages for  which  the  wages  class  look  to  co-operation.  There  is  still 
another  advantage,  non-economical  and  therefore  not  in  our  province, 
namely,  the  getting  rid  of  the  feeling  of  dependence  and  the  securing 
of  a  higher  social  standing. 


608  INDUSTRIAL  SOCIETY 

In  addition  to  the  advantages  which  the  wages  class  have  generally 
in  contemplation  when  plans  of  co-operation  are  proposed,  the  political 
economist  sees  three  advantages  of  high  importance  which  would 
result  from  this  system  if  fairly  established. 

First:  co-operation  would,  by  the  very  terms  of  it,  obviate  strikes. 
The  employer  being  abolished,  the  workmen  being  now  self-employed, 
these  destructive  contests  would  cease.  The  industrial  " non-ego" 
disappearing,  the  industrial  egotism  which  precipitates  strikes  would 
disappear  also.  Second:  the  workman  would  be  stimulated  to  a 
greater  industry  and  greater  carefulness. 

Third :  the  workman  would  be  incited  to  frugality.  He  has  at  once 
furnished  him  the  best  possible  opportunity  for  investing  his  savings, 
namely,  in  materials  and  implements  which  he  is  himself  to  use  in 
labor. 

The  additional  considerations  that  co-operation  tends  to  improve 
the  moral,  social,  and  political  character  of  the  workman,  by  giving 
him  a  larger  stake  in  society,  making  his  remuneration  depend  more 
directly  on  his  own  conduct,  and  allowing  him  to  participate  jn  the 
deliberations  and  decisions  of  industry — these  considerations,  being 
non-economical,  belong  to  the  statesman  arid  the  moralist. 

241.    DISTRIBUTIVE  CO-OPERATION1 

The  objections  which  exist  to  productive  co-operation  do  not 
apply  with  anything  like  equal  force  to  distributive  co-operation,  so 
called  (but  which  could  more  properly  be  termed  consumptive  co- 
operation), that  is,  the  supplying  of  the  wages  class  with  the  necessaries 
of  life  through  agencies  established  and  supported  by  themselves. 

By  productive  co-operation,  workmen  seek  to  increase  their 
incomes. 

By  distributive  or  consumptive  co-operation,  they  seek  to  expend 
their  incomes  to  better  advantage.  They  no  longer  seek  to  divide 
among  themselves  the  profits  of  manufacture,  but  the  profits  of  retail 
and  perhaps  even  of  wholesale  trade. 

The  advantages  of  this  species  of  co-operation  are: 

First:  the  division  among  the  co-operators  of  the  ordinary  net 
profits  of  the  retail  trade. 

Second:  the  saving  of  all  expenses  in  the  line  of  advertising. 
The  "  union  "  store  may  be  on  a  back  street,  with  the  simplest  arrange- 

1  Adapted  by  permission  from  F.  A.  Walker,  The  Wages  Question,  pp.  283-86. 
(Henry  Holt  &  Co.,  189 1.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  609 

tents,  yet  the  associates  will  be  certain  to  go  to  it  for  their  supplies, 
ithout  invitation  through  newspapers  or  posters. 

Third:  a  great  reduction  in  the  expenses  of  handling  and  dealing 
it  goods.     Being  sure  of  their  custom,  they  can  control  it,  and  con- 
mtrate  it  into  a  few  hours  of  the  day,  or  perhaps  of  the  evening 
tolly. 

Fourth:  a  saving  of  vast  moment,  in  the  abolition  of  the  credit 
item;   involving  as  that  does  the  keeping  of  books,  the  rendering 
accounts,  and  much  solicitation  of  payment,  and,  secondly,  a 
rery  considerable  percentage  of  loss  by  bad  debts. 

Fifth:  security,  so  far  as  possible  with  human  agencies,  against 
the  frauds  in  weight  and  measure  and  in  the  adulteration  of  goods, 
which  are  perpetrated  extensively  under  the  system  of  retail  trade, 
the  poorest  customers  being  generally  those  who  suffer  most. 

The  difficulties  of  consumptive  are  fewer  and  less  severe  than  those 
of  productive  co-operation.  To  handle  and  sell  goods  is  a  much  less 
serious  business  than  to  produce  them.  When  once  marketed,  the 
contingencies  of  production  are  past,  the  quality  of  the  goods  is 
already  determined,  and  in  the  great  majority  of  cases  only  moderate 
care  is  required  to  prevent  deterioration.  Then  again,  the  profits 
of  retail  trade  are  relatively  higher,  for  the  capital  and  skill  required, 
than  the  profits  of  manufacture.  Finally  and  chiefly,  the  destination 
of  goods  is  already  practically  provided  for;  the  members  are  certain 
to  take  off  what  is  bought,  if  only  ordinary  discretion  is  used;  waste 
and  loss  are  therefore  reduced  to  the  minimum. 

242.    DEMOCRACY  IN  INDUSTRY1 

[It  should  be  noted  that  this  passage  is  not  a  statement  of  the 
author's  "remedy"  for  labor  troubles.  It  is  merely  a  statement  of  a 
conceivable  experiment  in  an  imaginary  situation  set  forth  in  full  in 
the  book  from  which  the  selection  is  taken. — Ed.] 

So  far  as  I  can  sense  the  meaning  of  the  tide  of  democracy  behind 
this  strike,  it  is  a  passionate  feeling,  reaching  deep  below  the  mental 
level  where  it  is  a  reasoned  theory,  that  our  social  agreements  have 
right  soon  got  to  make  a  place  for  three  things;  and  you  needn't  look 
far  to  find  the  pressure  for  each  of  these  three  things  behind  every 
move  the  strike  has  made. 

First — and  at  this  transition  point  out  of  the  capitalistic  aberra- 
tion into  sanity  practically  most  important— is  that  the  theories  and 

1  Taken  by  permission  from  A.  W.  Small,  Between  Eras  from  Capitalism  to 
Democracy,  pp.  379-84.     (Inter-Collegiate  Press,  1913^ 


610  INDUSTRIAL  SOCIETY 

policies  of  business  shall  frankly  recognize  the  literal  fact  of  the  operat- 
ive partnership  of  workers,  and  shall  honestly  accept  the  moral 
consequence  of  corresponding  right  to  partnership  in  control.  This 
,  reality  of  partnership  is  filling  the  minds  of  workers;  and  it  will  not 
rest  till  it  refashions  their  democracy.  The  fact  that  every  business 
is  an  organization  of  men  who  are  necessary  to  one  another  on  the 
operative  side,  foreordains  sooner  or  later  a  regime  of  partnership 
in  information,  partnership  in  influence,  partnership  in  deciding 
policies,  partnership  in  adjusting  principles  of  distribution;  an 
active  partnership  of  every  worker  in  giving  spiritual  meaning  to 
the  work;  not  merely  dumb  and  menial  partnership  in  physical 
operation. 

The  second  thing  grades  up  in  importance  with  the  first,  because 
it  is  the  most  necessary  means  to  that  end.  Because  partnership  is 
co-operation  in  getting  a  common  result;  because  the  working  partners 
in  business  are  not  cogs  but  men;  the  man-to-man  relations  in  the 
economic  process  imply  community  of  knowledge  among  the  partners 
about  the  purposes  of  the  process,  the  policies  pursued  in  promoting 
the  purposes,  and  all  the  reasons  why  these  policies,  and  not  others, 
are  the  best.  There  is  no  democracy  where  some  of  the  partners 
deny  to  other  partners  information  which  affects  the  interests  of  all. 

The  third  thing  is  merely  the  last  and  largest  look  we  can  get  at 
present  at  the  meaning  of  democracy.  What  are  we  driving  at? 
What  is  our  standard  of  value  ?  What  is  the  last  test  we  can  apply 
to  human  programmes,  to  decide  whether  they  are  wise  and  just  or 
foolish  and  selfish  ? 

The  democratic  faith  is  substantially  a  belief  in  men  as  a  standard 
of  value.  It  doesn't  quarrel  with  anyone  who  thinks  he  can  see 
beyond  human  values,  provided  that  his  assumption  of  larger  vision 
does  not  in  practice  depress  these  nearer  values.  The  most  worthful 
things  we  know  are  the  qualities  of  men,  and  their  reciprocities  with 
one  another  on  the  basis  of  a  rational  scale  of  valuation  of  the  qualities. 
The  goal  of  democracy  is  not  a  point  where  the  human  process  may  be 
supposed  to  end.  It  is  an  illimitable  development  through  conditions 
progressively  favorable  to  the  production  of  the  highest  types  and  most 
harmonious  assortment  of  human  values. 

Some  of  .these  principles  are  embodied  in  the  following  [hypo- 
thetical] memorandum  of  a  basis  of  agreement  between  a  company 
and  its  striking  employees: 


THE  WAGE  SYSTEM  AND  THE  WORKER  611 

i.  The  Company  acknowledges  the  principle  that  work  in  its  employ 
creates  an  equity  in  the  business. 

2.  Since  no  more  exact  way  to  calculate  this  equity  has  been  discovered 
than  the  adjustment  secured  by  established  business  practices,  the  Company 
holds  that  the  only  practical  method  of  giving  effect  to  Clause  i  is  co- 
operation between  the  Company  and  its  employees  in  discovering  how  the 
operations  of  the  Company  may  more  closely  apply  the  aforesaid  principle. 

3.  To  that  end  the  Company  agrees  to  designate  a  standing  committee 
of  conference,  to  act  with  a  similar  committee  of  the  employees,  in  taking 
into  consideration  all  the  affairs  of  the  Company,  particularly  everything 
affecting  the  interests  of  the  employees,  and  from  time  to  time  to  propose 
modifications  of  the  general  policies  of  the  Company,  whenever  the  con- 
ferees are  able  to  unite  on  recommendations  which  in  their  judgment  would 
tend  better  to  protect  all  the  interests  concerned. 

4.  The  Company  agrees  to  accept  any  method,  satisfactory  to  the 
employees,  of  constituting  the  membership  of  the  employees'  committee; 
provided  only  that  all  such  members  shall  be  on  the  pay  roll  of  the  Company. 

5.  The  Company  agrees  to  instruct  its  committee  to  co-operate  with  the 
employees'  committee  in  working  out  specifications  of  the  kinds  of  informa- 
tion about  the  affairs  of  the  Company  which  shall  be  put  at  the  disposal  of 
the  committee,  together  with  the  rules  which  ^shall  govern  access  of  the 
committee  to  this  information,  and  its  transmission  to  the  body  of 
employees. 

6.  The  Company  agrees  in  good  faith  to  co-operate  with  the  employees 
in  carrying  out  the  spirit  of  this  agreement,  by  adoption  of  details  which 
experience  may  from  time  to  time  show  to  be  necessary  in  order  to  give  it 
full  effect.  ^ 

243.    THE  TRADE-UNION  PROGRAM 
A1 

The  principal  expressions  of  class-consciousness  in  the  hand- 
working  classes  in  our  day  are  labor  unions  and  that  wider,  vaguer, 
more  philosophical  or  religious  movement  too  various  for  definition, 
which  is  known  as  socialism. 

Labor  unions  are  the  simpler  matter.  They  have  risen  out  of 
the  urgent  need  of  self-defense,  not  so  much  against  deliberate  aggres- 
sion as  against  brutal  confusion  and  neglect.  The  industrial  popula- 
tion has  been  tossed  about  on  the  swirl  of  economic  change  like  so 

1  Adapted  by  permission  from  C.  H.  Cooley,  Social  Organization,  pp.  285-89. 
(Charles  Scribner's  Sons,  191 2.) 


612  INDUSTRIAL  SOCIETY 

much  sawdust  on  a  river,  sometimes  prosperous,  sometimes  miserable, 
never  secure,  and  living  largely  under  degrading,  inhuman  conditions. 
Against  this  state  of  things  the  higher  class  of  artisans — as  measured 
by  skill,  wages,  and  general  intelligence — have  made  a  partly  suc- 
cessful struggle  through  co-operation  in  associations  which,  however, 
include  much  less  than  half  of  those  who  might  be  expected  to  take 
advantage  of  them.  That  they  are  an  effective  means  of  class  self- 
assertion  is  evident  from  the  antagonism  they  have  aroused. 

Besides  their  primary  function  of  group-bargaining,  which  has 
come  to  be  generally  recognized  as  essential,  unions  are  performing 
a  variety  of  services  hardly  less  important  to  their  members,  and 
serviceable  to  society  at  large.  In  the  way  of  influencing  legislation 
they  have  probably  done  more  than  all  other  agencies  together  to 
combat  child  labor,  excessive  hours,  and  other  inhuman  and  degrading 
kinds  of  work;  also  to  provide  for  safeguards  against  accident,  for 
proper  sanitation  of  factories,  and  the  like.  In  this  field  their  work 
is  as  much  defensive  as  aggressive,  since  employing  interests,  on  the 
other  side,  are  constantly  influencing  legislation  and  administration  to 
their  own  advantage. 

Their  function  as  spheres  of  fellowship  and  self-development  is 
equally  vital  and  less  understood.  To  have  a  we-feeling,  to  live 
shoulder  to  shoulder  with  one's  fellows,  is  the  only  human  life;  we 
all  need  it  to  keep  us  from  selfishness,  sensuality,  and  despair,  and  the 
hand-worker  needs  it  even  more  than  the  rest  of  us.  He  gets  from 
it  that  thrill  of  broader  sentiment,  the  same  in  kind  that  men  get  in 
fighting  for  their  country;  his  self  is  enlarged  and  enriched  and  his 
imagination  fed  with  objects  comparatively  " immense  and  eternal." 

Moreover,  the  life  of  labor  unions  and  other  class  associations, 
through  the  training  which  it  gives  in  democratic  organization  and 
discipline,  is  perhaps  the  chief  guaranty  of  the  healthy  political 
development  of  the  hand-working  class — especially  those  imported 
from  non-democratic  civilizations — and  the  surest  barrier  against 
recklessness  and  disorder.  That  their  members  get  this  training  will 
be  evident  to  anyone  who  studies  their  working,  and  it  is  not  apparent 
that  they  would  get  it  in  any  other  way.  Men  learn  most  in  acting 
for  purposes  which  they  understand  and  are  interested  in,  and  this 
is  more  certain  to  be  the  case  with  economic  aims  than  with  any  other. 

The  danger  of  these  associations  is  that  which  besets  human 
nature  everywhere — the  selfish  use  of  power.  It  is  feared  with 
reason  that  if  they  have  too  much  their  own  way  they  will  monopolize 


THE  WAGE  SYSTEM  AND  THE  WORKER  613 

opportunity  by  restricting  apprenticeship  and  limiting  the  number  of 
their  members;  that  they  will  seek  their  ends  through  intimidation 
and  violence;  that  they  will  be  made  the  instruments  of  corrupt 
leaders.  These  and  similar  wrongs  have  from  time  to  time  been 
brought  home  to  them,  and,  unless  their  members  are  superior  to  the 
common  run  of  men,  they  are  such  as  must  be  expected.  But  it 
would  be  a  mistake  to'  regard  these  or  any  other  kinds  of  injustice 
as  a  part  of  the  essential  policy  of  unions.  They  are  feeling  their 
way  in  a  human,  fallible  manner,  and  their  eventual  policy  will  be 
determined  by  what,  in  the  way  of  class  advancement,  they  find 
by  experience  to  be  practicable.  In  so  far  as  they  attempt  things 
that  are  unjust  we  may  expect  them,  in  the  long  run,  to  fail,  through 
the  resistance  of  others  and  through  the  awakening  of  their  own 
consciences.  It  is  the  part  of  other  people  to  check  their  excesses 
and  cherish  their  benefits. 

B1 

Trade  Unionism,  to  put  it  briefly,  remedies  the  defects  of  a  merely 
instinctive  Standard  of  Life.  By  interpreting  the  standard  into 
precise  and  uniform  conditions  of  employment  it  gives  every  member 
of  the  combination  a  definite  and  identical  minimum  to  stand  out  for, 
and  an  exact  measure  by  which  to  test  any  new  proposition  of  the 
employer.  The  reader  of  our  descriptions  of  the  elaborate  standard 
rates  and  piece-work  lists,  the  scales  fixing  working  hours  and  limiting 
overtime,  and  the  special  rules  for  sanitation  and  safety,  which 
together  make  up  the  body  of  Trade  Union  Regulations,  will  appreci- 
ate with  what  fervor  and  persistency  the  Trade  Unions  have  pursued 
this  object  of  giving  the  indispensable  definiteness  to  the  Standard 
of  Life  of  each  section  of  wage-earners.  And  when  we  pass  from  the 
regulations  of  Trade  Unionism  to  its  characteristic  Methods,  we  may 
now  see  how  exactly  these  are  calculated  to  remedy  the  other  short- 
comings of  the  wage-earners'  instinctive  defence.  By  the  Method  of 
Mutual  Insurance,  the  most  necessitous  workman,  who  would  other- 
wise be  the  weakest  part  of  the  position,  is  freed  from  the  pressure 
of  his  special  necessities,  and  placed  in  as  good  a  position  as  his 
fellows  to  resist  the  employer's  encroachments.  The  provision  of 
a  common  fund  enables,  in  fact,  all  the  members  alike  to  get  what  the 
economists  have  called  a  "reserve  price"  on  their  labor.    Thus,  the 

I  Taken  by  permission  from  Sidney  and  Beatrice  Webb,  Industrial  Democ- 
racy, pp.  700-702.     (Longmans,  Green  &  Co.,  1902.) 


6 14  INDUSTRIAL  SOCIETY 

bulwark  is  made  equally  strong  all  along  the  line.  But  the  Method  of 
Mutual  Insurance  also  carries  a  stage  further  this  strengthening  of  the 
weak  parts  of  the  defence.  The  money  saved  in  good  years,  when 
the  Out  of  Work  benefit  is  little  drawn  upon,  will  be  used  to  support 
the  members  in  times  of  slack  trade,  when  the  pressure  will  be  greatest. 
Thus,  the  bulwark  is  specially  strengthened  against  the  advancing 
tide.  The  Method  of  Collective  Bargaining  brings  a  new  kind  of 
support.  When  the  terms  of  the  contract  are  settled,  not  separately 
by  the  individual  workmen  concerned,  but  jointly  by  appointed 
agents  on  their  behalf,  an  additional  barrier  is  interposed  between 
the  pressure  acting  through  the  employer,  and  the  apprehensions  and 
ignorances  of  his  wage-earners.  The  conclusion  of  collective  agree- 
ments not  only  excludes,  as  we  have  explained,  the  influence  of  the 
exigencies  of  particular  workmen,  particular  firms,  or  particular 
districts,  but  it  also  gives  the  combined  manual  workers  the  invalu- 
able assistance  of  a  professional  expert  who,  in  knowledge  of  the 
trade  and  trained  capacity  for  bargaining,  may  even  be  superior  to 
the  employer  himself.  The  Method  of  Collective  Bargaining  has  the 
further  advantage  over  reliance  on  a  merely  instinctive  Standard  of 
Life  that  the  terms  can  quickly  be  raised  so  as  to  take  advantage  of 
any  time  of  rising  profits,  and  indefinitely  adjusted  so  as  to  meet 
the  requirements  of  an  ever-changing  industry.  Finally,  the  Method 
of  Legal  Enactment — the  use  of  which  by  the  workmen  demands  a 
high  degree  of  voluntary  organization,  and,  above  all,  an  expert  pro- 
fessional staff  of  salaried  officers — absolutely  secures  one  element  of 
the  Standard  of  Life  after  another  by  embodying  them  in  our  factory 
code,  and  thus  fortifies  the  workmen's  original  bulwark  by  the 
unyielding  buttress  of  the  law  of  the  land. 


See  also  251.     An  Illustration  of  the  Effect  of  Environment. 

244.    THE  PLAN  OF  THE  SOCIALIST1 

The  new  Socialists,  the  Collectivists,  will  not  honour  with  the 
name  of  Socialist  anyone  who  does  not  accept  the  whole  of  their 
programme.  The  half-way  systems  and  measures  will  not  do.  They 
say,  in  fact,  that  they  are  even  mischievous  as  tending  to  prolong 
the  present  system  of  industrial  anarchy  based  on  spoliation  and 

1  Taken  by  permission  from  William  Graham,  Socialism  New  and  Old,  pp.  9-1 1 . 
(D.  Appleton  &  Co.,  1891.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  615 

competition.  Co-operative  production  will  not  do,  even  if  State- 
aided.  It  would  prolong  the  reign  of  competition,  and  the  competi- 
tive system  must  wholly  cease. 

I  Collectivism  is,  they  say,  the  only  system  that  is  thoroughgoing, 
oherent,  and  logical,  as  opposed  to  the  different  partial  stop-gap 
^sterns— co-operation,  legislative  interference,  etc.— which  would 
e  either  wholly  futile  or  barely  temporary  palliatives.  As  opposed 
3  the  existing  system,  it  is  the  only  one  at  once  rational  and  founded 
n  justice.  The  land,  and  the  mineral  wealth  beneath  it,  should  evi- 
dently belong  to  all.  They  were  Nature's  gift  to  the  human  race,  no 
more  intended  to  be  appropriated  by  a  few  than  the  common  sunlight, 
air,  or  water.  And  in  like  manner  as  regards  the  instruments  for 
the  production  of  the  means  of  life.  In  former  times,  the  land 
did  actually  belong  to  the  community,  and  in  a  time  not  remote 
the  instruments  of  production  did  belong  to  the  workers.  It  is  not  so 
now.  The  agricultural  labourer  on  the  land  has  become  divorced 
from  ownership;  the  labourer  in  the  towns  no  longer  possesses  the 
instruments  of  his  craft.  He  is  dependent  on  the  will  and  the  employ- 
ment of  another  for  his  livelihoods  The  capital  which  enables 
the  capitalist  to  employ  him,  moreover,  is  itself  the  result  of  the 
spoliation  of  labourers  past  and  present.  These  are  great  evils,  for 
which  Collectivism  is  the  only  remedy  that  would  be  at  once  just, 
efficacious,  and  that  would  bring  finality  with  it. 

Moreover,  it  is  in  harmony  with  existing  facts  and  steadily 
growing  tendencies  all  pointing  to  it.  The  state  already  occupies,  to 
the  general  advantage  and  satisfaction,^  portion  of  the  field  of  enter- 
prise and  industry,  within  which  competition  is  abolished.  Let 
it  occupy  the  entire  field.  It  already  regulates,  and  it  tends  ever 
more  and  more  to  regulate,  the  industries  it  does  not  occupy  which 
are  carried  on  in  factories,  mines,  and  workshops.  Let  it  put  an  end 
to  the  evil  necessity  of  regulating  by  substituting  its. own  action  for 
the  private  enterprise  that  requires  so  much  regulating  to  protect 
the  labourers  or  the  public.  Let  it  organize  all  the  necessary  labour 
as  it  already  does  a  part,  and  let  it  apportion  their  shares  to  all 
according  to  the  rules  of  justice. 

[Note. — The  Socialist  party  platform  of  191 2  contains  the  follow- 
ing declaration :  "We  declare,  therefore,  that  the  longer  sufferance  of 
these  conditions  is  impossible,  and  we  purpose  to  end  them  all.  We 
declare  them  to  be  the  product  of  the  present  system  in  which  industry 
is  carried  on  for  private  greed,  instead  of  for  the  welfare  of  society. 


616  INDUSTRIAL  SOCIETY 

We  declare,  furthermore,  that  for  these  evils  there  will  be  and  can 
be  no  remedy  and  no  substantial  relief  except  through  Socialism, 
under  which  industry  will  be  carried  on  for  the  common  good  and 
every  worker  receive  the  full  social  value  of  the  wealth  he  creates."] 


See  also  13.  Structure  of  a  Possible  Socialist  State. 
112  B.  What  Mobility  Really  Involves. 

245.     SYNDICALISM1 

Syndicalism  is  as  much  a  revolt  against  socialism  as  it  is  a  repudia- 
tion of  conservative  trade  unionism.  What  the  syndicalist  wants  is 
decidedly  not  what  the  socialist  wants.  (The  syndicalist  ideal  is  not 
state  ownership  and  control  of  industry,  but  ownership  and  control  by 
the  workers  themselves."  ^The  syndicalist  is  opposed  to  government  by 
majorities  of  which  middle-class  voters,  intellectuals,  and  professional 
men  constitute  a  part.  He  has  no  room  for  " outsiders."  The 
workers  in  any  industry  are  to  take  over  the  industry  and  run  it  for 
their  own  benefit.  And  they  are  to  do  this  without  elections,  ballots, 
or  political  action.  The  syndicalists  are  for  what  they  call  "direct 
action."  By  direct  action  they  mean  strikes,  constant  warfare, 
agitation,  and  organization  against  capitalists  and  employers  as  a 
class.  Some  of  them  look  forward  to  a  great  general  strike,  to  total 
paralysis  of  capitalistic  industry,  and  to  a  sort  of  catastrophic  expro- 
priation of  the  masters.  Others  admit  that  the  general  strike  is  a 
myth,  their  idea  being  that  effective  organization  of  labor,  especially 
of  unskilled  labor,  will  render  the  great  strike  unnecessary.  Much  in 
syndicalism  is  crude,  foolish,  and  even  suicidal.  The  advocacy  of 
sabotage  (destruction  of  machinery,  crippling  of  distribution  and 
exchange,  harrying  of  employers,  etc.)  will  not  long  remain  a  feature 
of  its  programs.  Opposition  to  conciliation,  arbitration,  the  making 
and  keeping  of  contracts  with  employers,  is  also  bound  to  yield  to  the 
teaching  of  experience  pleasant  or  unpleasant.  There  is,  funda- 
mentally, no  necessary  connection  between  the  principles  and  ideals  of 
syndicalism  and  such  accidental,  temporary  excrescences  as  sabotage 
or  the  propaganda  of  hatred  and  chronic  warfare.  The  quintessence 
of  syndicalism,  in  short,  need  not  be  a  criminal  or  pathological  phe- 
nomenon. It  is,  in  reality,  reducible, to  three  things:  the  sub- 
stitution of  industrial  unionism  for  trade  unionism;    the  avoidance 

1  Adapted  by  permission  from  V.  S.  Yarros,  " Social  Science  and  'What 
Labor  Wants,'"  American  Journal  of  Sociology,  XIX  (1913-14),  312-13. 


of 


THE  WAGE  SYSTEM  AND  THE  WORKER  617 


of  political  action;  and  the  repudiation  of  state  socialism.  We  can 
easily  imagine  the  intelligent  syndicalist  saying  to  a  moderate  trade 
unionist:  "I  have  far  more  in  common  with  you  than  with  the 
socialist.  You  do  not  depend  on  the  ballot;  you  do  not  seek  to  form  a 
political  labor  party.  But  your  form  of  organization  is  ineffective ;  you 
cannot  even  strike  successfully;  and  you  live  from  hand  to  mouth." 
As  all  roads  once  led  to  Rome,  so  today,  in  social  and  economic 
thinking,  all  arguments  lead  to  one  conclusion,  namely,  that  society 
is  moving  toward  co-operative  industry  and  gradually  displacing  the 
capitalistic  or  wage  system  with  its  inevitable  division  of  employers  and 
employed  into  hostile  camps. 

H.     Are  There  Social  Classes? 

246.    THE  MECHANICAL  AND  PSYCHOLOGICAL  METHODS  OF 

DEFINITION1 

There  are  two  current  tests  or  modes  of  definition  of  classes: 
(1)  the  objective  or  mechanical;  (2)  the  subjective  or  psychological. 

From  the  objective  or  mechanical  standpoint,  classes  are  defined 
in  terms  of  wealth  or  social  position  or  occupation  or  character  of 
income  or  market  relationship. 

Thus,  we  commonly  speak  of  the  rich,  the  middle  class,  and  the 
poor;  the  leisure  class  and  the  producing  class;  the  large  capitalists 
or  captains  of  industry,  the  small  capitalists,  the  professional  class, 
the  salaried  class,  and  the  wage- working  class;  the  manufacturers, 
the  traders,  the  professionals,  and  the  workers;  the  profit- taking  or 
employing  class,  the  consumers,  and  the  wage-working  class,  etc. 

From  the  subjective  or  psychological  standpoint,  classes  are 
defined  in  terms  of  viewpoint,  i.e.,  in  terms  of  motive,  belief,  attitude, 
interest,  sympathy. 

To  illustrate  the  difference:  from  the  objective  or  mechanical 
standpoint,  all  those  who  get  their  incomes  from  interest  and  profits 
belong  to  the  employing  class;  those  who  get  their  income  from 
wages  constitute  the  working  class,  while  those  who  get  their  income 
from  neither  or  from  both  these  sources  are  sometimes  called  the 
middle  class,  sometimes  the  consuming  class. 

From  the  psychological  standpoint,  on  the  other  hand,  all  those 
who  see  their  interests  alike  or  whose  motives,  beliefs,  social  attitudes, 
and  sympathies  and  habits  of  thought  are  alike,  constitute  one  class 
as  against  those  of  different  or  opposed  ideas  of  interest  or  motives, 

1  Adapted  by  permission  from  mimeographed  readings  prepared  by  R.  F.  Hoxie 
for  his  class  in  Labor  Conditions  and  Problems. 


6i8        •  INDUSTRIAL  SOCIETY 

beliefs,  social  attitudes,  sympathies  and  habits  of  thought,  regardless  of 
their  source  of  income;  e.g.,  from  the  psychological  standpoint,  all 
those,  whatever  the  source  of  their  income,  who  feel  that  their  inter- 
ests are  identical  with  employers,  whose  motives,  beliefs,  habits  of 
thought,  social  attitudes,  and  sympathies  are  in  harmony  with  the 
mass  of  the  employers,  belong  to  the  employing  class,  while  those  who 
feel  that  their  interests  are  with  the  wage- workers  or  whose  motives, 
beliefs,  habits  of  thought,  social  attitudes,  and  sympathies  are  in 
harmony  with  the  mass  of  the  workers,  belong  to  the  laboring  class. 

But,  now,  there  are  those  who  say  that  this  is  a  distinction  without 
a  difference;  that,  at  bottom,  these  two  standpoints  are  identical, 
since  one's  view  of  his  interests  or  one's  motives,  beliefs,  habits  of 
thought,  social  attitudes,  and  sympathies  are  determined  by  his 
economic  interests  or  his  objective  environment,  e.g.,  that  one  who 
gets  his  income  from  interest  or  profits  or  who  works  as  a  profit-taker 
and  lives  among  profit-takers  will,  of  necessity,  view  his  interests  as 
in  harmony  with  the  employing  class,  and,  of  necessity,  have  the 
motives,  beliefs,  social  attitudes,  and  sympathies  of  the  employers, 
while  those  who  get  their  incomes  from  wages  will,  of  necessity,  be  in 
harmony  with  the  viewpoint  of  the  mass  of  the  workers. 

But  is  this  true,  as  a  matter  of  experience  ?  Who  have  been  the 
greatest  advocates  and  leaders  of  the  wage- workers  ?  Who  have 
been  the  greatest  opponents  of  big  business?  Who  do  most  to 
defeat  the  ends  of  organized  labor  ?  Why,  in  a  democracy,  do  we 
not  have  a  predominant  labor  party  ? 

Evidently  the  mechanical  and  psychological  viewpoints  are 
not  the  two  sides  of  the  same  thing. 

What,  then,  is  the  reason  for  this  failure  of  the  coincidence  of  the 
objective  or  mechanical  and  the  subjective  or  psychological  social 
groups  ?    There  are  mainly  two: 

i.  It  is  not  a  part  of  the  environment  of  the  individual,  e.g.,  the 
economic,  that  makes  him  what  he  is  spiritually,  but  the  total  social 
environment,  i.e.,  his  mode  and  conditions  of  getting  a  living,  plus  his 
social  relations,  his  educational,  moral,  and  religious  influences,  his 
political  affiliations,  etc. 

2.  Men  are  not  wholly  determined  in  their  attitudes,  habits  of 
thought,  and  sympathies  by  the  immediate  environment,  but  also 
by  personal  and  social  heredity  and  traditions.  They  are  bundles  of 
inherited  and  traditional  sentiments  and  impulses.  Men  carry  with 
them  into  a  new  environment  the  traditions  of  the  old. 


THE  WAGE  SYSTEM  AND  THE  WORKER  619 

There  is,  then,  a  real  distinction  between  these  standpoints  or 
;sts,  for  judging  of  the  existence  or  non-existence  of  social  classes, 
nd  it  will  make  a  great  difference  which  of  these  tests  or  standpoints 
fe  adopt,  for  the  existence  of  classes  is  apparently  much  more  easily 
proved  from  the  objective  or  mechanical  standpoint  than  from  the 
abjective  or  psychological  standpoint. 

247.    THE  CLASSICAL  AND  THE  PROGRESSIVE-UPLIFT 

POINTS  OF  VIEW1 
The  classical  economic  viewpoint  postulates  the  rational  indi- 
vidual as  the  unit  of  society.     Each  individual,  according  to  this 
iewpoint,  is  possessed  of  certain  natural  and  inalienable  rights, 
undamental  among  these  natural  and  inalienable  rights  are  private 
-operty,  free  competition  and  freedom  of  individual  contract,  non- 
tterference  with  the  natural  law  of  supply  and  demand  in  the  fixing 
prices  and  wage  rates,  the  right  of  the  employer  to  manage  his 
msiness  to  suit  himself,  and  the  right  of  the  worker  to  work  where, 
men,  and  for  whom  he  pleases. 

It  is  considered  to  be  the  sole  province  of  government  and  law 
to  uphold  these  and  correlative  rights,  thus  allowing  to  the  individual 
the  greatest  initiative  and  freedom  in  "life,  liberty,  and  the  pursuit 
of  happiness,"  so  long  as  he  does  not  interfere  with  the  natural  rights 

Bf  others.  But  any  combination  of  individuals  which  interferes  with 
hese  natural  rights,  and  especially  with  free  contract  and  competition, 
is  looked  upon  as  artificial  and  against  the  laws  of  nature.  Hence 
the  doctrine  of  laissez  faire. 

When  these  rights  are  recognized  and  upheld,  and  the  individual, 
so  long  as  he  does  not  violate  the  natural  rights  of  others,  is  allowed 
to  seek  his  own  interest  freely,  equality  of  opportunity  is  realized, 
each  individual  naturally  tends  to  subserve  the  interest  of  his  fellows, 
harmony  of  interest  prevails  in  society,  and  the  social  and  economic 
position  to  which  any  individual  may  rise  by  the  exercise  of  industry 
and  thrift  is  limited  only  by  his  abilities.  It  is  the  disregard  of 
these  rights  which  produces  the  absence  of  natural  social  harmony 
and  the  appearance  of  classes  and  class  conflict.  Such  classes  and 
conflict  are,  however,  unnatural,  artificial,  and,  in  the  long  run,  cannot 
endure. 

It  will  be  seen  that  the  fundamental  assumptions  underlying  this 
viewpoint  are:  a  natural  social  order,  resting  on  unchanging  natural 

1  Adapted  by  permission  from  mimeographed  readings  prepared  by  R.  F.  Hoxie 
for  his  class  in  Labor  Conditions  and  Problems. 


620  INDUSTRIAL  SOCIETY 

law  and  natural  rights,  existing  prior  and  superior  to  social  organiza- 
tion and  will ;  a  fixed  social  constitution  and  relationships ;  sacredness 
of  property;  the  rationality  of  human  nature,  and  the  competitive 
equality  of  individuals  aside  from  personal  differences,  which  tend 
initially  to  be  slight. 

The  progressive-uplift  viewpoint  postulates  a  fundamental  and 
ultimate  harmony  of  interests  in  society.  It  recognizes  the  present 
existence  of  social  classes  and  class  conflict,  but  regards  these  as  the 
temporary  outcome  of  lack  of  sufficient  social  interaction,  knowledge, 
and  understanding.  Science  and  democracy,  however,  are  gradually 
overcoming  these  lacks.  As  science  increases  the  knowledge  of  social 
facts,  forces,  and  relationships,  as  democracy,  especially  through 
universal  education,  develops,  and,  particularly,  as  the  practices  of 
industrial  democracy,  especially  through  collective  bargaining, 
spread,  there  evolves  a  common  social  viewpoint  and  a  real  social  will 
of  the  people  destined  to  do  away  with  classes  and  class  conflict,  and 
to  substitute  in  their  place  social  justice  and  social  harmony  in  the 
pursuit  of  general  social  well-being. 

Present  social  conflict  is  due  mainly  to  the  existence  and  mutual 
opposition  of  an  employing  and  a  working  class.  But  already  there 
is  developing  a  strong  third  party — sometimes  called  "the  people," 
sometimes  the  "consumers" — unbiased  in  its  viewpoint,  standing  for 
social  justice,  and  representing  the  true  social  will,  a  party  already 
capable,  in  ordinary  cases,  of  acting  as  mediator  and  arbiter  between 
the  warring  classes.  With  the  growth  of  knowledge  of  social  affairs 
and  the  increase  of  social  interaction  fostered  by  democracy,  this 
third  party  will  gradually  control  the  warring  classes  and  ultimately 
absorb  them.  The  social  will  will  then  be  supreme  and  social  harmony 
will  prevail.  The  attainment  of  this  end  involves  a  constant  extension 
of  social  control  in  the  form  of  legislation  and  public  opinion,  in  the 
support  of  the  weaker  warring  class — the  workers. 

The  progressive-uplift  viewpoint  rests  mainly  on  the  following 
fundamental  assumptions: 

i.  That  man  is  not  rational  but  is  capable  of  a  high  degree  of 
rationality. 

2.  That  man  is  the  product  of  his  total  social  environment  and 
inheritance. 

3.  That  increased  knowledge  and  increased  association  of  indi- 
viduals and  classes  will  produce  increased  mutual  understanding, 
sympathy,  and  harmony  of  viewpoint. 


THE  WAGE  SYSTEM  AND  THE  WORKER  621 

4.  That  a  strong  social  group  is  capable  of  freeing  itself  from 
;lass  interest  and  bias,  of  knowing  what  right,  justice,  and  welfare 
are  for  all  in  society,  and  of  thus  standing  as  an  impartial  arbiter 

stween  warring  classes. 

5.  That  social  will  is  an  expression  of  natural  law.  In  the  crasser 
itements  of  this  viewpoint,  social  will  is  regarded  as  superior  to 
itural  law  in  social  affairs. 

248.  THE  SOCIALIST  POINT  OF  VIEW1 
In  every  historical  epoch,  the  prevailing  mode  of  economic  production 
id  exchange,  and  the  social  organization  necessarily  following  from  it, 
form  the  basis  upon  which  is  built  up,  and  from  which  alone  can  be  explained, 
the  political  and  intellectual  history  of  that  epoch;  and,  consequently,  the 
whole  history  of  mankind  (since  the  dissolution  of  primitive  society,  holding 
land  in  common  ownership)  has  been  a  history  of  class  struggles,  contests 
between  exploiting  and  exploited,  ruling  and  oppressed  classes:  that 
the  history  of  these  class  struggles  forms  a  series  of  evolutions  in  which, 
nowadays,  a  stage  has  been  reached  where  the  exploited  and  oppressed 
class — the  proletariat — cannot  attain  its  emancipation  from  the  sway  of 
the  exploiting  and  ruling  class — the  bourgeoisie — without,  at  the  same 
time,  and  once  and  for  all,  emancipating  society  at  large  from  all  exploita- 
tion, oppression,  class  distinctions,  and  class  struggles. — The  Communist 
Manifesto. 

The  economic  conditions  are  regarded  as  all-important,  but 
attention  is  concentrated  on  one  means  by  which  their  influence  is 
exerted — the  formation  of  warring  classes  of  exploiting  and  exploited. 
Changes  in  the  methods  of  production  and  exchange  result  in  develop- 
ing new  classes  which  war  with  the  dominant  order,  subdue  it,  and 
are  in  turn  brought  into  conflict  with  their  victorious  successor.  In 
the  present  epoch  the  struggle  lies  between  the  bourgeoisie,  the 
exploiting  class,  and  the  proletariat,  the  exploited:  the  antagonism 
between  them  corresponds  to  the  antagonisms  which  exist  in  the 
relations  of  production  today,  between  the  social  character  of  pro- 
duction and  the  individual  character  of  appropriation  of  the  product, 
as  well  as  between  the  co-ordination  and  harmony  which  exist  in  the 
individual  factory  and  the  anarchy  which  marks  production  as  a 
whole.  This  conflict  will  prove  the  last ;  the  victory  of  the  proletariat 
will  mean  the  end  both  of  the  class  interest  and  of  the  class  struggle. 

1  Taken  by  permission  from  O.  D.  Skelton,  Socialism:  a  Critical  Analysis, 
pp.  107-8.     (Copyright  by  Hart,  Schaffner  &  Marx,  191 1.) 


622  INDUSTRIAL  SOCIETY 

Exploitation  and  the  class  struggle — these  are  the  keynotes  of  the 
doctrine. 

249.    INHERITANCE  AND  COMPETITION1 

Speaking  roughly,  we  may  call  any  persistent  social  group,  other 
than  the  family,  existing  within  a  larger  group,  a  class.  And  every 
society,  except  possibly  the  most  primitive,  is  more  or  less  distinctly 
composed  of  classes. 

Fundamental  to  all  study  of  classes  are  the  two  principles  of 
inheritance  and  of  competition,  according  to  which  their  membership 
is  determined.  The  rule  of  descent,  as  in  the  hereditary  nobility 
of  England  or  Germany,  gives  a  fixed  system,  the  alternative  to  which 
is  some  kind  of  selection — by  election  or  appointment  as  in  our 
politics ;  by  purchase,  as  formerly  in  the  British  army  and  navy ;  or  by 
the  informal  action  of  preference,  opportunity,  and  endeavor,  as  in 
the  case  of  most  trades  and  professions  at  the  present  day.  Evi- 
dently these  two  principles  are  very  much  intermingled  in  their 
working. 

Finally,  it  is  well  to  recognize  that  there  is  a  vast  sum  of  influences 
governed  by  no  ascertainable  principle  at  all,  which  go  to  assign  the 
individual  his  place  in  the  class  system.  This  is  particularly  true 
in  the  somewhat  tumultuous  changes  of  modern  life. 

When  a  class  is  somewhat  strictly  hereditary,  we  may  call  it  a  caste 
— a  name  originally  applied  to  the  hereditary  classes  of  India,  but  to 
which  it  is  common,  and  certainly  convenient,  to  give  a  wider 
meaning. 

There  seem  to  be  three  conditions  which,  chiefly,  make  for  the 
increase  or  diminution  of  the  caste  principle.  These  are,  first, 
likeness  or  unlikeness  in  the  constituents  of  the  population;  second, 
the  rate  of  social  change  (whether  we  have  to  do  with  a  settled  or  a 
shifting  system),  and,  finally,  the  state  of  communication  and  enlight- 
enment. Unlikeness  in  the  constituents,  a  settled  system,  and  a  low 
state  of  communication  and  enlightenment  favor  the  growth  of  caste, 
and  vice  versa.  The  first  provides  natural  lines  of  cleavage  and  so 
makes  it  easier  to  split  into  hereditary  groups;  the  second  gives 
inheritance  time  to  consolidate  its  power,  while  the  third  means  the 
absence  of  those  conscious  and  rational  forces  which  are  its  chief 
rivals. 

1  Adapted  by  permission  from  C.  H.  Cooley,  Social  Organization,  pp.  209-85, 
(Charles  Scrjbner's  Sons,  1912.) 


THE  WAGE  SYSTEM  AND  THE  WORKER  623 

The  most  important  sorts  of  unlikeness  in  the  constituents  of  the 

filiation  are  perhaps  three:   differences  in  race;   differences  apart 

rom  race,  due  to  immigration  or  conquest,  and  unlikeness  due  to  the 

radual  differentiation  of  social  functions  within  a  population  origi- 

illy  homogeneous. 

A  very  pertinent  question  is  that  of  the  part  which  the  hereditary 

caste  principle  is  likely  to  play  in  the  coming  life;   whether  it  is 

robable  that  caste,  other  than  that  due  to  race,  will  arise  in  modern 

society;    or  that  the  hereditary  principle  will,  to  any  degree,  have* 

increased  ascendency.     The  answer  should  probably  be  that  the 

rinciple  is  always  powerful,  and  may  gain  somewhat  as  conditions 

icome  more  settled,  but  certainly  can  never  produce  true  caste  in 

le  modern  world.     With  the  growth  of  freedom  classes  come  to  be 

lore  open,  that  is,  more  based  on  individual  traits  and  less  upon 

jscent.     Competition  comes  actively  into  play  and  more  or  less 

iciently  fulfils  its  function  of  assigning  to  each  one  an  appropriate 

)lace  in  the  whole.     This  ideal  condition  is  never  attained  on  a 

rge  scale.     In  practice  the  men  who  find  work  exactly  suited 

them  and  at  the  same  time  acceptable  to  society  are  at  the  best 

>mewhat  exceptional — though  habit  reconciles  most  of  us— and 

isses  are  never  wholly  open  or  wholly  devoted  to  the  general 

)d. 

Class-consciousness  along  these  lines  will  probably  increase  with 
growing  interest  in  the  underlying  controversies,  but  I  do  not  antici- 
pate that  this  increase  will  prove  the  dreadful  thing  which  some 
imagine.  A  "class- war"  would  indeed  be  a  calamity,  but  why 
expect  it  ?  Orderly  struggle  is  the  time-honored  method  of  adjust- 
ing controversies  among  a  free  people,  and  why  should  we  assume 
that  it  will  degenerate  into  anarchy  and  violence  at  just  this 
point  ? 

It  is  to  be  remembered,  moreover,  that  in  a  society  where  groups 
interlace  as  much  as  they  do  with  us  a  conflict  of  class  interests  is,  in 
great  degree,  not  a  conflict  of  persons  but  rather  one  of  ideas  in  a 
common  social  medium — since  many  persons  belong  to  more  than  one 
class.  The  groups  are  like  circles  which,  instead  of  standing  apart, 
interlace  with  one  another  so  that  several  of  them  may  pass  through 
the  same  individual.  Classes  become  numerous  and,  so  to  speak, 
impersonal;  that  is,  each  one  absorbs  only  a  part  of  the  life  of  the 
individual  and  does  not  sufficiently  dominate  him  to  mold  him  to  a 
special  type. 


624  INDUSTRIAL  SOCIETY 

250.    CLASS-CONSCIOUSNESS  IN  AMERICA 
A1 

First,  what  are  the  facts  about  class-consciousness  in  America 
today  ?  What  feelings,  prejudices,  judgments  affect  the  assumption 
that  "  the  struggle  for  mastery  is  necessarily  a  class  struggle,  a  struggle 
between  the  proprietary  and  non-proprietary  class?" 

American  society  is  divided,  not  into  two  classes,  but  into  scores 
©f  classes — divided  by  economic  interest,  sentiment,  temperament, 
training.  Wage-earners,  salary  receivers,  investors  are  stratified 
like  thin-bedded  rocks  in  multiple  layers.  The  engineer  receiving 
$150  a  month  is  separated  as  definitely  from  the  Italian  section-hand 
by  a  feeling  of  class  pride  and  vested  interest  in  his  high  pay  as  the 
president  of  the  road  is  separated  from  the  engineer.  Engineer  at 
$150  a  month  and  president  at  $50,000  a  year  may  conceivably  each 
be  earning  more  than  his  pay  for  the  road  he  serves;  but  each  would 
refuse  to  strike  to  aid  the  other,  and  both  have  a  "  class  consciousness  " 
that  excludes  from  their  fellowship  the  section-hand  quite  as  much  as 
the  capitalist  stockholder.  The  independent  farmer,  whose  gains 
are  little  more  than  wages  for  his  toil,  has  less  affinity  with  his  fellow- 
capitalists  who  own  coal  mines  than  with  the  harvest-hand  whom  he 
hires  to  get  in  the  crops.*  The  white  carpenter  or  bricklayer  shows 
more  class  prejudice  against  the  negro  teamster  than  the  Jewish 
banker  against  his  compatriot  tailor.  The  shop-girl  feels  herself  as 
superior  to  the  domestic  servant  as  the  servant's  mistress  feels  herself 
superior  to  the  shop-girl.  The  workman  who  owns  house  and  lot,  to 
that  extent  a  capitalist,  will  defend  his  "ewe  lamb"  as  stoutly  against 
the  sans  culottes  as  an  Astor  will  defend  his  regal  rent-roll  against  the 
workman.  Trade-union  presidents  accompany  newspaper  proprietors 
before  congressional  committees  to  seek  the  destruction  of  the  paper 
trust,  while  employees  of  the  trust  are  eager  for  its  continuance. 
Railroad  trade  unions  even  protest  against  government  regulation  of 
rates.  Russian  immigrants,  solicitous  to  keep  the  door  open  for  their 
compatriots,  tearfully  protest  when  organized  labor  proposes  to 
strengthen  its  own  position  by  restraining  immigration.  Retail 
tobacconists  have  shown  as  strong  hostility  to  the  tobacco  trust  as 
ever  did  striking  factory  hand  against  " tyrant  capitalist";  inde- 
pendent refiners  have  fought  the  Standard  Oil  Company  as  bitterly 

1  Adapted  by  permission  from  John  Martin,  "Socialism  and  the  Class  War," 
Quarterly  Journal  of  Economics,  XXIII  (1908-9),  512-17. 


THE  WAGE  SYSTEM  AND  THE  WORKER  625 

the  homestead  strikers  fought  the  Carnegie  Steel  Company;  while 
liners  have  deported  negroes  and  Chinese  from  gold  camps  as 
imorselessly  as  enraged  mine  owners  deported  rebellious  strikers. 
"All  these  antagonisms,  vividly  present  as  they  are  in  our  society, 
[pressive  of  the  judgment  of  citizens  on  their  interests,  are  based 
lpon  a  delusion,"  say  the  believers  in  the  Class  War.  "The  warring 
lements  are  ignorant  of  the  scientific  basis  of  capitalist  society  and 
re  expect  to  convince  them  that  in  reality  every  man  belongs  to  one 
>f  two  camps,  the  camp  of  the  propertied  or  the  camp  of  the  property- 
's. We  shall  unite  the  propertyless  into  one  army,  with  one  com- 
lon  purpose,  animated  by  one  common  impulse,  the  overthrow  of  the 
jver-diminishing  but  powerful  army  of  capitalists." 

Such  a  task  must  be  fraught  with  difficulties,  because,  first,  a  large 
irt  of  our  citizens  may  have  interests  in  the  two  armies  both  as 
[ploiters  and  as  workers,  and  second,  it  is  hardly  possible  to  wipe 
>ut  the  class  prejudices  depending  on  race,  color,  occupation,  and 
mtiment. 

It  is  undeniable  that  an  actual  conflict  over  wages  and  conditions 
of  labor,  a  conflict  with  truces  and  treaties,  but  no  disarmament,  is 
being  waged  between  employers  and  employees  in  many  standard 
industries.  But  the  opposite  forces  include  only  a  fraction  of  the 
people.  Of  the  twenty-four  millions  engaged  in  industry,  but  eleven 
millions  are  capitalists  or  wage-earners,  the  remainder  being  farmers, 
tenants,  professional,  commercial,  and  agent  classes.  Even  of  these 
Professor  John  R.  Commons  calculates  that  "not  more  than  six 
million  wage-earners  and  one  and  a  half  million  employers"  are  in 
actual  conflict.  Their  importance  is  out  of  proportion  to  their 
numbers  because  they  operate  fundamental  industries  such  as  rail- 
ways and  coal  mines,  and  command  strategic  industrial  points.  To 
magnify  them  into  the  whole  nation  and  base  the  expectation  of  a 
better  social  order  solely  upon  the  victory  of  the  side  numerically 
strongest  is  to  ignore  the  great  public  which  is  beginning  to  assert  its 
right  to  hold  the  balance  between  these  two  struggling  classes. 

B1 

For  a  class  struggle  to  exist  in  society  there  must  be,  first,  a  class 
inequality,  a  superior  class  and  inferior  class  (as  measured  by  power). 
If  between  these  two  classes  there  be  a  clear  and  vital  conflict  of  inter- 

1  Adapted  by  permission  from  Jack  London,  "The  Class  Struggle,"  Inde- 
pendent, LV  (1903),  2603-5. 


626  INDUSTRIAL  SOCIETY 

est,  all  the  factors  are  present  which  make  a  class  struggle;  but  this 
struggle  will  lie  dormant  if  the  strong  and  capable  members  of  the 
inferior  class  be  permitted  to  leave  that  class  and  join  the  ranks  of  the 
superior  class.  The  capitalist  class  and  the  working  class  have 
existed  side  by  side  and  for  a  long  time  in  the  United  States;  but, 
hitherto,  all  the  strong,  energetic  members  of  the  working  class  have 
been  able  to  rise  out  of  their  class  and  become  owners  of  capital. 
They  were  enabled  to  do  this  because  an  undeveloped  country  with 
an  expanding  frontier  gave  equality  of  opportunity  to  all. 

But  the  day  of  an  expanding  frontier,  of  a  lottery-like  scramble  for 
the  ownership  of  natural  resources,  and  of  the  upbuilding  of  new 
industries,  is  past.  Furthest  West  has  been  reached,  and  an  immense 
volume  of  surplus  capital  roams  for  investment  and  nips  in  the  bud 
the  patient  efforts  of  the  embryo  capitalist  to  rise  through  slow 
increment  from  small  beginnings.  The  gateway  of  opportunity  after 
opportunity  has  been  closed,  and  closed  for  all  time.  Rockefeller 
has  shut  the  door  on  oil,  the  American  Tobacco  Company  on  tobacco, 
and  Carnegie  on  steel.  After  Carnegie  came  Morgan,  who  triple- 
locked  the  door.  These  doors  will  not  open  again,  and  before  them 
pause  thousands  of  ambitious  young  men  to  read  the  placard:  No 
Thoroughfare. 

Theoretically,  then,  there  exist  in  the  United  States  all  the  factors 
which  go  to  make  a  class  struggle.  There  are  the  capitalist  and 
working  classes,  the  interests  of  which  conflict;  while  the  working  class 
is  no  longer  being  emasculated  to  the  extent  it  was  in  the  past  by 
having  drawn  off  from  it  its  best  blood  and  brains.  Its  more  capable 
members  are  no  longer  able  to  rise  out  of  it  and  leave  the  great  mass 
leaderless  and  helpless.     They  remain  to  be  its  leaders. 

When  a  million  and  more  of  men,  finding  themselves  knit  together 
by  certain  interests  peculiarly  their  own,  band  together  in  a  strong 
organization  for  the  aggressive  pursuit  of  those  interests,  it  is  evident 
that  society  has  within  it  a  hostile  and  warring  class.  But  when  the 
interests  which  this  class  aggressively  pursue  conflict  sharply  and 
vitally  with  the  interests  of  another  class,  class  antagonism  arises 
and  a  class  struggle  is  the  inevitable  result.  The  American  Federa- 
tion of  Labor  and  many  other  large  organizations  are  banded  together 
for  the  frank  purpose  of  bettering  their  condition  regardless  of  the 
harm  worked  thereby  upon  all  other  classes.  They  are  in  open 
antagonism  with  the  capitalist  class,  while  the  manifestos  of  their 
leaders  state  that  the  struggle  is  one  which  can  never  end. 


THE  WAGE  SYSTEM  AND  THE  WORKER  627 

But  the  facts  of  the  class  struggle  are  deeper  and  more  significant 
lan  have  so  far  been  presented.     A  million  or  so  of  workmen  may 

>rganize  for  the  pursuit  of  interests  which  engender  class  antagonism 
id  strife,  and  at  the  same  time  be  unconscious  of  what  is  engen- 
;red.  But  when  a  million  or  so  of  the  workmen  show  unmistakable 
tag  of  being  conscious  of  their  class,  of  being,  in  short,  "  class  con- 
ious,"  then  the  situation  grows  serious.  The  uncompromising 
id  terrible  hatred  of  the  trade  unionist  for  a  scab  is  the  hatred  of  a 
lss  for  a  traitor  to  that  class,  while  the  hatred  of  a  trade  unionist 
>r  the  militia  is  the  hatred  of  a  class  for  a  weapon  wielded  by  the 
iss  with  which  it  is  fighting.  No  workman  can  be  true  to  his  class 
id  at  the  same  time  be  a  member  of  the  militia — this  is  the  dictum 

)f  the  labor  leaders. 

251.    AN  ILLUSTRATION  OF  THE  EFFECT  OF 
ENVIRONMENT1 

Among  the  main  charges  brought  against  the  unionist  by  the 
lployer  are  these:  first,  that  he  refuses  to  recognize  the  generally 
>nceded  rights  of  the  employing  class;  secondly,  that  he  does  not 
^cognize  the  sacredness  of  contract;  thirdly,  that  while  he  is 
struggling  to  obtain  higher  wages  and  shorter  hours  of  work,  he  per- 
sistently attempts  to  reduce  the  efficiency  of  labor  and  the  extent  of 
the  output.  Assuming  these  charges  to  be  substantially  correct,  let  us 
in  the  case  of  each  seek  without  prejudice  to  discover  the  real  grounds 
of  the  laborer's  attitude. and  action. 

1.  The  "rights"  which  the  employer  claims,  and  which  the 
unionist  is  supposed  to  deny,  may  perhaps  be  summarily  expressed 
in  the  phrase  "  the  right  of  the  employer  to  manage  his  own  business." 
To  the  employer  it  is  a  common-sense  proposition  that  his  business 
is  his  own.  To  him  this  is  not  a  subject  for  argument.  It  is  a  plain 
matter  of  fact,  and  carries  with  it  the  obvious  rights  of  management 
unhampered  by  the  authority  of  outside  individuals.  So  unconscious 
and  unquestioning  indeed  is  the  employer's  acceptance  of  the  exist- 
ing order  of  things  that  he  has  come  to  regard  his  business  preroga- 
tives in  the  light  of  natural  rights.  It  is  hard,  therefore— almost 
impossible  in  fact — for  him  to  believe  that  the  unionist  laborer,  when 
he  denies  these  rights,  is  not  the  deluded  tool  of  self-seeking  and 
unscrupulous  leaders. 

1  Adapted' from  R.  F.  Hoxie,  "The  Trade-Union  Point  of  View,"  Journal 
of  Political  Economy,  XV  (1907)?  345~5°- 


628  INDUSTRIAL  SOCIETY 

The  laborer,  like  all  the  rest  of  us,  is  the  product  of  heredity  and 
environment.  That  is  to  say,  he  is  not  rational  in  the  sense  that  his 
response  to  any  given  mental  stimulus  is  invariable  and  is  uniform  with 
that  of  all  other  men.  On  the  contrary,  like  the  rest  of.  us,  he  is  a 
bundle  of  notions,  prejudices,  beliefs,  unconscious  preconceptions  and 
postulates,  the  product  of  his  peculiar  heredity  and  environment. 
These  unconscious  and  subconscious  psychic  elements  necessarily 
mix  with  and  color  his  immediate  impressions,  and  they  together 
limit  and  determine  his  intellectual  activity.  What  is  or  has  been 
outside  his  ancestral  and  personal  environment  must  be  either  alto- 
gether incomprehensible  to  him,  or  else  must  be  conceived  as  quite  like 
or  analogous  to  that  which  has  already  been  mentally  assimilated.  He 
cannot  comprehend  what  he  has  not,  or  thinks  he  has  not,  experienced. 

Now  it  is  well  known  that  the  environment  of  the  laborer  under 
the  modern  capitalistic  system  has  tended  to  become  predominantly 
one  of  physical  force.  He  has  been  practically  cut  off  from  all  knowl- 
edge of  market  and  managerial  activities.  The  ideals,  motives,  and 
cares  of  property-ownership  are  becoming  foreign  to  him.  More  and 
more,  in  his  world,  spiritual  forces  are  giving  way  to  the  apparent 
government  and  sanction  of  blind  physical  causation.  In  the  factory 
and  the  mine,  spiritual,  ethical,  customary,  and  legal  forces  and 
authorities  are  altogether  in  the  background. 

To  the  laborer,  as  the  product  of  this  environment,  the  proprietary 
and  managerial  claims  of  the  employer  tend  to  become,  of  necessity, 
simply  incomprehensible.  The  only  kind  .of  production  which  he 
can  recognize  is  the  material  outcome  of  physical  force — the  physical 
good.  Value  unattached  to  and  incommensurable  with  the  physical 
product  or  means  of  production  is  to  him  merely  an  invention  of  the 
employing  class  to  cover  up  unjust  appropriation.  He  knows  and 
can  know  nothing  about  the  capitalized  value  of  managerial  ability 
or  market  connections.  To  -him,  then,  only  the  ownership  of  the 
physical  product  and  the  physical  means  of  production  is  in  question, 
and  the  important  point  with  him  is :  By  what  physical  force  are  these 
things  made  what  they  are?  It  is  a  matter  of  simple  observation 
that  the  employer  exerts  no  direct  or  appreciable  physical  force  in 
connection  with  the  productive  process.  Therefore,  in  the  eyes  of 
the  laborer,  he  cannot  have  any  natural  rights  of  proprietorship  and 
management  based  on  productive  activity. 

In  the  same  way  all  other  grounds  on  which  ownership  and 
the   managerial   rights    of  the  employer   are  based  have  become 


THE  WAGE  SYSTEM  AND  THE  WORKER  629 

inconclusive  to  the  laborer.  Appropriation,  gift,  inheritance,  saving, 
contract,  in  themselves  do  not  produce  any  physical  effect  on  the 
only  goods  which  he  can  recognize.  Therefore  they  cannot  be  used 
prove  property  in  any  just  or  natural  sense.     They  hold  in  practice 

iimply  because  back  of  them  is  the  physical  force  of  the  police  and 
•my  established  and  maintained  by  the  middle  class  to  protect  its 

>roprietary  usurpations.     Thus  the  whole  claim  of  the  employer  to 

*ie  right  to  manage  his  own  business  to  suit  himself  has  become  and 
becoming  in  a  way  incomprehensible  to  the  laborer  on  grounds  of 
ttural  equity.     At  the  same  time,  by  virtue  of  habit  and  the  sanction 

)f  physical  force  as  a  productive  agent,  he  sees  himself  even  more 

learly  the  rightful  proprietor  of  his  job  and  of  the  products  of  it. 

Jl  this  is  the  natural  and  inevitable  outcome  of  the  conditions  under 

rhich  he  lives  and  toils. 

Undoubtedly  the  picture  drawn  here  is  too  definite  in  its  outlines. 
The  laborer  of  today  is  not  so  completely  under  the  domination  of  the 
machine  and  the  machine  process  as  I  have  assumed  him  to  be.  What 
I  have  assumed  to  be  actualities  exist  perhaps  only  as  more  or  less 
manifest  tendencies. 

2.  The  unionist  laborer  does  not  recognize  the  sacredness  of  con- 
tract. This  is,  if  anything,  a  more  serious  charge  than  the  preceding 
one.  Is  it  possible  that  a  man  who  deliberately  and  without  any 
personal  grievance  stands  ready  to  repudiate  his  contract  obligations 
can  be  acquitted  of  moral  or  intellectual  inferiority  ?  Is  it  possible 
that  he  can  be  called  reasonable,  and  that  he  deserves  to  be  dealt 
with  in  any  other  way  than  by  denunciation  or  legal  and  physical 
obstruction?  Is  it  possible  that  these  are  not  proper  and  effective 
weapons  with  which  to  recall  him  from  his  seeming  perversity  ? 

The  employer  returns  to  these  questions,  unhesitatingly,  a 
decided  negative.  In  so  doing  he  meets  with  the  approval  of  men 
generally  who  are  well  to  do  and  educated.  To  the  employer  con- 
tract is  the  obviously  necessary  basis  for  any  successful  industrial 
activity.  Violation  of  contract  is  therefore  to  him,  and  to  those 
socially  allied  to  him,  the  unpardonable  economic  sin.  Without 
doubt  it  is  rightly  so.  The  essential  business  operations  involve 
time  and  the  division  of  labor.  The  benefits  of  capitalistic  produc- 
tion, therefore — without  which  most  of  us  would  be  reduced  to  primi- 
tive penury — require  that  men  trust  their  means  in  the  hands  of 
others,  and  that  many  men  be  depended  upon  to  perform  certain 
economic  tasks  and  obligations  in  certain  definite  ways  and  at  certain 


630  INDUSTRIAL  SOCIETY 

times.  Indeed,  so  delicate  has  become  the  adjustment  of  the  modern 
productive  enterprise,  and  so  intimately  are  apparently  independent 
enterprises  related,  that  the  failure  of  a  single  individual  to  perform 
his  contract  obligation  may  possibly  involve  hundreds  of  others  in 
financial  ruin  and  the  members  of  a  whole  commonwealth  in  tempo- 
rary economic  distress.  This,  of  course,  is  in  itself  altogether  com- 
monplace. It  is  stated  here  merely  because  it  shows  why  contract 
is  and  must  be  considered  by  the  business  class  as  the  most  sacred 
of  all  economic  obligations.  The  business  man's  attitude  toward 
contract  is  the  inevitable  outcome  of  his  activity  and  environment. 
It  is  not  so  much  a  personal  virtue  with  him  as  an  evolutional  neces- 
sity. He  cannot  see  things  otherwise.  He  is  made  so  by  the  con- 
ditions of  his  life. 

As  a  matter  of  fact,  the  laborer  is  so  circumstanced  that  obligation 
to  contract  with  the  employer  must  appear  secondary  in  importance 
to  his  obligations  to  fellow- workers.  This  is  not  difficult  to  show. 
Ever  since  the  establishment  of  the  money  wage  system,  the  everyday 
experience  of  the  laborer  has  been  teaching  him  the  supreme  impor- 
tance of  mutuality  in  his  relations  with  his  immediate  fellow- workers. 
The  money  payment,  related,  not  to  the  physical  result  of  his  efforts, 
but  to  its  economic  importance,  has  been  blotting  out  for  him  any 
direct  connection  between  effort  and  reward.  Experience  has  taught 
him  to  look  upon  his  labor  as  one  thing  in  its  effects  and  another  thing 
in  its  reward.  As  a  thing  to  be  rewarded  he  has  learned  to  consider 
it  a  commodity  in  the  market.  As  such  he  knows  that  it  is  paid 
for  at  competitive  rates,  and  he  sees  that  the  sharper  the  competi- 
tion between  himself  and  his  fellows,  the  lower  the  rates  are  likely 
to  be. 

The  essential  point  is  that,  as  a  result  of  the  circumstances  under 
which  he  works,  the  laborer  actually  does  see  the  best  hope  for  his 
betterment  in  ruling  out  competition  between  himself  and  his  imme- 
diate trade  associates.  He  does  believe  that  individual  underbidding, 
if  habitually  practiced,  must  cause  the  conditions  of  employment 
to  deteriorate  and  reduce  the  wage  to  the  starvation  limit.  From  his 
viewpoint  underbidding  therefore  is  far  more  destructive  of  well- 
being  than  is  breach  of  contract  with  the  employer.  Thus  scabbing 
becomes  his  unpardonable  sin.  Beside  his  moral  duty  to  stand  by  his 
fellow- worker  against  the  scab,  standing  by  contract  with  his  employer 
becomes  relatively  unimportant.  To  him  it  seems  a  case. of  self- 
preservation  on  the  one  hand,  against  comparatively  slight  interference 


THE  WAGE  SYSTEM  AND  THE  WORKER  631 

dth  well-being  on  the  other.  Proneness  to  breach  of  contract, 
lerefore,  is  seen  to  be  a  natural  and  inevitable  outcome  of  his  life 
Ld  working  conditions.  It  is  a  thing  to  be  remedied,  if  at  all,  only  by 
mging  conditions,  and  it  is  a  thing  upon  which,  if  we  take  all  cir~ 
[instances  into  consideration,  it  is  difficult  to  found  a  charge  of  moral 
>ravity. 

The  fact  that  the  laborer  is  apt  to  accompany  his  contract-breaking 
ith  acts  of  brutality  does  not  invalidate  our  explanation,  and  need 
)t  alter  the  conclusions  which  we  have  reached.  The  laborer  cannot, 
course,  put  himself  in  the  employer's  place.  Therefore  the  hiring 
scabs  is,  from  his  viewpoint,  just  as  indicative  of  immorality  as 
rom  the  viewpoint  of  the  employer  is  breach  of  contract  by  him. 
3.  The  third  charge  against  the  unionist  which  we  have  under- 
iken  to  examine  states  that  while  he  is  struggling  for  increase 
of  wages  he  is  at  the  same  time  attempting  to  reduce  the  efficiency 
of  labor  and  the  amount  of  the  output.  In  other  words,  while 
he  is  calling  upon  the  employer  for  more  of  the  means  of  life,  he 
is  doing  much  to  block  the  efforts  of  the  employer  to  increase  those 
means. 

There  is  no  doubt  that  this  charge  is  to  a  great  extent  true. 
Unions  constantly  are  demanding  higher  wages  and  better  con- 
ditions of  employment,  coincident  with  shorter  hours,  limitation  of 
the  numbers  of  workers,  handicapping  of  machine  introduction, 
and  more  or  less  direct  restrictions  on  individual  output.  To  the 
employer,  " sanding  the  bearings"  constitutes  one  of  the  most 
aggravating  features  of  unionism.  It  is  from  his  standpoint  a  per- 
fectly clear  case  against  the  intelligence  and  right-mindedness  of  the 
unionist  laborers.  He  reasons  thus:  The  industrial  product  is  the 
industrial  dividend.  This  dividend  is  shared  among  the  productive 
factors  according  to  certain  definite  laws.  Whatever,  therefore, 
hampers  efficiency,  and  thus  limits  or  decreases  the  product,  must 
correspondingly  limit  or  diminish  the  shares.  He  honestly  believes 
that  in  matters  of  output  the  interests  of  himself  and  of  his  laborers 
are  identical.  Both  gain  by  increased  efficiency,  however  attained; 
both  lose  by  decrease  of  effort  and  output.  He  therefore  constantly 
invites  the  co-operation  of  his  workers  in  efforts  to  speed  up  the 
process  and  to  increase  the  productive  power  of  his  establishment. 
Their  refusal  to  co-operate  with  him  in  this  simply  astounds  him. 
He  cannot  understand  it  on  economic  grounds.  He  feels  that  he  has 
no  choice  'but  to  look  upon  it  as  the  result  of  stupidity  or  perversity. 


632  INDUSTRIAL  SOCIETY 

To  this  mode  of  reasoning,  and  to  the  conclusions  reached  through 
it,  the  unionist  takes  very  decided  exceptions.  To  the  statement  that 
labor' as  a  whole  stands  to  gain  through  any  increase  in  the  social 
dividend  he  returns  the  obvious  answer  that  labor  as  a  whole  is  a  mere 
academic  conception;  that  labor  as  a  whole  may  gain  while  the 
individual  laborer  starves.  His  concern  is  with  his  own  wage-rate 
and  that  of  his  immediate  fellow- workers.  He  has  learned  the  lesson 
of  co-operation  within  his  trade,  but  he  is  not  yet  class-conscious. 
In  answer  to  the  argument  based  on  the  individual  competitive 
establishment  he  asserts  that  the  conditions  which  determine  the 
income  of  the  establishment  are  not  the  same  as  those  which  govern 
the  wage-rate.  Consequently,  increase  in  the  income  of  the  estab- 
lishment is  no  guaranty  of  increase  of  the  wage-rate  of  the  worker  in 
it.  Conversely,  increase  in  the  wage-rate  may  occur  without  increase 
in  the  income  of  the  establishment.  Indeed  in  consequence  of  this 
non-identity  of  the  conditions  governing  establishment  income  and 
wage-rate,  increase  in  the  gross  income  of  the  establishment  is  often 
accompanied  by  decrease  in  the  wage-rate,  and  the  wage-rate  is  often 
increased  by  means  which  positively  decrease  the  gross  increase 
of  the  establishment. 

The  laborer's  statements  in  this  instance  are  without  doubt  well 
founded.  The  clue  to  the  whole  situation  is,  of  course,  found  in  the 
fact  that  the  wage-rate  of  any  class  of  laborers  is  not  determined 
by  the  conditions  which  exist  in  the  particular  establishment  in  which 
they  work,  but  by  the  conditions  which  prevail  in  their  trade  or  "  non- 
competing  group."  The  employers  of  the  group  bid  for  the  labor 
of  the  group  under  competitive  conditions,  and  thus  determine  the 
wage-rate  in  all  the  establishments  of  the  group.  It  is  the  group 
income,  then,  increase  or  decrease  of  which  raises  or  lowers  the  wage- 
rate  in  any  and  all  establishments;  it  is  not  the  income  in  any  par- 
ticular establishment,  or  in  industrial  society  as  a  whole,  that  is  the 
determining  factor.  With  this  commonplace  economic  argument  in 
mind,  the  reasonableness  of  the  unionist's  opposition  to  speeding 
up,  and  of  his  persistent  efforts  to  hamper  production,  at  once 
appears. 

See  also  243.    The  Trade  Union  Program. 


CHAPTER  X 

CONCENTRATION 
I.     CONCENTRATION  OF  PRODUCTION 
II.     CONCENTRATION  OF  WEALTH  AND  INCOME 

III.     CONCENTRATION  OF  PRIVATE  CONTROL  OF 
INDUSTRIAL  ACTIVITIES 


Our  study  of  modern  industrialism  has  shown  us  an  individual- 
:change-co-operative-pecuniary-specialized-interdependent- 
technological-speculative  society.  It  has  doubtless  been  evident 
from  the  discussion  that  these  adjectives  do  not  so  much  refer  to 
separate  and  distinct  features  of  our  industrial  society  as  they  do  to 
different  points  of  view  which  may  be  taken  in  studying  that  society. 
One  can  almost  say  that  each  of  these  adjectives,  taken  in  its  broadest 
sense,  includes  all  the  others. 

From  another  point  of  view,  an  outstanding  feature  of  our  indus- 
trial society  is  concentration.  The  operations  of  modern  industrialism 
and  the  control  of  those  operations  are  of  magnitudes  unknown  to 
earlier  societies.  The  term  "concentration"  has  been  adopted  as  a 
convenient  way  of  expressing  this  fact.  At  its  best,  the  term  is  a 
vague  one.  It  can  be  made  to  include  at  least  five  separable,  if  not 
separate,  ideas:  (i)  concentration  of  production,  generally  called 
large-scale  production,  which  means  large  production  by  a  given 
business  unit;  (2)  concentration  of  population,  particularly  in  cities 
and  other  industrial  districts;  (3)  concentration  of  the  ownership 
of  wealth  and  income;  (4)  concentration  of  private  control  of  indus- 
trial activities;  (5)  concentration  of  social  control  of  industrial 
activities.  For  purposes  of  convenience  in  discussion,  concentration 
of  population  is  treated  as  a  phase  of  concentration  of  production. 
This  is,  after  all,  not  far  removed  from  the  actual  situation.  Con- 
centration of  social  control  of  industrial  activities  is  not  taken  up 
for  separate  discussion.  Its  essential  features  are  discussed,  by 
implication  at  least,  in  chapter  xv,  on  "Social  Control." 

633 


634  INDUSTRIAL  SOCIETY 

I.     CONCENTRATION  OF  PRODUCTION 

A.  Problems  at  Issue 

Large-scale  production  has  increasingly  characterized  the  society 
which  is  emerging  from  the  Industrial  Revolution.  This  term  also 
is  somewhat  vague.  -  Sometimes  it  means  that  an  individual  plant 
(whether  manufacturing,  agricultural,  or  commercial)  utilizes  a 
large  amount  of  capital  (and  perhaps  of  labor  and  land).  In  certain 
lines  of  industry,  this  tendency  is  so  marked  that  there  has  been  an 
actual  diminution  in  the  number  of  separate  plants,  although  there 
has  been  a  tremendous  increase  in  output.  The  search  for  "  the  size 
of  maximum  efficiency"  in  terms  of  the  technical  processes  of  produc- 
tion explains  this  increase  in  the  size  of  the  plant.  Sometimes  large- 
scale,  production  means  that  the  massing  of  capital  (and  perhaps  labor 
and  land)  has  occurred  in  the  form  of  bringing  about  a  single  manage- 
ment of  several  plants  of  the  same  kind,  each  of  which  may  or  may 
not  have  reached  the  size  of  maximum  efficiency.  Some  writers 
refer  to  this  as  "horizontal  combination."  A  survey  of  the  economies 
of  this  type  of  large-scale  production  will  show  that  it  might  equally 
well  be  called  "large-scale  market  administration"  or  "large-scale 
business  administration,"  for  the  increase  of  size  comes  primarily 
from  economies  in  marketing  and  administration  rather  than  from 
economies  in  technical  production.  Finally,  large-scale  production 
may  refer  to  what  is  known  as  "integration  of  industry"  or  "vertical 
combination,"  which  unites  under  one  management  consecutive 
processes  which  have  formerly  been  conducted  in  independent  estab- 
lishments. This  also  might  well  be  termed  large-scale  market  admin- 
istration or  large-scale  business  administration. 

The  foregoing  paragraph  is  not  designed  to  raise  problems  of 
monopoly  control,  generally  called  "the  trust  problem."  All  the 
forms  of  large-scale  production  above  mentioned  may  be  in  existence 
without  monopoly  being  present. 

The  size  of  maximum  efficiency  may  accordingly  depend  upon 
the  technique  of  production,  upon  the  market  and  the  administration 
of  the  market,  or  upon  the  development  of  general  business  adminis- 
tration, and  all  these  factors  reach  far  back  into  the  general  social 
environment.  There  is,  therefore,  no  fixed  goal  with  respect  to  the 
size  of  maximum  efficiency.  Indeed,  the  goal  has  been,  up  to  the 
present  time,  a  rapidly  changing  one.  Our  inquiry  into  large-scale 
production  may  accordingly  wisely  be  in  terms  of  tendencies  and 


fo] 


CONCENTRATION  635 

forces  rather  than  in  terms  of  achieved  results.  What  factors  make 
for  large-scale  enterprise?  What  limitations  exist?  Are  the  ad- 
vantages or  the  disadvantages  matters  affecting  the  producer,  the 
•nsumer,  or  society  at  large  ? 

As  Weber  points  out,  the  distribution  of  population  is  largely 
>endent  upon  the  economic  organization  of  society.     It  follows  that 
le  forces  which  have  made  for  large-scale  production  have  also  made 
concentration  of  population.    The  extent  of  the  concentration 
lich  has  occurred  is  rather  readily  measurable  from  our  various 
censuses.     The  consequences  to  our  entire  social  fabric  we  are  but 

I  beginning  to  realize. 
QUESTIONS 
Distinguish1  between  large  production  and  large-scale  production. 
"Modern  demand  is  wholesale,  concentrated  demand."    What  does 
this  mean  ?    Js  it  true  ?    If  true,  does  it  explain  modern  large-scale 
production  ? 
"By  the  discontinuance  of  personal  contact  between  producer  and 
consumer,  handwork  as  a  phase  of  industry  disappears."     Explain 
why  this  discontinuance  should  cause  handwork  to  disappear.     Why 
has  the  discontinuance  occurred  ? 

4.  Biicher  cites  five  ways  in  which  the  field  of  handicraft  has  been 
diminished:  (1)  supplanting  of  handwork  by  similar  factory  produc- 
tion; (2)  curtailment  of  the  department  of  production  falling  to 
handicraft  through  factory  or  commission  business;  (3)  handicraft 
loses  its  independence  through  being  appended  to  a  large  business; 
(4)  handwork  is  impoverished  by  shifting  of  demand;  (5)  reduction 
of  handwork  to  home  and  sweat  work  through  handwork  becoming 
dependent  on  trade.     Cite  illustrations  of  each  of  these  ways. 

5.  "The  sweating  system  is  an  exception  to  the  general  trend  of  indus- 
trial organization."  Is  this  true  ?  If  true,  what  causes  have  enabled 
this  system  to  hold  out  against  the  general  trend  ? 

6.  Is  it  fortunate  or  unfortunate  for  (a)  the  worker,  (b)  society,  that 
handicraft  has  largely  disappeared  ? 

7.  The  following  have  been  listed  as  advantages  of  large-scale  produc- 
tion: (a)  handling  a  large  mass  of  goods;  (b)  purchasing  over  a  wider 
market;  (c)  securing  more  competent  and  experienced  buyers; 
(d)  greater  probability  of  regular  demand;  (e)  greater  ability  to 
bear  the  risk  of  goods  left  on  hand;  (/)  more  effective  advertising 
of  goods ;  (g)  more  competent  and  experienced  commercial  travelers ; 
(h)  greater  ease  of  securing  high  firm  reputation;  (i)  greater  variety 
of  goods  for  individual  taste;  (J)  better  utilization  of  the  principle 
of  division  of  labor  in  the  organization  of  the  business;    (k)  better 


636  INDUSTRIAL  SOCIETY 

mechanical  equipment;  (/)  cheaper  power;  (m)  better  utilization 
of  waste;  (n)  lower  charges  for  transportation;  (0)  better  financial 
arrangements;   (p)  better  managerial  ability. 

Go  through  this  list  with  the  idea  of  judging:  (1)  whether  each 
alleged  advantage  is  a  significant  one;  (2)  whether  it  is  an  advantage 
to  the  individual  manager  or  to  society;  (3)  whether  monopoly  is 
necessary  to  secure  the  advantage. 

8.  The  following  are  sometimes  claimed  to  be  advantages  of  large-scale 
production:  (a)  saving  of  cross-freights;  (0)  running  plants  to  full 
capacity;  (c)  economies  in  advertising;  (d)  utilization  of  by-products; 
(e)  saving  in  expenses  of  administration;  (/)  employment  of  high- 
grade  technological  experts  and  managers;  (g)  development  of  foreign 
markets;  (h)  use  of  highly  specialized  machinery;  (i)  control  of 
patents;   (J)  maintaining  a  private  insurance  fund. 

Consider  in  each  case  (1)  whether  the  advantage  mentioned  is  obtain- 
able by  large-scale  production  as  attained  in  a  single  large,  plant; 

(2)  whether  it  is  obtainable  by  large-scale  production  as  attained  by 
unified  control  of  several  plants  of  the  same  kind  in  different  localities ; 

(3)  whether  it  is  obtainable  through  integration  of  industry,  through 
uniting  consecutive  processes,  the  processes  being  in  different  local- 
ities or  being  all  in  one  place. 

9.  Look  through  the  alleged  advantages  cited  in  question  8,  asking  your- 
self whether  monopoly  must  be  attained  in  order  to  secure  these 
advantages. 

10.  Are  large-scale  production  and  monopoly  synonymous  ? 

11.  Give  examples  of  the  integration  of  industry  in  (a)  mining;  (b)  manu- 
facturing;   (c)  selling. 

12.  Domestic  industry  in  watchmaking  prevailed  in  Switzerland;  con- 
tractors or  capitalists  bought  the  different  parts  separately  from  the 
families  that  made  them.  Does  the  modern  factory  produce  more  ? 
More  watches  or  more  value  ?     More  per  workman  ? 

13.  Are  watches  produced  by  the  factory  cheaper  than  those  made  by 
hand  ?  If  so,  (a)  are  they  as  good  ?  (0)  must  the  wages  of  the  factory 
workman  be  lower  than  those  of  the  domestic  worker  ?  (c)  must  the 
capital  invested  be  larger  ?  Is  it  possible  for  both  labor  and  capital 
to  be  more  highly  rewarded  under  the  factory  system  than  under  the 
domestic  system  ? 

14.  Just  what  is  the  relation  of  standardization  to  large-scale  produc- 
tion ? 

15.  " Large-scale  production  permits  a  great  extension  of  the  policy  of 
specialization."     Why  or  why  not  ? 

16.  What  is  the  relation  of  indirect  costs  to  large-scale  production? 

17.  "Transportation  has  made  concentration  possible."  Do  you  agree  ? 
Has  it  been  the  only  cause  ?     "  Communication  was  the  outer  vehicle, 


CONCENTRATION  637 

Commerce  the  inner  soul,  which  gave  the  impetus  to  Centralized 
Industry."  Is  this  a  more  accurate  statement  ? 
"A  tendency  toward  uniformity  runs  through  our  age  eliminating 
the  differences  of  habits  and  customs  in  the  various  strata  of  society." 
What  factors  have  brought  about  such  a  tendency?  Are  you  sure 
the  tendency  really  exists?  Should  such  a  tendency  be  regarded 
a  result  or  a  cause  of  large-scale  production  ? 

19.  Is  it  likely  that  large  factories  will  ever  be  devoted  to  portrait  paint- 
ing ?     Give  reasons. 

20.  For  which  of  the  following  articles  is  large-scale  production  appro- 
priate: handmade  shoes;  machine-made  shoes;  jewelry;  nails; 
cut  glass;   orchids;   millinery;   mowing  machines  ? 

21.  What  particular  advantage  has  a  large  store  such  as  Marshall  Field's 
or  Wanamaker's  over  a  small  shop  ? 

22.  Is  the  mail-order  house  an  illustration  of  large-scale  production? 
What  factors  have  made  the  mail-order  house  possible?  Answer 
the  same  questions  for  the  department  store. 

23.  Generalizing  your  answers  to  the  preceding  questions,  what  classes 
of  products  are  likely  to  be  produced  on  a  large  scale  ? 

24.  The  following  list  of  factors  determining  the  scale  of  production  has 
been  made: 

a)  With  respect  to  producing  or  manufacturing: 

1.  Material 

2.  Labor 

3.  Processes 

4.  Administration 

b)  WTith  respect  to  marketing: 

1.  Extent  of  market 

2.  The  product 

3.  The  character  of  the  demand 

4.  Administration,  including  price  policies 

c)  With  respect  to  administration: 

1.  The  entrepreneur  and  his  qualities 

2.  The  form  of  organization 

3.  The  adjustments  with  the  rest  of  society 

d)  With  respect  to  certain  external  factors: 

1.  Co-operation  of  business  agencies,  e.g.,  banking,  insurance 

2.  Social  control 

Can  you  explain  the  significance  of  each  item  ? 

25.  "The  economies  which  give  to  the  large  business  an  advantage  over 
the  small  business  may  be  divided  into  two  classes:  economy  of  pro- 
ductive power  and  economy  of  competitive  power."     Explain  what 


638  INDUSTRIAL  SOCIETY 

is  meant  by  each  of  these  classes.     Does  society  gain  by  these  eco- 
nomies or  does  merely  the  business  manager  gain  ? 

26.  "The  real  limits  to  concentration  of  capital  and  labor  in  single  busi- 
nesses as  distinct  from  single  plants  are  not  to  any  large  extent  con- 
siderations of  technical  production  but  of  administration  and  of 
market."  Why  differentiate  between  single  businesses  and  single 
plants?  How  can  one  argue  that  technological  considerations  are 
not  the  limiting  factors?  Is  administration  or  is  market  the  main 
limiting  factor  ?  Are  any  structures  or  institutions  appearing  in  our 
society  to  cope  with  these  limiting  factors  ? 

27.  "The  limits  upon  the  economy  of  large-scale  business  rest  ultimately 
upon  a  law  of  diminishing  returns,  applied  not  to  the  mechanics 
but  to  the  administration  of  business."  What  is  meant  by  "dimin- 
ishing returns"  ?    Do  you  think  the  quotation  is  true  ? 

28.  Are  there  any  disadvantages  in  large-scale  production?  If  so,  are 
they  disadvantages  from  the  point  of  view  of  the  worker  ?  of  society  ? 
of  the  entrepreneur  ?  of  consumers  ? 

29.  Do  you  understand  that  all  businesses  are  destined  to  become  large- 
scale  businesses?  What  advantages,  if  any,  does  small-scale  pro- 
duction possess  for  (a)  the  worker;  (b)  the  entrepreneur;  (c)  the 
consumer;   (d)  society? 

30.  Which  advantages  of  and  which  limitations  upon  large-scale  produc- 
tion appear  most  prominently  in  (a)  the  iron  and  steel  manufacture; 
(b)  retail  trading;  (c)  dairy  farming;  (d)  job  printing;  (e)  watch 
manufacturing  ? 

31.  How  do  you  account  for  the  appearance  of  widely  different  scales 
of  production  (a)  in  different  industries  ?  (b)  within  a  single  industry  ? 
Give  examples. 

32.  Make  a  list  of  the  outstanding  features  of  modern  industrial  society, 
such  as  (a)  the  existence  of  machine  industry;  (b)  the  fact  that  it  is 
a  speculative  society;  (c)  the  pecuniary  organization  of  society,  etc. 
What  is  the  relation  of  large-scale  production  to  each  of  these  out- 
standing features  ? 

33.  "It  is,  however,  not  to  manufacture  but  to  transport  industry  that 
we  must  look  for  the  most  conspicuous  results  of  the  concentrative 
influence  of  machinery.  Next  to  transport,  the  department  of  busi- 
ness where  the  concentrative  forces  are  in  strongest  and  most  general 
operation  is  finance."     Why  should  this  be  true  ? 

34.  Suppose  that  someone  should  discover  or  invent  a  way  of  producing 
power  in  small  units  as  cheaply  as  it  could  be  produced  in  large  units, 
or  even  more  cheaply,  what  would  be  the  effect  upon  the  scale  of 
production  ? 

35.  "The  return  to  artistic  work  and  the  extension  of  small  power 
machines  are  the  two  means  of  restoring  solid  footing  and  strength 


CONCENTRATION  639 

to  the  tottering  industrial  middle  class."  Explain.  Are  these  ways 
likely  to  be  effective  ? 

"When  people  lived  largely  from  the  work  they  did  in  agriculture, 
there  was  little  need  of  large  cities."     Why  or  why  not  ? 
Why  should  it  be  said  that  the  extractive  industries  are  primarily 
dispersing  industries  and  the  distributing  and  manufacturing  indus- 
tries are  primarily  centralizing  ? 

"The  cities  that  form  the  best  sales  markets  are  those  where  trade 
routes  meet  or  toward  which  they  converge."  Why?  Give 
instances. 

39.  "Another  class  of  cities  forming  good  markets  is  found  in  cities  which 
are  collecting  and  distributing  points  in  an  exceedingly  productive 
area."     Cite  instances. 

40.  In  view  of  the  great  improvement  which  has  occurred  in  means  of 
communication  and  transportation,  how  do  you  account  for  the  fact 
that  large  cities  more  than  hold  their  own  ?  Is  it  to  be  explained  by 
custom,  by  the  gregarious  instinct,  by  the  presence  of  financial 
institutions  in  the  large  cities,  or  by  other  causes  ? 

41.  Cities  have  been  classified  as  industrial  cities  and  commercial  cities. 
Explain  the  distinction.  Are  most  cities  likely  to  be  both  industrial 
and  commercial  ? 

42.  Some  commercial  cities  are  distributing  centers  in  that  the  goods 
actually  flow  through  these  cities  to  the  consumers.  Other  cities 
are  merely  trade  or  transaction  centers  and  do  not  see  the  goods  in 
which  the  trading  occurs.  Give  examples  of  both  classes  of  cities. 
What  advantages  explain  the  existence  of  trade  or  bargaining  centers 
through  which  goods  are  not  actually  distributed  ? 

43.  "Trade  in  manufactured  goods  continues  to  cling  to  the  older  dis- 
tributing centers  long  after  it  is  possible  to  utilize  mere  transaction 
centers  and  to  make  direct  shipments."     Why? 

44.  It  is  said  that  distant  industries  are  quite  commonly  controlled  from 
bargaining  centers;  that  this  is  a  natural  consequence  of  capitalism. 
What  does  this  mean  ?  Is  it  correct  to  refer  to  this  as  another  mani- 
festation of  concentration  ? 

45.  "According  to  one  engineer,  there  are  26  factors  to  be  taken  into 
account  in  selecting  a  location  for  a  factory."  How  long  a  list  can 
you  compile  ?  What  factors  have  a  bearing  on  the  growth  of  large 
cities  ? 

46.  What  advantages  would  a  manufacturer  have  in  settling  in  a 
large  city?  What  advantages  in  settling  in  a  small  city?  in  the 
country  ? 

47.  Make  a  list  of  the  advantages  which  a  manager  will  find  in  locating 
his  plant  in  a  satellite  city.     Make  a  list  of  the  disadvantages. 


640  INDUSTRIAL  SOCIETY 

48.  Does  the  suburban  or  country  location  increase  the  social  responsi- 
bilities of  the  business  manager  ?     Why  or  why  not  ? 

49.  Would  you  characterize  New  York  as  a  commercial  city,  an  industrial 
city,  a  financial  center,  a  distributing  center,  or  a  transaction  center  ? 

50.  What  are  some  of  the  economic  and  geographic  reasons  for  the  loca- 
tion of  Pittsburgh,  Chicago,  Buffalo,  Kansas  City,  Milwaukee, 
Minneapolis,  San  Francisco,  and  New  York  ? 

51.  Draw  up  a  summary  statement  of  (a)  the  extent  to  which  concentra- 
tion of  population  has  occurred;  (b)  the  causes  of  this  concentration. 

52.  Make  a  list  of  the  problems,  social  and  economic,  which  concentra- 
tion of  people  in  large  cities  brings  about. 

B.  Large-Scale  Production 
252.    THE  DECLINE  OF  THE  HANDICRAFTS1 

Handicraft  is  yielding  place  to  other  forms  of  business,  such  as  the 
factory  and  commission  systems,  or  the  hybrid  forms  that  every  period 
of  transition  begets.  The  public  at  large  is  content  to  include  all 
involved  in  these  processes  under  the  simple  headings:  displacement 
of  handwork  by  machinery,  annihilation  of  handicraft  by  the  factory ! 
The  smaller  cost  of  production  by  machinery  is  looked  upon  as  the 
sole  cause. 

The  reduction  of  these  expressions  to  their  true  value,  and  the 
demonstration  that  a  large  part  of  the  changes  which  have  taken 
place  has  its* cause,  not  in  the  advances  of  manufacturing  technique, 
but  in  the  direction  taken  by  economic  consumption,  and  that 
so  far  as  this  is  the  case  handicraft  disappears  even  without 
machine-work  coming  into  competition  with  it — this  will  remain 
one  of. the  greatest  services  rendered  by  recent  investigators  of 
handwork.  It  will  be  necessary  first  to  present  a  summary  view 
of  these  changes  in  consumption,  since  they,  so  to  speak,  condition 
the  whole  development. 

In  the  first  place,  a  local  concentration  of  demand  has  taken  place. 
The  aggregations  of  human  beings  that  have  been  formed  in  great 
cities  in  the  course  of  the  last  half-century,  furthermore  the  standing 
armies,  the  large  state  and  municipal  institutions,  prisons,  hospitals, 
technical  schools,  etc.,  the  extensive  establishments  for  transportation, 
factories,  and  larger  undertakings  in  the  departments  of  trade,  bank- 
ing, and  insurance,  all  form  centres  of  wholesale  demand  for  industrial 

1  Adapted  by  permission  from  Carl  Bucher,  Industrial  Evolution,  pp.  191-209. 
(Henry  Holt  &  Co.,  1901.) 


CONCENTRATION  641 

products.  To  these  are  to  be  added  the  great  departmental  ware- 
houses, export  businesses,  and  co-operative  societies,  focusing  the 
demand  of  large  sections  of  the  population-  at  a  few  points.  This 
demand  they  are  no  longer  able  to  satisfy  as  customers  of  individual 
craftsmen. 

There  comes  then  as  a  second  consideration  the  many  instances  in 
which  modern  civilization  has  propounded  such  colossal  tasks  for 
industry  that  they  cannot  be  accomplished  at  all  with  the  implements 
and  methods  of  handicraft,  although  each  of  them  generally  requires 
considerable  handwork.  The  manufacture  of  a  locomotive,  of  a  steam 
crane,  of  a  rapid  press,  the  building  of  a  river  bridge  or  of  a  warship, 
the  equipment  of  a  street  railway  with  rails  and  rolling  stock  cannot 
be  carried  out  with  mere  hand  apparatus  and  manual  labour.  They 
require  immensely  powerful  mechanical  appliances,  highly  trained 
engineers,  and  craftsmen  of  exceedingly  varied  qualifications. 

But  the  demand  for  industrial  labour  has  been  not  merely  locally 
concentrated  and  condensed  to  meet  the  extensive  requirements  of 
production;    it  has  also  become  more  uniform,  and  therefore  more 
massive.     A  tendency  toward  uniformity  runs  through  our  age,  elimi- 
nating the  differences  of  habits  and  customs  in  the  various  strata  of 
society.     Characteristic  peasant  costumes  have  disappeared  down 
to  unimportant  survivals;    the  furnishing  of  the  dwelling,  of  the 
kitchen,  has  become,  it  is  true,  more  extensive,  but  likewise  more 
uniform.     Even  in  the  smallest  home  one  finds  the  petroleum  lamp, 
the  coffee-mill,  some  enamelled  cooking  utensils,  a  pair  of  framed 
photographs.     To  make  the  desired  ware  accessible  to  the  poorer 
:lasses,  it  must  be  easily  and  cheaply  produced.    If  an  article  is 
lifted  on  the  crest  of  a  wave  of  fashion,  the  demand  for  it  in  a  cheap 
!orm  advances  even  up  to  the  better  situated  grades  of  society,  and 
:hus  the  outlay  for  the  folly  of  fashion  is  made  endurable.    In  this 
Ndiy  there  arises  a  large  demand  for  cheap  goods  for  whose  manu- 
acture  the  earlier  type  of  factory  is  naturally  adapted.    Handwork 
s  for  such  too  expensive;   where  it  remains  technically  possible  it 
nust  be  extremely  specialized,   and  then  it  necessarily  loses  the 
ground  of  custom  work  from  beneath  its  feet. 

There  is  finally  another  consideration  to  be  alluded  to,  which 
>elongs  to  the  sphere  of  domestic  economy.  The  home  is  being  relieved 
nore  and  more  of  the  vestigial  elements  of  production,  and  is  restrict- 
rig  itself  to  the  regulation  of  consumption.  If  our  grandparents 
equired  a  sofa,  they  first  had  the  joiner  make  the  frame,  then 


642  INDUSTRIAL  SOCIETY 

purchased  the  leather,  the  horsehair,  and  the  feathers,  and  had  the 
upholsterer  finish  the  work  in  the  house.  The  procedure  was  similar 
for  almost  every  more  important  piece  of  work.  Today  special- 
ized work  demanding  the  whole  strength  of  each  individual,  fre- 
quently to  exhaustion,  no  longer  permits  such  a  participation 
in  production.  We  will  and  must  purchase  what  we  need  ready- 
made.  We  desire  to  be  quickly  supplied,  and  preferably  renounce 
idiosyncrasies  of  personal  taste,  rather  than  undertake  the  risk  of 
ordering  from  different  producers.  Industry  has  to  adapt  itself 
accordingly. 

The  same  evolutionary  process  also  asserts  itself  in  departments 
where  the  individual  craftsman  Jiad  been  accustomed  from  time 
immemorial  to  supply  finished  wares.  Here  again  the  modern  city 
consumer  will  no  longer  trade  directly  with  him  by  ordering  the  single 
piece  that  he  requires.  He  is  averse  to  waiting;  he  knows  that 
often  the  work  does  not  turn  out  as  desired,  and  prefers  to  choose 
and  compare  before  he  buys. 

Thus  the  craftsman  can  no  longer  remain  a  custom  worker 
even  in  those  departments  in  which  technically  he  is  fully  able 
to  cope  with  the  demands  of  production.  He  no  longer  works  on 
individual  orders,  but  exclusively  for  stock— which  formerly  he  did 
only  in  case  of  necessity.  To  reach  the  consumer  he  needs  the 
intervention  of  the  store.  By  the  discontinuance  of  personal  con- 
tact between  producer  and  consumer,  handwork  as  a  phase  of  indus- 
try disappears. 

Even  where  modern  demand  has  not  yet  appeared  as  wholesale 
concentrated  demand,  or  become  condensed  to  meet  the  necessities 
of  production  on  a  grand  scale,  it  is  universally  well  adapted,  by 
virtue  of  its  great  uniformity  and  its  emancipation  from  household 
labour,  to  localization  at  a  few  points.  The  perfected  commercial 
machinery  of  modern  times,  the  low  tariffs  for  post  and  telegraph, 
the  rapidity  and  regularity  of  freight  and  news  transportation,  the 
innumerable  means  of  advertising  and  of  making  announcements, 
afford  here  their  mighty  assistance. 

Concentrated  demand  does  not  permit  of  satisfaction  by  scattered 
production.  Along  with  the  process  of  concentration  of  demand  must 
go  a  process  of  concentration  in  the  department  of  industrial  production. 
It  is  to  this  that  handicraft  on  every  side  succumbs. 

But  this  process  is  very  complicated,  and  it  is  not  altogether  easy 
to  separate  from  one  another  the  individual  processes  of  which  it  is 


I 


CONCENTRATION  643 


composed.  We  will  nevertheless  essay  the  task,  choosing  the  fate  of 
ndwork  as  the  determining  factor  in  the  divisions  made  by  us. 
e  thus  arrive  at  the  five  following  cases: 

Supplanting  of  handwork  by  similar  factory  production. 

Curtailment  of  its  department  of  production  by  factory  or 
mmission. 

3.  Incorporation  of  handwork  with  the  large  undertaking. 

4.  Impoverishment  of  handwork  by  shifting  of  demand. 

5.  Reduction  of  handwork  by  way  of  the  warehouse  to  home  and 
eatwork. 

Several  of  these  processes  often  go  on  simultaneously.  In  our  con- 
sideration of  the  subject,  however,  we  will  keep  them  as  far  as  possible 
apart. 

1.  The  case  in  which  capitalistic  production  on  a  large  scale 
attacks  handicraft  along  its  whole  front,  in  order  to  expel  it  completely 
from  its  sphere  of  production,  is  comparatively  rare.  From  earlier 
times  we  may  mention  weaving,  clock-  and  gun-making,  and  also  the 
smaller  industries  of  the  pin-makers,  button-makers,  toolsmiths, 
card-makers,  hosiers;  from  recent  times  hat-making,  shoemaking, 
dyeing,  soap  manufacture,  rope-making,  nail-  and  cutlery-smithing, 
comb-making;  to  a  certain  extent  beer-making  and  coopering  also 
belong  to  the  list. 

For  handicraft  the  result  of  such  a  development  varies  according 
as  the  factory  product,  after  being  worn  out,  permits  repair  or  not. 
In  the  latter  case  handicraft  disappears  altogether;  in  the  former  it 
evolves  into  a  repair  trade  with  or  without  a  sale  shop.  The  repairing 
can  become  quite  superfluous  through  very  cheap  production  of  new 
wares,  as,  for  example,  with  clocks  and  shoes;  repair  would  cost 
more  than  a  new  article. 

2.  Much  more  frequently  does  the  second  group  of  evolutionary 
processes  make  its  appearance.  Here  it  is  not  a  question  of  the 
complete  loss  of  the  new  manufacture,  but  merely  of  the  curtailment 
of  the  department  of  production  falling  to  handicraft  through  factory  or 
commission  business.  The  causes  of  this  process  may  be  very  diverse. 
While  recognizing  the  impossibility  of  being  exhaustive,  we  will 
distinguish  four  of  them. 

a)  Various  handicrafts  are  fused  into  a  single  manufacturing  estab- 
lishment: for  example,  joiners,  wood-carvers,  turners,  upholsterers, 
painters,  lacquerers  into  a  furniture  factory;  wheelwrights,  smiths, 
saddlers,  glaziers  into  a  carriage  manufactory;  basket-makers,  joiners, 


644  INDUSTRIAL  SOCIETY 

wheelwrights,  saddlers,  smiths,  locksmiths,  lacquerers  into  a  baby- 
carriage  factory.  We  may  mention  further  all  kinds  of  machine- 
shops,  locomotive-  and  car-works,  piano  factories,  trunk  factories, 
billiard-table  factories,  and  also  the  establishment  for  the  production 
of  whole  factory  plants — distillery,  brewery,  sugar-refinery,  etc.  As 
a  rule  the  part  of  production  withdrawn  from  the  individual  handicraft 
through  such  ah  incorporation  forms  but  a  small  fragment  of  its 
previous  sphere  of  work  and  of  its  market.  If,  however,  such  blood- 
lettings are  frequent,  as  among  the  turners,  saddlers,  and  locksmiths, 
there  finally  remains  very  little,  and  the  handicraft  may  die  of  exhaus- 
tion. 

b)  Various  remunerative  articles  adapted  to  wholesale  production  by 
factory  or  house  industry  are  withdrawn  from  handwork.  Thus  book- 
binding has  had  to  resign  almost  its  whole  extensive  department  of 
production  to  more  than  forty  kinds  of  special  trades;  there  remains 
but  the  individual  binding  for  private  customers.  Basket-making 
has  surrendered  the  fine  wares  to  homework,  baby-carriages  and  the 
like  to  factories,  and  only  the  coarse  willow  wicker-work  remains  to 
the  handicraft.  The  locksmith  has  even  lost  the  article,  the  lock,  from 
which  he  has  his  name;  the  brush-maker,  the  manufacture  of  paint, 
tooth,  and  nail  brushes. 

c)  The  factory  takes  over  the  primary  stages  of  production.  It 
was  precisely  the  first  rough  working  of  the  material  which  demands 
the  greatest  expenditure  of  strength,  it  was  exactly  this  primary 
handling  that  suggested  the  application  of  machinery,  while  the 
finer  and  individual  shaping  of  the  product  in  the  later  states  of  pro- 
duction tempted  the  entrepreneur  but  slightly.  In  almost  all  metal 
and  wood  industries  the  raw  material  is  now  used  only  in  the  form  of 
half-manufactured  wares.  The  furriers  work  up  skins  already  pre- 
pared, the  smith  purchases  the  finished  horseshoe,  the  glazier  ready- 
made  window-frames,  the  brush-maker  cut  and  bored  wooden  parts 
and  prepared  bristles,  the  contracting  carpenter  inlaid  flooring  cut  as 
desired  and  doors  all  ready  to  hang.  At  first  such  a  loss  is  generally 
felt  by  the  handicraft  concerned  as  an  alleviation  rather  than  an 
injury.  But  still,  in  most  cases,  through  such  a  cutting  into  the  roots 
of  handwork,  not  a  few  of  the  master  craftsmen  become  superfluous. 

d)  The  appearance  of  new  raw  materials  and  methods  of  production 
better  adapted  for  manufacture  on  a  large  scale  than  those  previously 
employed  in  handwork  handicaps  the  latter  for  a  part  of  this  sphere  of 
production.     We  may  cite  among  other  instances  the  appearance  of 


CONCENTRATION  645 

e  curved  (Vienna)  furniture,  the  manufacture  of  wire  nails  and  its 
uence  on  nail-smithing,  the  wire-rope  manufacture  in  opposition  to 
e  hempen  rope,  the  invasion  by  gutta  percha  of  the  consumption 
•here  of  leather  and  linen.     The  enamelled  cooking  utensil  has 
icroached  simultaneously  upon  the  manufacture  of  pottery,  tin- 
Ming,  and  the  business  of  the  coppersmith;  and  the  invention  of 
nen  for  bookbinding  in  place  of  leather  and  parchment  has  smoothed 
the  way  for  wholesale  bookbinding  by  machinery. 

3.  We  come  now  to  those  cases  in  which  handicraft  loses  its  inde- 
pendence through  being  appended  to  a  large  business.  Every  more 
extensive  undertaking,  be  it  manufacturing,  trading,  or  a  general 
commercial  establishment,  requires  for  its  own  business  various 
kinds  of  handwork.  As  long  as  such  tasks  are  few  in  number,  they 
are  given  out  to  master  craftsmen.  But  if  they  grow  numerous  and 
regular,  it  becomes  advantageous  to  organize  a  sub-department  for 
them  within  the  walls  of  the  establishment. 

4.  Handicraft  is  impoverished  through  shifting  of  demand,  and 
entirely  ruined  through  cessation  of  demand.  Such  shiftings  have 
occurred  at  all  epochs — we  may  recall  the  use  of  parchment  and 
periwigs — but  perhaps  never  more  frequently  than  in  our  own  rapidly 
moving  times.  We  will  give  only  a  few  instances.  The  industry 
of  the  pewterer  presents  an  example.  The  pewter  plates  and  dishes 
that  were  to  be  found  in  almost  every  house  through  town  and 
country  have  passed  out  of  fashion.     In  their  place  have  come  porce- 

.  lain  and  stoneware,  and  the  pewterer 's  trade  has  thus  to  all  intents 
lost  the  very  foundation  of  its  existence.  We  may  recall,  also,  the 
shiftings  in  demand  which  the  great  revolutions  in  the  sphere  of 
travel  have  brought  about,  and  which  have  fallen  with  especial 
severity  on  the  saddler,  trunk-maker,  and  furrier. 

5.  In  a  last  group  of  instances  handicraft  comes  into  complete 
dependence  on  trade;  the  master  becomes  a  homeworker  since  his 
products  can  now  reach  the  consumers  only  through  the  store.  The 
cause  of  this  phenomenon  is  of  double  nature:  on  the  one  hand,  the 
high  rents  of  city  business  sites,  which  force  the  master  to  live  and 
pen  up  his  workshop  in  a  garret  or  a  rear  house  where  he  is  with  diffi- 
culty found,  and  where  at  no  time  is  he  sought  out  by  his  better 
customers;  on  the  other  the  inclination  of  the  public  to  buy  only 
where  a  larger  selection  is  to  be  had,  and  where  the  merchant  is 
" accommodating,"  that  is,  sends  goods  for  inspection,  takes  back, 
if  they  do  not  suit,  articles  like  brushes,  combs,  fine  basket-maker's 


646  INDUSTRIAL  SOCIETY 

wares  and  leather  goods,  small  wooden  and  metal  articles  which  in 
larger  towns  are  now  scarcely  ever  purchased  from  the  producer  or 
outside  the  fancy-goods  and  hardware  stores. 

Among  those  who  consider  handicraft  the  ideal  form  of  industrial 
activity  two  means  have  long  been  extolled  for  restoring  solid  footing 
and  strength  to  the  tottering  industrial  middle  class;  and  there  are 
many  who  still  believe  in  their  efficacy. 

The  first  is  the  return  to  artistic  work.  Efforts  of  this  kind  have 
been  diligently  fostered  for  well-nigh  twenty  years.  For  their 
encouragement  museums,  technical  schools,  and  apprentice  work- 
shops have  been  instituted.  But  experience  has  soon  taught,  and 
the  investigations  of  the  Social  Science  Club  have  confirmed  it  anew, 
that  these  efforts  have  borne  very  little  fruit  for  the  small  trader. 
Ironwork  alone  has  gained  at  a  few  points  through  the  renewed 
employment  of  wrought-iron  trellis-work,  stair  balustrades,  chande- 
liers, and  the  like.  Otherwise  all  establishments  successfully  carrying 
on  artistic  industry  are  manufacturing  businesses  of  a  large,  and 
indeed  of  the  largest,  type.  This  is  the  case,  for  example,  with  book- 
binding, art  furniture,  pottery. 

The  second  means  is  the  extension  of  small  power  machines  and  the 
electrical  transmissions  of  power  which  shall  enable  the  smallest  master 
to  obtain  the  most  important  labour-saving  machines.  Even  men 
like  Sir  William  Siemens  and  F.  Reuleaux  have  placed  the  greatest 
hopes  on  the  popularizing  of  these  technical  achievements.  These 
expectations  they  have  based  upon  the  belief  that  success  is  simply 
a  question  of  removing  the  technical  superiority  of  the  large  under- 
taking, this  superiority  resting  indeed  in  great  part  upon  the  employ- 
ment of  labour-saving  machines. 


See  also  164.    The  Industries  Best  Fitted  for  Machine  Industry. 
165.     Standardization  and  the  Machine  Process. 

253.  THE  ECONOMIC  ADVANTAGES  OF  CONCENTRATION1 
What  are  the  economic  advantages  of  manufacturing  in  a  large 
plant  and  doing  business  on  a  large  scale,  and  how  important  are  they  ? 
Different  industries  differ  among  themselves  very  greatly  in  these 
respects,  and  any  general  statement  will  need  modification  when 
applied  to  a  particular  case.     What  is  said  will  be  more  applicable 

1  Adapted  by  permission  from  .C.  R.  Van   Hise,  Concentration  and  Control, 
pp.  8-19.     (The  Macmillan  Co.,  1914.) 


to  those  groups  of  industries  which  are  better  adapted  for  concentra- 
tion. 

i.  The  handling  of  material— The  handling  of  material  on  a  large 
lie  in  itself  gives  great  economy. 

2.  The  use  of  machinery  and  departments  .—In  the  large  manu- 
:tory  it  is  possible  to  use  machinery  to  an  extent  not  possible  in  the 

ill  establishment.     The   introduction  of  labor-saving  machines 
rell  known  to  be  one  of  the  greatest  causes  of  economic  efficiency. 

3.  Subdivision  of  labor. — In  most  manufactories  an  article  must 
through  many  processes  before  it  is  completed.     Specialization  of 

labor  is  only  possible  in  the  large  manufactory,  and  it  is  generally 
agreed  that  such  specialization  gives  increased  efficiency. 

4.  Integration.— A  further  step  in  the  development  of  concentra- 
tion of  industry  is  its  integration;  that  is,  a  corporation  handles,  not 
one  stage  of  manufacture  only,  but  a  number  or  even  all  of  the  stages 
from  the  raw  material  to  the  finished  product.  This  again  gives 
increased  economy  and  efficiency,  because  all  the  different  units  of 
the  integrated  industry  are  in  harmony,  one  with  reference  to  the 
other. 

5.  Parallel  consolidation  and  specialization. — Under  these  condi- 
tions it  is  possible  to  make  the  same  product  at  the  different  plants, 
or  to  specialize  the  different  manufactories  under  the  same  organiza- 
tion so  that  one  shall  handle  one  line  of  work,  and  another  another. 
Further,  the  work  of  any  one  branch  may  become  standardized  and 
require  comparatively  little  shifting  or  changing  of  machines. 

Cross  freights  are  avoided  to  a  large  extent  when  the  manufactories 
of  one  district  supply  the  markets  of  that  district.  For  articles 
which  are  heavy  as  compared  with  their  cost,  for  instance,  salt  and 
steel  rails,  this  factor  may  be  one  of  controlling  importance. 

6.  Saving  by-products. — A  further  advantage  of  magnitude  is  the 
use  of  by-products.  The  small  manufactory  cannot  spend  much 
money  in  such  utilization,  although  the  coarser  of  them  may  be 
saved. 

7.  Consolidation  of  allied  industries. — The  final  stage  in  consolida- 
tion is  the  union  of  allied  and  connected  industries.  This  fre- 
quently goes  beyond  integration,  in  that  the  lines  of  manufacture 
are  absorbed  which  use  as  raw  material  the  by-products  of  the  central 
organization. 

8.  Keeping  establishments  up  to  date.— The  large  company  uses  only 
the  most  modern  manufactories  which  have  complete  and  highly 


648  INDUSTRIAL  SOCIETY 

efficient  machinery  and  practices,  including  the  latest  labor-saving 
devices  and  the  best  technical  improvements. 

9.  Investigating  departments. — The  large  organization  is  able 
to  have  an  investigating  department  in  order  that  discoveries  may  be 
made  for  still  further  improvements. 

10.  Business  advantages  of  concentration. — Thus  far  the  industrial 
advantages  of  concentration  only  have  been  given.  Upon  the  busi- 
ness side  there  are  also  great  economies.  Some  of  the  most  important 
of  these  are  as  follows: 

a)  Big  organizations  are  able  to  buy  in  large  quantities  and  thus 
gain  the  advantages  of  the  lowest  rates  of  purchase. 

b)  Big  organizations  are  able  to  sell  in  large  quantities  and  most 
advantageously.  A  large  part  of  the  cost  of  business  under  new 
conditions  is  the  marketing  of  products.  In  the  marketing  there  are 
great  costs  in  commercial  travelers,  in  advertisements,  etc.  With  the 
large  concentration  the  advertising  cost  per  unit  of  sale  is  much  lower 
than  with  the  small  industry. 

c)  When  there  is  a  single  great  federated  establishment,  orders 
can  be.received  at  a  central  office  and  from  that  office  distributed  to  the 
different  plants  as  best  required  by  efficiency  in  manufacture,  taking 
into  account  the  expense  of  transportation. 

d)  Also  the  mere  size  of  an  establishment,  so  that  it  may  be  able  to 
take  a  large  order  at  almost  any  time  and  fill  it  promptly,  gives  a 
great  advantage  over  smaller  concerns. 

e)  For  entering  foreign  trade  the  business  economies  of  concentra- 
tion are  undoubtedly  very  great.  Sending  agents  to  foreign  countries 
to  build  up  a  trade  for  an  industry  is  an  expensive  undertaking. 

/)  The  losses  through  poor  debts  are  less  with  large  organizations 
than  with  small  ones.  Frequently  where  there  are  many  organiza- 
tions having  keen  competition  with  a  large  number  of  traveling 
salesmen,  sales  are  made  without  careful  reference  to  the  ability  of  the 
purchaser  to  pay. 

g)  One  of  the  greatest  advantages  of  concentration  with  co- 
operation of  the  independent .  units  is  the  regulation  of  production. 
The  great  losses  are  avoided  which  result  from  investments  of  capital 
in  manufactories  which  run  only  a  portion  of  the  time  and  before 
they  shut  down  produce  more  goods  than  can  be  sold  at  a  profit. 

h)  A  less  amount  of  capital  is  necessary  in  order  to  handle  a  com- 
bined business  than  would  be  necessary  if  a  great  organization  were 
subdivided.     If  a  concern  be  fairly  independent  of  the  banks  and 


CONCENTRATION 


649 


the  necessity  to  pay  excessive  rates  of  interest,  it  must  keep  a  con- 
siderable amount  of  ready  cash  on  hand  to  handle  its  business.  A 
very  large  concern,  in  which  the  variations  in  the  demands  for  the 
different  products  compensate  for  one  another  to  some  extent  at  least, 

Hable  to  handle  its  business  with  a  relatively  small  cash  reserve. 
11.  Opportunity  for  high  order  of  ability.— It  may  be  that  a  final 
advantage  of  concentration  will  be  the  opportunity  for  the  display  of 
ability  of  the  highest  order. 

R12.  Other  advantages  of  concentration— Other  advantages  of  con- 
ntration  are  frequently  claimed.  Among  these  are:  steady  em- 
ployment of  labor,  better  wages,  better  protection  against  industrial 
accidents,  the  maintenance  of  superior  quality,  etc.  These  points 
are  not  here  introduced  as  advantages  of  concentration,  since  in 
reference  to  them  there  is  a  marked  difference  of  opinion. 

254.     CONCENTRATION  IN  MARKETING 
A1 
The  general  opinion  is  that  it  is  in  commerce  that  the  law  of  con- 
centration is  most  felt.     This,  however,  is  simply  because  it  is  in  com- 
merce, in  the  form  of  large  stores,  that  it  is  most  obvious  to  the  general 
public;  it  is  here  that  the  complaints  of  the  small  shopkeepers,  crushed 

fthe  competition  of  these  colossal  enterprises,  are  loudest. 
The  economic  superiority  of  the  large  store  is  due  to  the  following 
causes: 

1.  Economy  of  labour. — This  first  advantage  consists  mainly  in  the 
power  which  the  large  store  has  of  pushing  the  division  of  labour  to  its 
highest  point  by  creating  as  many  departments  as  there  are  classes  of 
goods.  But  it  results  also  from  the  mere  grouping  together  of  em- 
ployees. In  the  small  shop,  the  greater  part  of  the  time  is  wasted. 
There  are  often  hours  during  which  each  seller  is  unemployed.  Take, 
for  example,  a  hundred  firms,  each  employing  ten  workers.  Com- 
bine these  into  one  business;  obviously,  to  turn  over  the  same  amount 
as  did  the  hundred  houses  separately,  it  will  not  be  necessary  to  keep 
the  thousand  employees.  There  will  be  no  need  of  a  hundred  cashiers 
or  a  hundred  bookkeepers.  Each  worker,  moreover,  being  now 
able  to  work  without  stopping,  will  be  able  to  do  two  or  three  times 
as  much  as  before,  and  will  thus,  in  himself,  take  the  place  of  two  or 
three  workers. 

1  Taken  by  permission  from  Charles  Gide,  Political  Economy,  pp.  167-68. 
(D.  C.  Heath  &  Co.,  1913.) 


650  INDUSTRIAL  SOCIETY 

2.  Economy  of  space. — In  order  to  have  a  hundred  times  more 
room  in  a  shop  or  factory  it  is  not  necessary  to  occupy  a  space  a 
hundred  times  larger,  nor  to  use  a  hundred  times  more  material  in 
the  building  of  the  premises.  For,  if  the  volumes  of  two  cubes  are  to 
one  another  as  1  to  1,000,  their  surfaces  are  as  1  to  100.  Now  it  is  the 
surface  only  that  costs.  Besides,  apart  from  mathematics,  experience 
has  shown  that  neither  the  cost  of  construction  nor  the  amount  of  rent 
increases  in  direct  proportion  to  the  space  occupied.  The  smallest 
shop  in  Paris,  with  a  turnover  of  500  francs  a  day,  will  pay  6,000  to 
8,000  francs  rent.  But  the  Bon  Marche,  which  turns  over  on  an 
average  more  than  500,000  francs  a  day,  thus  doing  a  thousand  times 
more  business,  does  not  by  any  means  pay  a  thousand  times  more 
rent.  Its  rent  is  calculated  at  one  million  francs  at  most,  or  not  more 
than  the  equivalent  of  two  days'  sale. 

3*  Economy  of  capital. — The  circulating  or  working  capital  of  a 
large  shop  may  be  much  less  than  that  of  a  small  one,  in  proportion  to 
the  amount  of  business  done,  and  this  for  two  reasons: 

a)  Because,  by  buying  them  in  large  quantities  or  by  manufac- 
turing them  directly,  the  large  shop  does  not  need  to  spend  so  much 
in  obtaining  its  goods. 

b)  Because  its  money  returns  to  it  more  rapidly,  as  its  goods  lie 
only  a  few  days  or  weeks  on  the  shelves,  instead  of  months  or  years. 
It  is  clear  that  a  capital  of  a  hundred  is  equivalent  to  a  capital  of  a 
thousand,  if  it  can  be  renewed  ten  times  as  quickly.  Moreover 
the  fact  that  the  goods  will  be  fresher  and  more  up  to  date,  owing  to 
this  quick  renewal,  is  an  additional  attraction  to  the  consumer. 

c)  Lastly,  the  large  undertaking  has,  as  a  rule,  better  credit  than 
the  small,  and  obtains  its  necessary  capital  at  a  lower  rate. 

B1 

The  best  known  and  most  important  citrus  fruits  are  lemons, 
oranges,  grapefruit,  and  citrons.  There  are  two  very  important 
facts  in  connection  with  the  citrus-fruit  industry.  First,  the  produc- 
tion of  citrus  fruits  is  confined  to  a  very  limited  area,  and,  secondly, 
the  fruit  is  sold  in  all  parts  of  the  United  States  and  Canada.  These 
two  facts  have  given  rise  to  a  marketing  problem. 

1  Taken  from  C.  S.  Duncan,  "Concentration  in  the  Marketing  of  Citrus 
Fruits,"  Lessons  in  Community  and  National  Life.  Community  Leaflet  No.  20, 
pp.  17-24.     (Government  Printing  Office,  1918.) 


CONCENTRATION 


651 


found  concentrated  in  two  states,  Florida  and  California,  with  smaller 
areas  in  southern  Arizona,  Louisiana,  and  Texas.  Even  in  the  two 
banner  states  citrus-fruit  culture  is  limited  to  small  sections.     There 

(are  five  counties  in  southern  and  one  in  northern  California  that  are 
specially  adapted  to  citrus-fruit  growing.  In  Florida,  three  southern 
ounties  furnish  by  far  the  greater  part  of  the  crop.  It  has  been 
said  that  "no  other  horticultural  industry  of  equal  extent  is  so  com- 
pactly located." 

Although  the  region  of  production  for  citrus  fruits  is  compact  and 
limited  in  extent,  no  fruit  is  more  widely  distributed  as  an  article  of 
consumption.  Lemons,  oranges,  and  grapefruit  today  find  their 
way  into  practically  every  town  of  any  importance  in  the  country. 
This  is  the  more  remarkable  because  of  their  highly  perishable  nature. 
They  require  the  greatest  care  in  cultivation,  in  picking,  handling, 
packing,  and  shipping  in  order  to  reach  the  consumer  in  good  condi- 
tion. For  these  reasons  no  other  industry  presents  more  difficult 
problems  or  requires  a  more  skilful  distribution  and  marketing  of  the 
crop. 

Before  the  formation  of  the  California  Fruit  Growers'  Exchange 
the  only  way  in  which  the  growers  of  citrus  fruits  could  get  their 
products  to  market  was  through  middlemen.  These  included  brokers, 
commission  merchants,  jobbers,  soliciting  agents,  and 'local  buyers. 
But  none  of  them  proved  satisfactory.  In  the  first  place,  the 
expense  of  selling — that  is,  getting  the  fruit  from  the  producer  to 
the  consumer — was  too  high,  amounting  to  one-half,  or  more,  of 
the  price  which  the  consumer  paid  for  it.  Such  very  high  costs  for 
distribution  increased  the  final  price  so  much  as  to  reduce  demand. 
Another  difficulty  was  the  distrust  in  which  the  producer  held 
these  middlemen.  Against  the  commission  merchants  especially 
the  producer  felt  keen  resentment.  These  middlemen  acted. as  agents 
for  the  producers;  that  is,  the  growers  of  fruit  shipped  it  to  the  com- 
mission merchants,  who  were  located  in  the  large  market  centers. 
These  men  used  their  own  judgment  as  to  when  and  how  to  sell.  It 
happened  too  frequently  that  the  commission  merchants  sent  false 
reports  to  the  producer  who  sent  them  the  fruit — that  it  was  spoiled 
or  that  market  prices  were  low — and  the  producer  had  to  accept  the 
commission  man's  word,  since  he  had  no  means  of  checking  up 
these  reports.  Therefore  the  whole  group  of  middlemen  fell  under 
suspicion. 


652  INDUSTRIAL  SOCIETY 

The  most  fundamental  difficulty,  however,  was  that  the  producer 
had  no  means  of  knowing  in  what  markets  there  was  a  scarcity  and 
hence  high  prices,  and  where  there  was  an  oversupply.  He  shipped 
his  fruit  without  knowing  what  price  it  should  bring  in  the  market 
to  which  it  was  directed.  Whatever  information  he  received  regard- 
ing the  condition  of  his  fruit  and  market-prices  was  through  the 
middlemen.  Sometimes  he  even  sold  his  fruit  while  still  on  the  tree 
to  agents  of  the  commission  men.  In  short,  there  was  no  proper 
effort  to  adjust  demand  to  supply  by  either  the  middleman  or  the 
producer. 

The  producer  never  knew  how  big  a  crop  could  be  grown  profit- 
ably, because  he  had  no  way  of  forecasting  what  the  total  demand 
for  his  fruit  might  be.  There  was,  moreover,  no  incentive  for  the 
middleman  to  increase  the  general  demand  for  citrus  fruits  or  to  widen 
the  market,  for  he  had  many  other  products  to  sell.  As  a  result,  there 
would  often  be  a  total  crop  so  large  that  the  market  was  oversupplied, 
and  all  the  fruit  then  Jiad  to  be  sold  at  a  price  that  gave  the  producer 
no  profit. 

Among  the  producers  there  was  no  standard  method  of  grading 
and  packing  the  fruit.  Each  farmer  did  as  he  thought  best.  There 
was  no  organization  to  educate  the  growers  in  the  best  methods  of 
cultivation,  in  the  best  ways  to  prune  and  spray  the  orchards,  nor 
in  the  need  for  uniformity  in  grading  and  packing  the  fruit.  The 
individual  farmer  also  had  to  pay  high  freight  charges,  because  he 
usually  shipped  only  small  lots. 

To  meet  all  these  various  difficulties,  a  movement  was  begun  in 
the  early  nineties  to  organize  the  producers  of  citrus  fruit  into  co- 
operative associations.  It  was  the  purpose  of  these  associations  to 
obtain  uniform  and  good  methods  in  growing  and  handling  the  fruit 
and  to  provide  facilities  for  marketing  it.  Their  aim  was  to  cut  out 
the  middleman.  This  was  to  be  accomplished  by  building  up  an 
organization  of  growers  to  do  for  themselves  what  the  middlemen 
had  been  doing  for  them.  The  result  was  the  California  Fruit 
Growers'  Exchange. 

The  California  Fruit  Growers'  Exchange  is  composed  of  one 
central  exchange,  17  district  exchanges,  and  a  large  number  of  local 
producers'  associations.  The  central  exchange  on  the  one  hand 
represents  the  producers  and  on  the  other  directs  the  business  of 
selling.  Through  it  the  growers  and  sellers  communicate.  The 
sellers  receive  their  orders  from  the  growers  and  are  thus  controlled 


CONCENTRATION  653 

them.  Jf  one  will  think  of  a  telephone  exchange  into  which  lead 
great  many  wires  and  out  of  which  lead  a  great  many  more,  one 
"1  ,be  able  to  see  much  more  clearly  the  services  of  the  central 
change. 

In  charge  of  the  central  exchange  is  a  general  manager,  elected  by 
board  of  17  directors.  Each  director  represents  one  of  the  17 
[stricts  exchanges  scattered  through  orange-growing  regions.  Each 
district  exchange,  in  its  turn,  is  made  up  of  representatives  from 

»e  local  growers'  associations.     There  are    115  of   these  local  or 
mmunity  associations,  containing  from  40  to  200  members  each. 
There   are   now   8,000  producers   who   are  members  of   the  local 

Eciations. 
Since  the  growers  elect  the  directors  of  the  district  exchange  by 
ling  one  director  from  each  local  association,  and  the  district 
.„ianges  elect  directors  of  the  central  exchange,  who  choose  the 
manager,  it  is  clear  that  the  growers  control  the  entire  organization. 
Besides,  each  organization — local,  district,  and  central — is  a  non- 
profit corporation.  They  exist  merely  to  transact  business  for  the 
growers  and  do  not  require  a  separate  profit,  which  would  add  to  the 
price  of  the  fruit.  They  receive  only  expenses  and  the  chances  for 
profit  or  loss  go  back  to  the  growers. 

The  sales  organization  by  means  of  which  the  growers  are  able 
to  send  their  fruit  to  market  and  to  sell  it  is,  of  course,  under  the 
direction  of  the  central  exchange.  There  are  two  general  divisions, 
one  for  marketing  oranges  and  another  for  lemons.  Each  of  these  is 
in  charge  of  a  sales  manager.  The  whole  country  has  been  divided 
into  six  territorial  divisions,  each  of  which  is  looked  after  by  a  sales 
manager.  The  territorial  divisions  are  further  subdivided  into  dis- 
tricts in  the  charge  of  managers.  The  district  managers  are  located 
in  the  principal  cities  throughout  the  country.  This  co-operative 
selling  organization  stops  with  them,  -since  they  sell  to  brokers  and 
jobbers  in  those  trade  centers.  From  this  point  on  the  fruit  passes 
into  the  regular  channels  of  trade,  reaching  the  consumer  through 
retail  stores,  fruit  stores,  fruit  stands,  or  street  venders. 

From  this  survey  of  the  sales  organization  it  is  seen  that  the  control 
is  centralized  in  the  central  exchange.  Each  sales  manager  is 
responsible  to  his  superior  until  the  central  exchange  is  reached. 
Thus  the  manager  of  the  central  exchange  controls  all  sales  managers, 
but  he  is  in  turn  controlled  by  the  growers,  so  that  the  control  of  the 
entire  organization  is  in  the  growers'  hands. 


654  INDUSTRIAL  SOCIETY 

The  whole  organization  is  thoroughly  democratic  in  its  nature. 
Membership  is- voluntary.  A  grower  may  withdraw  from  an  asso- 
ciation at  the  end  of  the  year,  an  association  may  withdraw  from  a 
district  exchange,  and  the  district  exchange  may  withdraw  from  the 
central  exchange.  The  grower  exercises  control  over  all  matters. 
No  sale  of  his  fruit  is  ever  made  without  his  direct  consent.  At 
any  transfer  point  along  the  railroad  he  may  order  the  car  of  fruit 
diverted  from  its  original  destination  to  a  better  market,  upon 
the  basis  of  later  news  received  by  him  through  the  sales  organi- 
zation. The  sales  manager  is  thus  only  the  agent  of  the  grower, 
can  sell  only  at  his  command,  and  his  interests  are  the  same  as  the 
grower's  interest;  the  higher  the  price  the  more  prosperous  they 
all  are. 

By  means  of  the  daily  telegraphic  reports  which  the  central 
exchange  receives  from  its  sales  managers  it  knows  the  price  of  oranges, 
lemons,  and  grapefruit  in  the  important  markets  all  over  the  country. 
This  information,  sent  on  to  the  growers  through  the  daily  bulletins, 
makes  it  possible  for  them  to  adjust  the  supply  to  suit  conditions 
everywhere.  There  can  be  no  glut  in  one  market  and  at  the  same 
time  a  shortage  at  another.  In  addition,  there  can  be  no  deception 
by  dishonest  dealers,  for  the  producer  now  markets  his  fruit  through 
his  own  representative,  and  he  is  kept  fully  informed  of  market  prices 
and  changes  everywhere. 

For  22  years  the  California  Fruit  Growers'  Exchange  has  carried 
on  its  work  with  marked  success,  especially  in  the  past  decade.  In 
19 16  it  handled  67  per  cent  of  the  citrus-fruit  crop  of  California. 
There  are  about  40  other  co-operative  associations  and  grower-shipper 
associations  dealing  in  citrus  fruit.  Together  these  handle  about 
85  per  cent  of  the  entire  crop. 

This  system  of  marketing  has  greatly  reduced  the  cost  of  dis- 
tributing citrus  fruit,  has  brought  about  uniform  and  scientific 
methods  of  grading,  and  has  developed  varieties  that  ripen  throughout 
the  year.  It  has  obtained  lower  freight  rates  through  enabling  growers 
to  join  together  and  ship  a  carload  at  a  time.  It  has  offered  a  better 
fruit  to  the  consumer  at  a  lower  price  than  ever  before.  Thus  the 
growers,  while  retaining  their  independence  of  will  and  action,  gain 
all  the  advantages  and  economies  of  large-scale  distribution.  By 
means  of  centralization  in  a  co-operative  exchange  they  can  meet 
the  buyers  in  the  market  on  equal  terms  without  losing  a  whit  of 
their  individuality  and  independence. 


CONCENTRATION 


tss 


See  also  74 
172 
173 


Early  Large-Scale  Production. 

Costs  in  Machine  Industry. 

The  Importance  of  Added  Business  in  Machine 
Industry. 
174.  Simple  versus  Complex  Industry. 
294.  Concentration  among  the  Railroads. 

296.  Control  of  Money  and  Credit  (A  Reply). 

297.  Some  Advantages  of  Concentration. 

RELATIVE  INCREASE  OF  CAPITAL  AND  EMPLOYEES  IN 
MANUFACTURING1 

All  Manufactures  in  the  United  States 


1850 

i860 

1870 

1880 

1890 

1900 

1910 

Percent- 
age 

Increase 
1910 
over 
1850 

Average  per  es- 
tablishment 

Product 

Capital 

Number  of 
employees 

$8,280 
4.33o 

7-7 

$13,420 
7,190 

9-3 

$13,420 
6,720 

8.1 

$21,100 
10,960 

10.6 

$28,070 
19,020 

13-8 

$25,418 
19,269 

10.4 

$76,993 
68,638 

25.0 

830 
1,485 

225 

Iron  and  Steel 

1850 

i860 

1870 

1880 

1890 

1900 

1910 

Percent- 
age 

Increase 
1910 
over 
1850 

Number  of  es- 
tablishments 

Average  prod- 
uct  

Average  capital 

Average  num- 
ber of  em- 
ployees  

468 

$43,600 
46,700 

53 

542 
$97,ooo 

8#2,000 

65 

726 

$275,000 
161, 00b 

103 

699 

$419,000 
295,000 

*97 

699 

$683,000 
591,000 

250 

668 

$1,203,500 
858,000 

333 

654 

$2,119,000 
2,282,000 

426 

40 

4,76o 
4,787 

704 

256.    THE  LIMITS  OF  CONCENTRATION  IN  MODERN 
BUSINESS2 

How  far  can  we  trace  in  modern  industry  a  general  tendency  to  the 
formation  of  larger  business-units  in  which  capital  plays  a  relatively 
more  important  part  than  labour  ? 

1  From  Materials  for  the  Study  of  Elementary  Economics,  edited  by  L.  C. 
Marshall,  C.  W.  Wright,  and  J.  A.  Field,  p.  170.  (The  University  of  Chicago 
Press,  19 13.) 

2  Adapted  by  permission  from  J.  A.  Hobson,  The  Evolution  of  Modem  Capital- 
ism, pp.  113-40.     (The  Walter  Scott  Publishing  Co.,  Ltd.,  191 2.) 


656  INDUSTRIAL  SOCIETY 

Taking  the  manufacturing  industries  of  the  United  States  as  a 
whole,  there  seems  overwhelming  proof  that  no  general  tendency 
exists  favourable  to  the  substitution  of  great  factories  for  small  work- 
shops and  home  industry. 

But  in  many  particular  industries,  or  branches  of  industries,  the 
law  of  the  economy  of  large  establishments  is  plainly  operative.  Ir 
the  textile  and  shoe  trades,  as  in  many  others  where  the  factory  sys- 
tem has  been  fully  developed,  this  system  only  absorbs  a  certain 
section  of  the  trace,  leaving  to  smaller  workshops  or  individual  workers 
much  of  the  best  and  the  worst  work,  the  former  consisting  in  special 
orders  or  finishing  processes  where  individual  skill  and  care  are 
required,  the  latter  in  low-grade  routine  work  where  " sweated' 
labour  can  undersell  factory 'products. 

If  from  such  industries  we  turn  to  those  which  are  entirely  con- 
fined to  factories,  we  find  strong  testimony  to  the  superior  econorri} 
of  large-scale  production.  Agricultural  implements,  a  typica 
American  machine-industry,  will  serve  as  an  example.  Here  witl 
an  increasing  capital  and  labour  and  a  corresponding  increase  in  value 
of  product  we  find  a  diminishing  number  of  establishments. 

In  almost  all  the  industries  connected  with  iron  and  steel,  the 
metal  and  machine-making  manufactures,  the  same  tendencies  arc 
visible;  the  number  of  establishments  does  not  show  any  considerable 
increase,  sometimes  declines,  while  both  capital  and  product  are  mucl 
larger  than  before. 

Almost  all  departments  of  brasswork,  cutlery,  foundry  supplies 
hardware,  the  special  iron  and  steel  trades,  jewellery,  musical  instru 
ments,  sewing  machines,  firearms,  shipbuilding,  come  under  this 
economy  of  large  production;  other  trades  conforming  in  a  ver) 
marked  degree  to  the  same  law  are  boots  and  shoes  (factory  products) 
bricks  and  tiles,  carriages  and  cars,  chemicals,  clocks,  cooperage 
leather,  saddlery,  malt  liquors,  paper  and  wood  pulp,  pottery,  soap 
and  candles,  smoking 'tobacco,  umbrellas. 

In  Great  Britain,  though  no  such  large  volume  of  ordered  testi- 
mony is  available,  a  large  variety  of  evidence  attests  the  operation  01 
the  same  forces  in  the  staple  manufactures.  In  the  fundamental  textile 
and  metal  industries,  in  milling,  brewing,  chemicals,  the  leather 
glass,  pottery,  paper,  and  other  machine  industries,  the  size  of  a 
single  plant  and  still  more  the  size  of  a  business  has  been  growing 
while  the  growth  of  the  capital  factor  in  the  business  exceeds  that  ol 
the  labour  factor. 


CONCENTRATION  657 

It  is,  however,  not  to  manufacture,  but  to  transport  industry  that 
we  must  look  for  the  most  conspicuous  results  of  the  concentrative 
influence  of  machinery.  The  substitution  of  the  railroad  for  the 
pack-wagon  and  the  stage-coach,  of  the  steamship  for  the  sailing 
vessel,  exhibits  the  largest  advance  of  modern  capitalism. 

Next  to  transport  the  department  of  business  where  the  concen- 
trative forces  are  in  strongest  and  most  general  operation  is  finance, 
using  that  term  to  cover  banking  and  insurance,  stockbroking,  bill- 
broking,  and  money-lending  of  every  kind. 

These  monetary  businesses  formed  the  cradle  of  modern  capital- 
ism; they  were  the  earliest  to  adopt  the  form  of  joint-stock  enterprise, 
and  to  assume  an.  international  area  of  operation;  capital  expands  in 
them  out  of  all  relation  to  labour,  and  the  advantage  of  a  large 
capital  over  a  small  capital  ^normally  greater  than  in  any  other  busi- 
ness operation.  , 

The  concentrative  forces  in  commerce  are  less  easily  ascertained ; 
but,  as  regards  wholesale  operations,  there  can  be  no  doubt  that  an 
increasing  proportion  of  the  distributive  business  is  passing  into  the 
hands  of  large  and  growing  firms.  Over  a  considerable  area  of  whole- 
sale trade  the  separate  mercantile  stage  has  been  eliminated,  especially 
where  the  goods  in  question  are  raw  materials  or  unfinished  manu- 
factures. Either  the  manufacturer  purchases  his  materials  direct 
from  the  producers  at  regular  process  of  contract,  or  sets  up  producing 
plants  of  his  own,  as  where  jam  manufacturers  own  fruit  plantations 
or  ironworks  acquire  collieries.  .In  many  other  cases  the  producer  sup- 
plies the  retailer  direct,  as  in  the  case  of  most  patent  or  packet  goods 
and  over  a  large  part  of  the  clothing  businesses;  or  undertakes  the 
entire  wholesale  and  retail  distribution,  as  do  certain  shoe  factories, 
collieries,  etc.  Most  ordinary  articles  of  manufacture  are  supplied 
today  directly  from  the  factories  to  the  retailers.  Where  the  whole- 
sale merchant  still  remains  as  a  distinct  distributive  stage,  he  is  usually 
either  an  importer  of  foreign  produce  or  a  collector  of  foods  and  other 
perishable  home  produce.  Such  businesses  partake  more  and  more 
of  a  speculative  character,  involving  more  largely  the  element  of 
credit  and  becoming  in  most  instances  an  appanage  of  finance.  For 
successful  businesses  upon  these  lines,  large  capital  is  essential, 
and  while  the  enormous  growth  of  the  commercial  classes  in  all 
countries  attests  the  mass  of  business  done,  this  increase  is  in 
clerks,  agents,  commercial  travellers,  etc.,  not  in  the  number  of 
employers. 


658  INDUSTRIAL  SOCIETY 

The  application  of  joint-stock  enterprise  to  retail  trading  goes  on 
apace.  Gigantic  stores,  tending  to  become  "universal  providers," 
like  Whitley's  and  Barker's,  or  covering  a  wide  area  of  wants,  like 
Maple's  or  Spiers  &  Pond,  spring  up  in  the  large  cities,  taking  an' 
increasing  proportion  of  retail  business.  Other  companies,  more 
specialised,  extend  their  business  through  numerous  branches,  as  in  the 
grocery  and  provision  trades,  milk,  restaurants,  fish  and  game  trades. 
In  some  of  these  cases  the  retail  companies  strengthen  themselves 
by  entering  the  productive  processes  of  farming  and  manufacture; 
more  frequently  the  manufacturers  themselves  acquire  retail  stores 
or  operate  through,  "tied"  shops,  as  in  the  shoe,  jewellery,  and 
tobacco  trades. 

All  general  measurements  of  the  concentrative  forces  of  capitalism 
as  applied  to  agriculture  are  extremely  difficult  to  compass.  In  such 
countries,  however,  as  the  United  States,  where  agricultural  machinery 
has  been  very  fully  applied,  it  is  clearly  established  that  the  size  and 
value  of  farms  increase  in  those  departments  of  agriculture  where 
machinery  can  be  most  largely  utilised,  and  that  the  capital  value  of 
these  farms  as  well  as  the  value  of  the  product  increases  more  rapidly 
than  the  increase  of  labour  employed  upon  them.  But  while  this 
concentrative  force  of  machinery  has  been  so  strong  in  certain  kinds 
of  agriculture  as  to  raise  the  average  size  of  the  farm  as  a  unit  of  value 
and  of  productivity,  it  by  no  means  follows  that  small  farming  every- 
where tends  to  disappear. 

Except  in  a  few  instances,  merely  mechanical  economy  does  not 
go  very  far  toward  explaining  the  larger  development  of  the  "busi- 
ness." Upon  this  mechanical  economy  is  superimposed  a  series  of 
other  industrial,  commercial,  and  financial  economies  favourable  to  the 
big  business.  Where  and  in  proportion  as  these  are  operative  we  find  a 
number  of  technically  complete  plants  or  establishments  fastened  by 
a  common  control  and  ownership,  and  worked  as  a  single  business. 

The  economies  which  give  to  the  large  business  an  advantage  over 
the  small  business  may  be  divided  into  two  classes — economies  of 
productive  power  and  economies  of  competitive  power. 

In  considering  the  physical  and  economic  limitations  to  the 
effective  application  of  machinery  we  have  already  indicated  certain 
economies  of  the  small  business. 

1.  Where  the  nature  of  the  raw  material  or  of  the  process  of 
handling  it  is  incalculably  and  greatly  irregular,  this  irregularity 


CONCENTRATION 


659 


renders  the  full  application  of  machinery  and  routine  labour  impos- 
sible. The  kind  or  degree  of  this  irregularity  may  be  such  as  to  make 
success  in  the  business  dependent  so  largely  upon  the  skill,  genius, 

'taracter  of  the  operator,  or  upon  chance,  as  to  preclude  the  use  of 

Lchinery  or  of  any  sort  of  "routine"  economy. 

The  largest  application  of  this  principle  is,  of  course,  in  agriculture. 

tall  farms  tend  to  survive  in  proportion  to  (a)  the  irregularity  of  soil, 

id,  climate,  etc.,  and  the  consequent  amount  of  detailed  care  and  skill 

ivolved  in  the  agricultural  processes;  (b)  the  absolute  market  value 
of  the  products,  vegetable  or  animal,  raised  under  such  conditions. 

2.  When  the  individuality  of  the  consumer  impresses  itself 
upon  an  industry  through  demand  for  the  satisfaction  of  particular 
needs,  an  "art"  economy  is  substituted  for  a  "routine"  or  "machine" 
economy.  It  is  this  force  which,  in  large  measure,  gives  importance 
to  differences  of  materials,  and  evokes  skill  in  dealing  with  them. 
But  even  where  complete  standardisation  or  regularity  of  materials 
exists,  the*  demand  of  consumers  for  goods  exactly  accommodated 
to  their  individual  fit  or  fancy  involves  skilled  workmanship,  and 
prohibits  the  use  of  machinery  or  routine  method.  This  does  not 
necessarily  imply  the  execution  of  such  orders  by  small  businesses.  A 
large  pottery  company  often  employs  a  number  of  designers  and 
skilled  craftsmen  in  order  to  stimulate  and  supply  the  more  refined 
demands  of  high-grade  customers,  just  as  a  large  firm  of  tailors  or 
drapers  may  keep  a  special  order  department  and  a  "fancy  goods" 
department.  But  where  the  skill  of  some  final  process  of  production 
forms  the  chief  element  of  use  and  of  cost  in  a  commodity,  and  espe- 
cially when  this  output  of  skill  approaches  the  nature  of  close  personal 
service,  the  small  unit  of  business  is  apt  to  survive. 

Though  the  standardisation  of  machinery  releases  much  work  of 
repair  from  dependence  on  skilled  engineers  and  smiths,  while  many 
large  businesses  keep  repairing  shops  of  their  own,  this  essentially 
irregular  work  forms  the  basis  of  many  small  independent  workshops 
in  large  manufacturing  centers.  Though  the  building  and  printing 
trades  are  in  the  main  large  capitalist  undertakings,  jobbing  builders, 
carpenters,  plumbers,  and  printers  exist  in  considerable  numbers  for 
special  and  emergency  work. 

In  retail  trade,  as  we  have  seen,  the  survival  of  the  personal  rela- 
tion with  "customers,"  the  adhesion  of  some  final  productive  process 
to  the  art  of  retail  distribution,  sometimes  the  importance  of  mere 
proximity,  enable  the  small  storekeeper  to  hold  his  own. 


660  INDUSTRIAL  SOCIETY 

It  is  natural  that  the  productive  energy  which  functions  for  the 
production  and  distribution  of  material  and  immaterial  wealth  in  the 
professions,  the  finer  arts,  and  in  the  recreative  and  personal  services, 
should  be  least  amenable  to  the  concentrative  forces  of  capitalism. 

From  these  genuine  economic  survivals  of  the  small  business  unit 
must  be  distinguished  the  numerous  forms  of  small  sweatshop  and 
sweating  home  industry  which  are  found  everywhere  in  the  industrial 
lowlands.  The  characteristic  of  such  small  sweating  businesses  is  the 
production  of  low-grade  routine  goods  by  subdivided  labour  under 
conditions  of  low  wages,  low  rent,  and  evasion  of  sanitary  and  other 
industrial  restrictions  which  make  this  mode  of  production  cheaper 
than  production  in  a  factory  by  machinery  or  by  properly  accommo- 
dated and  protected  hand  labour. 

It  may  then  be  concluded: 

i.  That  an  increasing  proportion  of  the  aggregate  wealth  (goods 
and  services)  in  modern  communities  is  produced  in  large  and  expand- 
ing businesses.  t 

2.  That  this  concentrative  tendency  is  particularly  operative  in  the 
making  and  carrying  of  the  goods  which  constitute  the  necessaries 
and  prime  conveniences  of  life  of  the  people. 

3.  That  in  the  aggregate  production  of  wealth  capital  plays  a 
part  of  increasing  importance  as  compared  with  labour. 

4.  That  the  increasing  importance  of  capital  is  greatest  in  the 
production  of  the  most  fundamental  and  essential  forms  of  material 
wealth.  v 

5.  That  it  is  probable  that  an  increasing  proportion  of  the  number 
of  persons  employed  is  employed  in  large  or  expanding  business-forms, 
though  the  concentrative  forces  are  less  powerful  in  the  case  of  labour 
than  in  the  case  of  capital. 

But  while  a  larger  number  of  processes  and  industries  are  con- 
stantly brought  under  the  operation  of  the  concentrative  forces  which 
make  for  large  business-units,  there  is  no  reason  to  regard  the  economy 
of  large-scale  production  as  unlimited  in  any  branch  of  production  or 
transport. 

The  final  limits  of  this  growth  are  described  by  a  recent  economist 
as- functions  of:  (1)  the  internal  complexity  of  arrangements;  (2)  the 
importance  of  quality  in  the  output;  (3)  the  expensiveness  of  the 
machinery  used;  (4)  external  relations  depending  on  the  nature  of 
the  markets  touched;  (5)  stability  in  the  demand  for  the  output; 
(6)  the  stationary  character  of  the  industry  in  relation  to  methods  or 


CONCENTRATION  66 1 

Lerwise;  (7)  the  extent  of  the  economies  to  be  secured  by  producing 

a  large  scale. 

If,  however,  we  examine  more  closely  the  limits  upon  the  economy 
of  large-scale  business  thus  indicated,  we  shall  perceive  that  they 
ultimately  rest  upon  a  law  of  diminishing  returns,  applied,  not  to 
the  mechanics,  but  to  the  administration  of  business.  The  only  sub- 
stantial limit  to  the  growth  of*  a  business,  from  the  standpoint  of 
*  economy  of  supply,  has  reference  to  the  application  of  administrative 
wer;  in  other  words,  of  the  factors  that  constitute  the  business 
it,  ability  of  control  and  management  must  be  regarded  as  a  con- 
stant factor.  The  chief  cause  of  the  survival  of  small  forms  of  business 
in  many  highly  skilled  trades  was  found  to  be  the  necessity  of  direct 
detailed  attention  on  the  part  of  a  responsible  interested  workman  or 
employer.  Any  expansion  of  the  business,  implying  delegation  of 
this  control  and  adoption  of  routine  methods,  would  react  injuriously 
upon  the  quality  of  the  work.  When  the  industry  is  highly  suscep- 
tible of  routine  methods  this  economy  of  "the  master's  eye"  is  rela- 
tively unimportant;  the  managing  ability  is  best  occupied  in  the  more 
general  acts  of  organisation  and  control,  a  discretionary  power  of 
detailed  management  being  delegated  to  departmental  managers, 
overseers,  and  inspectors.  But  there  must  always  be  some  limit  to 
the  economy  of  the  managing  or  directing  mind;  every  expansion 
brings  larger  intricacy,  and  the  machinery  of  administration  becomes 
more  cumbersome,  involving  larger  waste  from  imperfect  co- 
ordination, dislocation,  friction,  and  other  disturbances. 

When  the  financial  economy  of  modern  business  introduces 
more  division  of  labour  into  the  administration,  dividing  the  interest, 
responsibility,  and  control  among  a  number  of  directors,  a  managing 
director  and  a  number  of  salaried  officers,  difficulties  of  policy  and  of 
close  co-ordination  are  apt  so  to  increase  as  to  outweigh  the  advan- 
tages of  substituting  many  administrative  minds  for  one.  The  well- 
recognised  failure  of  joint-stock  companies  to  compete  successfully 
with  private  firms  in  some  classes  of  business  is  a  clear  testimony  to 
the  limits  of  this  economy. 

The  real  limits  to  concentration  of  capital  and  labour  in  single 
businesses,  as  distinct  from  single  plants,  are  not  to  any  large 
extent  considerations  of  technical  production,  but  of  administration 
and  of  market.  For  this  reason  a  larger  proportion  of  the  highest 
intellect  engaged  in  business  life  is  being  directed  to  experiment  and 
invention  of  administrative  methods,  including  business  organisation 


662  INDUSTRIAL  SOCIETY 

and  finance,  with  the  double  object  of  effecting  large  economies  of 
supply-cost  and  of  so  monopolising  in  controlling  markets  as  to  pre- 
vent these  gains  passing  to  the  consumer  by  competition  of  producers. 

257.    THE  SWEATING  SYSTEM1 

In  contrast  with  the  growth  of  large  establishments,  which  is  so 
conspicuous  a  feature  of  recent  economic  development,  it  must  be 
observed  that  in  certain  industries  the  small  shop  retains  its  hold. 
One  phase  of  this  remarkable  exception  to  the  general  trend  of  indus- 
trial organization  is  found  in  the  so-called  sweating  system  in  the 
manufacture  of  clothing,  where,  in  certain  divisions  of  the  trade,  the 
larger  establishments  have  been  driven  out  of  business  by  smaller 
establishments.  This  supremacy  of  the  smaller  establishments  is 
closely  connected  with  the  fact  that  in  them  are  found  the  worst  con- 
ditions of  labor — low  wages,  long  hours,  and  oppressive  methods  of 
payment. 

The  sweating  system  in  the  clothing  trade,  from  the  standpoint  of 
organization  of  industry,  consists  in  the  separation  of  the  manufactur- 
ing from  the  marketing  of  the  product.  The  wholesale  clothing 
manufacturer  is  really  a  wholesale  merchant,  and  the  manufacturing 
proper  is  conducted  by  independent  contractors  in  their  own  small 
establishments.  On  the  manufacturer's  side  there  is  an  advantage 
in  the  small  establishment.  One  reason  why  the  small  establishment 
survives  is  the  wide  variety  of  garments  manufactured.  Ready- 
made  clothing  of  all  styles  and  grades  is  now  produced  in  factories 
for  men,  women,  and  children.  Hence  there  is  an  economy  if  each 
establishment  specializes  on  certain  lines;  and  it  is  usually  the  case 
that  one  contractor  devotes  his  entire  attention  to  a  certain  grade  of 
coats,  another  to  a  certain  grade  of  vests,  and  so  on.  The  facts,  too, 
that  the  business  depends  on  the  season,  that  the  capital  invested 
must  lie  idle  during  several  months  of  the  year,  and  that  the  factory 
must  usually  be  located  in  a  large  city,  where  rents  are  very  high, 
make  it  to  the  advantage  of  the  merchant  to  throw  the  expenses  of 
these  items  upon  the  contractor.  Such  articles  as  overalls,  army 
clothing,  and  cheaper  garments  can  be  made  on  a  large  scale  in  suc- 
cessful competition  with  the  smaller  shops,  but  the  smaller  shops  hold 
their  own  in  the  greater  portion  of  clothing  manufacture. 

The  principal  reason,  however,  for  the  existence  of  the  small 
shop  is  the  oversupply  of  cheap  labor,  brought  about  through  immi- 

1  Adapted  from  Final  Report  of  the  Industrial  Commission,  1902,  XIX,  740-42. 


CONCENTRATION  663 


gration,  and  the  pressure  of  this  class  of  laborers  to  find  employment 
under  whatever  conditions  may  be  imposed.  This  class  of  labor 
can  best  be  secured  through  the  personal  interest  of  a  contractor 
rather  than  that  of  a  foreman.     The  contractor  lives  in  the  neighbor- 

(od  of  the  immigrants,  is  familiar  with  their  languages,  and  is  able 
secure  them  in  times  of  business  activity.  His  solicitations  are 
>re  personal  than  those  of  large  employers. 
On  account  of  these  conditions,  the  manufacturers,  instead  of 
employing  foremen  to  supervise  the  manufacture  of  their  garments, 
give  their  work  out  to  contractors.  The  contractors,  requiring  but 
little  capital,  spring  up  in  large  numbers,  and  their  competition  with 
one  another  drives  the  contract  price  to  the  lowest  possible  limit. 

Originally  the  sweating  system  was  a  system  of  working  at  home, 
whither  the  tailor  with  his  family  and  a  few  helpers  carried  the  goods 
which  they  were  to  prepare  for  the  merchant.  The  home  work  or 
tenement-house  work  of  former  years  has  largely  disappeared,  espe- 
cially for  the  manufacture  of  ready-made  garments,  owing  particularly 
to  legislation  directed  against  it  in  the  years  following  the  influx 
of  immigrants  fifteen  years  and  more  ago.  At  the  same  time,  also, 
the  progress  of  the  industry  has  demonstrated  the  greater  economy 
of  separate  shops,  where  a  larger  number  can  be  employed  upon  the 
same  garment,  with  a  more  minute  division  of  labor.  These  small 
shops  have  taken  the  place  of  the  tenements  in  the  manufacture  of 
the  bulk  of  ready-made  clothing.  Many  of  them  are  in  the  rear  of 
tenements  and  sometimes  in  portions  of  tenements,  though  not  in  the 
living-rooms.  There  is,  however,  one  remnant  of  the  original  home 
work  which  still  largely  clings  to  the  tenement,  namely,  the  so-called 
" finishing"  on  coats  and  trousers,  and  also  certain  kinds  of  light 
work  by  which  the  women  of  the  house  earn  "pin  money."  While 
the  greater  portion  of  the  work  on  ready-made  clothing  has  been 
taken  out  of  the  tenement  house,  yet,  since  the  "finishing"  of  the 
garments  is  still  largely  done  at  home,  it  is  evident  that,  as  far  as  con- 
tagious and  infectious  diseases  are  concerned,  tenement-house  work  is 
fully  as  dangerous  to  the  public  as  it  was  in  earlier  days. 

258.    DOES  LARGE-SCALE   PRODUCTION  MEAN  MONOPOLY?1 

Attention  may  now  be  directed  to  the  reasons  for  this  belief  in  the 

tendency  of  large-scale  production  to  pass  over  into  monopoly,  and 

1  Adapted  by  permission  from  C.  J.  Bullock,  "Trust  Literature:  A  Survey  and 
a  Criticism,"  Quarterly  Journal  of  Economics,  XV  (1900-1901),  190-210. 


664  INDUSTRIAL  SOCIETY 

to  the  criticisms  which  such  views  evoke  from  writers  who  deny  the 
existence  of  such  a  tendency.  In  favor  of  this  proposition  three 
general  lines  of  argument  may  be  distinguished:  (a)  the  contention 
that  a  consolidated  enterprise  possesses  advantages  over  independent 
companies  in  producing  and  marketing  its  goods;  (b)  the  claim  that 
mere  mass  of  capital  confers  powers  of  destructive  warfare  so  great 
as  to  deter  possible  competitors  from  entering  the  field;  (c)  the  belief 
that  modern  competition  between  large  rival  establishments,  repre- 
senting heavy  investments  of  fixed  capital,  is  injurious  to  the  public, 
ruinous  to  the  producers,  and  in  its  final  outcome  self-destructive. 

First  in  this  list  is  the  contention  that  a  consolidated  concern 
is  a  more  efficient  agent  of  production  and  exchange.  It  is  claimed 
that  a  combination  can  effect  a  saving  in  no  less  than  twenty  different 
directions;  and  the  economy  arising  from  such  sources  is  declared  to 
be  great  enough  to  give  the  trust  a  control  over  the  market  based 
solely  upon  superior  efficiency,  and  to  make  competition  " hopeless." 
We  can  discuss  only  some  of  the  more  important  savings  that  trusts 
are  believed  to  realize.  Of  the  twenty  specific  economies  that  have 
been  enumerated,  we  shall  take  no  notice  of  five  which  may  be  con- 
sidered either  doubtful  or  of  minor  importance.1  Six  others  will  be 
relegated  to  a  footnote,  since  it  may  be  denied  emphatically  that  they 
represent  any  substantial  advantages  which  large  independent  com- 
panies cannot  secure.2    Three  more  may  be  set  aside  for  incidental 

1  These  alleged  advantages  are:  (i)  combinations  will  prevent  adulteration 
and  improve  products;  (2)  they  will  reducedosses  from  unwise  extension  of  credits; 
(3)  they  will  not  suffer  from  stoppage  of  work  by  accidents  in  any  one  locality, 
or  by  labor  troubles;  (4)  they  need  to  carry  smaller  stocks  of  goods  to  meet  demands 
of  the  market;   (5)  they  may  eliminate  needless  middlemen. 

2  These  six  items  illustrate  the  necessity  of  discriminating  sharply  between 
large-scale  production  and  monopoly.  (1)  It  is  said  that  combinations  can 
specialize  the  machinery  of  the  separate  plants,  thus  saving  the  loss  resulting  from 
changing  from  one  kind  of  work  to  another.  But  large  independent  concerns 
have  often  done  the  same  thing.  (2)  Combinations  can  push  trade  in  foreign 
markets.  But  large  independent  companies  have  been  equally  successful,  or 
almost  so.  This  claim  provokes  a  smile  from  a  Minneapolis  miller.  Such  con- 
cerns as  the  Baldwin  Locomotive  Company  deny  that  combination  is  necessary 
for  this  purpose.  Rivals  of  the  Standard  Oil  Company  are  now  following  the 
trust  into  European  markets.  The  Industrial  Commission  concluded  that  foreign 
trade  does  not  need  a  monopoly.  (3)  Trusts  can  conduct  auxiliary  or  subsidiary 
industries.  So  do  many  independent  enterprises.  (4)  Trusts  utilize  by-products. 
So  do  large  independent  establishments,  while  small  establishments  sometimes 
co-operate  for  this  purpose.     (5)  Trusts  can  employ  chemists,  inventors,  and  other 


CONCENTRATION  665 

discussion,1  in  connection  with  the  views  of  those  who  deny  the 
tendency  to  monopoly.  Of  the  remainder,  three  items  relate  to 
advantages  in  the  manufacture  and  three  to  economies  in  the 
exchange  of  products. 

With  respect  to  advantages  in  the  manufacture  of  products  it  is 
claimed  that  trusts,  by  rilling  orders  from  the  nearest  plant,  can 
effect  a  .  great  saving  in  cross-freights.  When  the  monopolized 
product  is  of  a  bulky  sort,  the  industry  is  already  localized  pretty 
thoroughly  before  combination  takes  place;  and,  since  most  of  the 
former  independent  establishments  were  producing  chiefly  for  their 
natural  local  constituencies,  the  trust  can  save  little  in  cross-freights. 
When,  however,  the  product  is  light,  transportation  charges  become 
a  matter  of  small  moment.  In  either  case  the  room  for  saving  in 
cross-freights  is  not  nearly  as  large  as  has  been  represented,  while 
often  it  does  not  exist. 

Then  it  is  urged  that  a  trust  can  draw  upon  all  the  patented 
devices  of  the  constituent  companies,  and  employ  only  those  that  are 
most  efficient.  But  advantages  accruing  from  this  fact  will  in  most 
cases  prove  to  be  of  a  temporary  nature,  as  trusts  that  have  tried  to 
base  a  monopoly  upon  the  control  of  all  available  patents  have  learned 
in  the  past  and  will  learn  in  the  future.  Moreover  a  simple  reform 
in  our  patent  laws  will  make  the  best  processes  available  for  all  pro- 
ducers at  any  time  that  the  public  finds  such  a  measure  to  be  neces- 
sary for  protection  against  monopoly.  Here  then  we  find  no  natural 
law  working  resistlessly  toward  combination,  but  a  man-made  device 
which  can  be  regulated  as  public  policy  may  dictate. 

Again,  we  are  told  that  a  trust  can  produce  more  cheaply  than 
separate  concerns,  because  all  the  plants  utilized  can  be  run  at  their 
full  capacity;  whereas,  under  competition,  many  establishments 
can  be  kept  in  operation  but  a  part  of  the  time.  Two  observa- 
tions may  be  made  concerning  this  claim.  First,  the  extent  of  the 
economies  thus  realized  in  grossly  exaggerated.  In  general,  it  may 
be  denied  that,  whenever  governmental  interference  has  not  produced 


experts  to  improve  methods.  For  years  this  has  been  done  by  many  large  com- 
panies not  in  combinations.  (6)  Trusts  can  insure  their  own  plants.  But  inde- 
pendent concerns  may  co-operate  in  establishing  factory  insurance  companies, 
and  secure  the  lowest  possible  rates,  as  some  of  our  textile  trades  have  done. 

1  These  three  advantages  are:  (1)  combinations  can  specialize  skill  in  manage- 
ment; (2)  they  can  compare  methods  and  costs  of  production  in  different  plants; 
(3)  fixed  charges  decrease  as  the  size  of  the  enterprise  increases. 


666  INDUSTRIAL  SOCIETY 

unhealthy  and  abnormal  conditions,  competition  has  led  to  such 
absurdly  excessive  investments  as  is  commonly  assumed.  We  must 
concede,  however,  that  under  normal  conditions  some  reduction  can 
be  made  in  the  number  of  plants  required  to  supply  the  market  at 
ordinary  times;  but  this  does  not  dispose  of  the  matter.  If  a  trust 
is  to  be  prepared  for  supplying  the  market  promptly  in  times  of  rapidly 
increasing  demand,  it  is  necessary  that  some  surplus  productive 
capacity  must  exist  in  periods  of  stationary  or  decreasing  demand. 

The  last  three  economies  relate  to  advantages  in  buying  materials 
or  selling  products.  It  is  urged  that  a  combination  can  purchase 
its  raw  materials  more  cheaply  than  separate  concerns.  This  would 
probably,  be  interesting  news  to  many  large  companies  not  connected 
with  trusts,  and  Professor  Ely  is  undoubtedly  right  in  remarking  that 
all  ability  in  bargaining  is  not  controlled  by  combinations. 

And  finally  we  come  to  economies  in  advertising  and  in  soliciting 
business,  where  the  wastes  of  competition  are  certainly  serious  and 
the  room  for  improvement  correspondingly  great.  Those  who  deny 
the  tendency  to  monopoly  generally  admit  that  a  trust  can  have  a 
material  advantage  here,  while  those  who  affirm  the  existence  of  such 
a  tendency  evidently  realize  that  their  case  is  strongest  at  this  point. 
Yet  an  opportunity  for  saving  in  these  departments  does  not  always 
exist,  and  the  extent  of  the  economy  is  easily  exaggerated  in  other 
cases.  Mr.  Nettleton  is  right  when  he  says:  "But  to  whatever 
extent  the  trust-organizers  have  counted  on  practically  canceling 
expenditure  for  these  two  items,  on  the  ground  that  buyers  will  be 
obliged  to  come  to  the  sole  manufacturers,  they  are  likely  to  be  sur- 
prised. Those  trusts  that  have  tried  this  experiment  have  discovered 
that  demand  for  commodities  falls  off  with  remarkable  rapidity  as 
soon  as  effort  in  pushing  sales  is  materially  reduced." 

The  result  of  our  discussion  up  to  this  point  would  seem  to  be 
that  any  advantages  of  a  monopoly  over  independent  concerns  of  a 
large  size  are  but  slight,  except  in  the  single  matter  of  effecting  sales. 
We  must  also  take  into  account  certain  counteracting  forces,  upon 
which  some  writers  rest  their  belief  that  competition  will  ultimately 
prevail. 

The  second  argument  advanced  to  prove  the  tendency  to  mo- 
nopoly is  the  claim  that  mere  mass  of  capital  confers  such  powers  of 
destructive  warfare  as  to  deter  possible  competitors  from  entering 
the  industry,  at  least  until  prices  have  long  been  held  above  the 


cor 


CONCENTRATION  667 


mpetitive  rate.  It  is  said  that  a  large  combination  can  lower  prices 
below  the  cost  of  production  in  any  locality  where  a  small  rival  con- 
cern is  established,  thus  driving  it  out  of  the  field.  If  on  the  other 
hand  a  large  rival  company  attempts  to  compete  in  all  markets,  this 
will  mean  an  investment  of  capital  in  excess  of  the  needs  of  trade, 
with  a  consequent  depression,  of  business  and  loss  to  all  concerned. 

Iithout  doubt  the  destructive  competition  waged  by  combinations 
an  important  consideration,  and  it  may  well  enough  reinforce 
mopoly  where  other  attendant  circumstances  favor  consolidation, 
it  a  monopoly  based  solely  upon  this  power  would  be,  confessedly, 
temporary  affair;  for  probably  no  one  would  claim  that  all  capi- 
iists  would  be  intimidated  permanently  by  such  circumstances, 
lis  argument  therefore  may  be  used  properly  enough  to  strengthen 
the  conclusions  drawn  from  the  alleged  economies  in  production;  but 
it  does  not  of  itself  establish  the  existence  of  a  permanent  tendency 
to  monopoly. 

It  should  not  be  forgotten,  furthermore,  that  this  argument 
depends  upon  the  fact  that  combinations  at  present  are  allowed  to 
employ  the  weapons  of  discriminating  prices  and  other  tactics,  which 
violate  everyone's  sense  of  fair  play  although  they  may  be  difficult 
to  suppress. 

The  final  reason  for  the  belief  that  combinations  must  ultimately 
prevail  is  found  in  the  character  of  modern  competition  in  those 
industries  which  require  heavy  investments  of  fixed  capital.  Under 
such  conditions  the  difficulty  of  withdrawing  specialized  investments 
and  the  losses  that  are  entailed  by  a  suspension  of  production  make 
competition  so  intense  that  prices  may  be  forced  far  below  a  profit- 
able level  without  decreasing  the  output;  and  industrial  depression 
inevitably  follows.  For  such  constant  fluctuations  in  prices,  combi- 
nation is  considered  the  natural  and  inevitable  remedy.  Some 
writers  allege,  furthermore,  that  it  "  is  not  possible  to  have  competi- 
tion without  competitors,  and,  if  there  be  competitors,  one  must 
prevail,"  so  that  monopoly  "is  the  inevitable  fruit  of  competition." 

Competition  cannot  be  proved  a  failure  until  it  is  given  a  trial. 
The  evils  from  which  many  economists  would  seek  refuge  in  industrial 
combinations  are  greatly  increased  by  unwise  laws  which  have  now 
outlived  any  usefulness  that  originally  they  may  have  possessed. 
If  unhealthful  conditions  produced  by  our  own  interference  with  the 
course  of  business  are  ever  removed,  competition  will  probably  develop 


668  INDUSTRIAL  SOCIETY 

no  evils  which  could  not  be  borne,  as  vastly  preferable  to  monopoly, 
public  or  private.     Indeed,  even  as  things  are,  the  shortcoming 
of  the  competitive  system  are  exaggerated;  and  attempted  monopol} 
is  more  likely  in  the  end  to 'increase,  rather  than  mitigate,  those 
periodic  fluctuations  from  which  industry  suffers. 


See  also  279.  Some  Advantages  of  Concentration. 

C.     The  Modern  Industrial  and  Commercial  City 
259.    THE  FACTS  CONCERNING  THE  GROWTH  OF  CITIES 

A1 

The  United  States  has  seen  a  constantly  increasing  proportion  of 
urban  as  compared  with  rural  population.  This  is  due  partly  to 
the  fact  that  even  with  the  same  rate  of  growth  in  urban  and  rural 
communities,  there  would  be  an  increasing  proportion  of  urban 
population.  Were  there  no  movement  from  country  to  city,  no 
disturbing  effect  from  international  migration,  and  no  difference 
between  urban  and  rural  communities  with  respect  to  the  natural 
increase  from  excess  of  births  over  deaths,  there  would  still  be,  in  a 
growing  population,  a  constant  passage  of  certain  communities  from 
the  rural  to  the  urban  class.  The  smaller  towns,  maintaining  a 
rate  of  growth  uniform  with  that  of  the  country  as  a  whole,  would 
one  by  one  pass  the  limit  of  2,500  inhabitants  fixed  for  the  urban 
population,  and  thus  the  proportion  of  urban  population  would 
increase  gradually  from  census  to  census.  As  a  matter  of  fact,  how- 
ever, in  the  United  States  the  urban  communities  have  a  much  higher 
rate  of  growth  than  the  rural  communities,  and  the  rapid  increase  in 
the  proportion  of  urban  population  is  due  largely  to  the  difference 
in  the  rate  of  growth. 

The  various  censuses  since  1790  have  not  been  taken  on  a  uniform 
basis  with  respect  to  the  proportion  between  urban  and  rural  popula- 
tion, but  the  following  tables  furnish  clear  evidence  of  the  more  rapid 
growth  of  urban  population. 

B2 

It  is  a  familiar  fact  that,  in  some  cases,  the  municipal  boundaries 
give  only  an  inadequate  idea  of  the  population  grouped  about  one 

1  Adapted  from  Thirteenth  Census  of  the  United  States,  1910, 1,  53-54 

2  Adapted  from  Thirteenth  Census  of  the  United  States,  1910,  I,  73-75. 


CONCENTRATION 


669 


urban  center,  and  as  regards  the  large  cities  in  very  few  cases  do  these 
boundaries  exactly  define  the  urban  area.  In  the  case  of  many  cities 
there  are  suburban  districts  with  a  dense  population  outside  the  city 
limits,  which,  from  many  standpoints,  are  as  truly  a  part  of  the  city 

TABLE  I 

Comparative  Statement  of  the  Population  Living  in  Places  of 
8,000  Inhabitants  or  More 


Census  Year 


1910 
1900 
1890 
1880 
1870 
i860 
1850 
1840 
1830 
1820 
1810 
1800 
1790 


Total  Population 


91,972,266 
75,994,575 
62,947,7H 
50,155,783 
38,558,371 
3i,443,32i 
23,191,876 
17,069,453 
12,866,020 

9,638,453 
7,239,88i 
5,308,483 
3,929,214 


Places  of  8,000  Inhabitants  or  More 


Population 


35,726,720 

25,142,978 

18,327,987 

11,450,894 

8,071,875 

5,072,256 

2,897,586 

1,453,994 

864,509 

475,135 
356,920 
210,873 
131,472 


Number  of 
Places 


778 

556 

449 

221 

226 

141 

85 

44 

26 

13 

11 

6 

6 


Per  Cent  of 

Total 
Population 


38.8 

33- 1 

29.1 

22.8 

20.9 

16. 1 

12.5 

8-5 

6-7 

4-9 

4  9 

4.0 

3-3 


TABLE  II 

Comparative  Statement  of  the  Population  Living  in  Places  of 
2,500  Inhabitants  or  More  Since  1880 


Class 

Population  of  the  United  States 

IQIO 

1900 

1800 

1880 

Total,  number. . 
Urban 

91,972,266 
42,623,383 
49,348,883 

100. 0 
46.3 
53-7 

75,994,575 
30,797,185 
45,197,390 

100. 0 
40.5 
59-5 

62,947,714 
22,720,223 
40,227,491 

100. 0 
36.1 
639 

50,155,783 
14,772,438 

Rural 

35,383,345 

Total,  per  cent 
Urban 

100. 0 
29 -5 

Rural I 

70 -5 

is  the  districts  which  are  under  the  municipal  government.  These 
;uburbs  are  bound  to  the  cities  by  a  network  of  transportation  lines. 
Vlany  of  the  residents  in  the  suburbs  have  their  business  or  employ- 
nent  in  the  city,  and,  to  a  certain  extent,  persons  who  reside  in  the 
ity  are  employed  in  the  suburbs. 


670 


INDUSTRIAL  SOCIETY 


CONCENTRATION 


671 


metropolitan  districts  in  the  United  States.  These  districts  were 
twenty-five  in  number,  made  up  of  New  York,  Chicago,  Philadelphia, 
Boston,  Pittsburgh,  St.  Louis,  San  Francisco-Oakland,  Baltimore, 
New  Orleans,  Kansas  City  (Missouri  and  Kansas),  Louisville, 
Rochester,  Seattle,  Indianapolis,  Denver,  Portland  (Oregon),  Cleve- 
land, Cincinnati,  Minneapolis-St.  Paul,  Detroit,  Buffalo,  Los  Angeles, 
Milwaukee,  Providence,  and  Washington.  A  metropolitan  district 
was  for  this  computation  made  up  of  cities  having  within  their  own 
boundaries  200,000  inhabitants  or  more,  plus  those  sections  and 
adjacent  territory  within  ten  miles  of  the  city  boundary  which  might 
properly  be  considered  as  urban  in  character — that  is  to  say,  which 
had  a  density  of  population  of  not  less  than  150  per  square  mile. 

The  following  table  shows  the  extent  to  which  our  population  in 
1900  and  19 10  was  clustered  in  these  metropolitan  districts  and  it 
also  shows  that  the  rate  of  increase  in  population  in  these  districts 
was  greater  outside  the  central  cities  than  it  was  in  the  cities  them- 
selves. 


Population 

Per  Cent  of 

_ 

1910 

1900 

1 900-1 910 

Total  for   25   metropolitan 
districts 

22,088,331 

17,099,904 

4,988,427 

16,322,800 

12,833,201 

3,489,599 

35.3 

In  central  cities  (28  cities) 

Outside  central  cities 

33-2 
43.0 

It  will  be  noted  that  two  cities  of  more  than  200,000  inhabitants, 

Newark  and  Jersey  City,  did  not  appear  in  the  list  of  metropolitan 

districts.     They  are  included  within  the  metropolitan  district  of 

New  York. 

C1 

One  of  the  conclusions  derived  from  the  statistics  of  urban  growth 
is  that  the  process  of  concentration  of  population  is  centralizing  in 
its  tendencies;  that  is,  the  large  cities  are  growing  more  rapidly  than 
the  small  cities  and  absorbing  the  great  bulk  of  the  urban  increase. 

The  ancient  world  was  acquainted  with  great  cities  whose  mag- 
nificence and  wickedness  do  not  yield  to  modern  capitals.  There  are 
no  accurate  figures  concerning  the  population  of  Thebes,  Memphis, 

1  Adapted  by  permission  from  A.  F.  Weber,  "The  Growth  of  Cities,"  Columbia 
University  Studies  in  History,  Economics,  and  Public  Law,  XI  (1899),  446-5 1. 


672 


INDUSTRIAL  SOCIETY 


Babylon,  Nineveh,  Susa,  and  Egbatana;  but  the  fact  that  the  Greeks 
spoke  of  them  with  wonder  argues  fheir  magnitude.  For  the  Greeks 
themselves  had  several  cities  exceeding  100,000  in  population.  In 
the  fifth  century,  both  Athens  and  Syracuse  certainly  surpassed  this 
figure,  and  Syracuse  had  not  then  touched  the  zenith  of  her  power. 
Carthage  probably  reached  the  figure  of  700,000.  At  the  beginning 
of  the  Christian  era,  Alexandria  contained  500,000,  possibly  700,000, 
inhabitants,  and  a  considerable  number  of  Roman  cities  reached  the 
100,000  class;  but  all  of  them,  with  the  exception  of  Rome  herself, 
were  outside  of  Italy.  Rome's  population  was  600,000-800,000; 
certainly  not  over  1,000,000;  and  during  the  first  three  centuries 
of  the  present  era  it  fluctuated  about  the  number  500,000.  After 
Rome's  decay,  Constantinople  was  the  only  European  city  whose 
population  exceeded  100,000;  but  Constantinople  in  the  early  Middle 
Ages  was  overshadowed  by  Bagdad  and  rivaled  by  Damascus  and 
Cairo.  The  modern  period  was  well  begun  (1600)  before  Paris 
wrested  the  first  place  from  Constantinople,  only  to  be  overtaken 
and  passed  by  London  before  the  end  of  the  seventeenth  century. 

At  the  beginning  of  the  sixteenth  century  Europe  had  six  or  seven 
cities  of  the  100,000+  class;  at  its  end  some  13-14.  This  century 
was  the  period  of  commercial  expansion  and  New  World  conquests. 

The  seventeenth  century  was  the  period  of  the  civil  and  religious 
wars.  The  great  cities  did  not  increase"  in  number,  Vienna  and  Madrid 
merely  taking  the  place  of  Antwerp  and  Messina,  which  dropped  out 
of  the  class.  But  their  population  increased  about  40  per  cent  during 
the  century  while  Europe's  population  was  nearly  stationary. 

During  the  eighteenth  century  the  population  both  of  Europe  and 
of  the  great  cities  increased  about  50  per  cent,  and  the  number  of 
great  cities  rose  to  22.  Their  aggregate  population  in  1800  consti- 
tuted about  3  per  cent  of  Europe's  population  (say  4,000,000  in 
120,000,000). 

During  the  nineteenth  century  the  number  of  great  cities  has 
increased  tremendously.  In  Europe  alone  the  increase  is  calculated 
by  Meuriot  as  follows: 

CITIES  OF  100,000+ 


Year 

No. 

Aggregate  Popu- 
lation 

Ratio  to  Total 
Population 

1850 

42 

70 

120 

0,000,000 
20,000,000 
37,000,000 

3 .80% 

6.66 

1870. . 

1805 

10.00 

CONCENTRATION  673 

It  is  estimated  that  today  more  than  10  per  cent  of  Europeans 
dwell  in  great  cities.  In  individual  countries  the  proportion  is  much 
larger.  Thus  in  England  one-third  of  the  entire  population  are 
inhabitants  of  great  cities,  while  in  the  Australian  colonies  of  New 
South  Wales  and  Victoria  40  per  cent  of  the  people  are  resident  in 
such  cities  (suburbs  included). 

260.    THE  ECONOMIC  CAUSES  OF  THE  MODERN  CITY1 

While  it  is  generally  true  that  the  unprecedented  increase  of  popu- 
lation during  the  present  century  has  been  a  condition  of  the  rapid 
growth  of  cities,  it  has  not  necessarily  been  a  positive  cause  of  their 
relatively  rapid  growth  as  compared  with  the  remainder  of  the  popu- 
lation— a  cause,  that  is,  of  the  phenomenon  of  concentration. 

It  is  now  clear  that  the  growth  of  cities  must  be  studied  as  a  part 
of  the  question  of  distribution  of  population,  which  is  always  depend- 
ent upon  the  economic  organization  of  society — upon  the  constant 
striving  to  maintain  as  many  people  as  possible  upon  a  given  area. 
The  ever-present  problem  is  so  to  distribute  and  organize  the  masses 
of  «men  that  they  can  render  such  services  as  favor  the  maintenance 
of  the  nation  and  thereby  accomplish  their  own  preservation.  When 
the  industrial  organization  demands  the  presence  of  laborers  in  par- 
ticular localities  in  order  to  increase  its  efficiency,  laborers  will  be 
found  there;  the  means  of  attraction  will  have  been  " better  living" — 
in  other  words,  an  appeal  to  the  motive  of  self-interest.  Economic 
forces  are  therefore  the  principal  cause  of  concentration  of  population 
in  cities;  but  there  are  other  motives  exhibited  in  the  "Drift  to  the 
Cities,"  and  these  will  also  receive  consideration. 

The  industries  of  the  human  race  may  be  conveniently 'grouped 
thus:  (1)  extractive,  including  agriculture,  mining;  (2)  distributive, 
including  commerce,  wholesale  and  retail  trade,  transportation,  com- 
munication, and  all  the 'media  of  exchange;  (3)  manufacturing; 
(4)  services  and  free  incomes,  including  domestic  servants,  govern- 
ment officials,  professional  men  and  women,  students,  etc. 

The  extractive  industries  generally  require  the  dispersion  of  the 
persons  engaged  therein.  In  particular,  agriculture,  the  principal 
extractive  industry,  cannot  be  prosecuted  by  persons  residing  in 
arge  groups.  It  is  conceivable  that  transportation  methods  might 
)e  so  perfected  as  to  permit  the  cultivator  of  the  soil  to  reside  in  a 
:ity,  but  it  is  very  unlikely. 

1  Adapted  by  permission  from  A.  F.  Weber,  "The  Growth  of  Cities,"  Colum- 
ia  University  Studies  in  History,  Economics,  and  Public  Law,  XI  (1899),  157-224. 


674  INDUSTRIAL  SOCIETY 

Agriculture,  the  industry  that  disperses  men,  has  ever  narrowed 
its  scope.  Formerly,  when  men's  wants  were  few  and  simple,  agricul- 
ture was  the  all-embracing  occupation.  The  agriculturist  produced 
the  necessary  sustenance,  and  in  his  idle  moments  made  whatever 
else  he  needed.  But  human  wants  have  greatly  multiplied  and  can 
no  longer  be  satiated  with  food  products  alone.  Moreover,  the  busi- 
ness of  providing  for  the  new  wants  has  been  separated' from  agri- 
culture. The  total  result  is  that  the  proportion  of  people  who  must 
devote  themselves  to  the  satisfaction  of  the  elementary  wants  of 
society  has  vastly  diminished  and  is  still  diminishing. 

And  this  result  is  attained,  not  only  by  the  diminishing  importance 
of  bread  and  butter  in  the  realm  of  human  wants,  but  also  by  the 
increased  per  capita  product  which  a  specialized  body  of  workers 
can  win  from  the  soil.  By  the  use  of  fertilizers,  by  highly  scientific 
methods  of  cultivation,  by  labor-saving  machinery,  and  by  the  con- 
struction of  transportation  systems  to  open  up  distant  and  virgin 
fields  the  present  century  has  immensely  reduced  the  relative  number 
of  workers  who  must  remain  attached  to  the  soil  to  provide  society's 
food  supply. 

The  distributive  industries,  on  the  other  hand,  are  distinctly 
centralizing  in  their  effects  upon  the' distribution  of  the  population 
engaged  in  them.  As  methods  of  distribution  have  been  improved 
and  the  distributive  area  enlarged,  the  tendency  toward  concentra- 
tion has  increased.  The  consolidation  of  two  railway  lines  transfers 
employees  from  the  junction  to  the  terminal  city.  Every  improve- 
ment in  the  mechanism  of  exchange  favors  the  commercial  center. 
Of  even  greater  importance  is  the  fact  that  the  production  of  wealth 
is  increasing  by  leaps  and  bounds;  every  year  there  is  vastly  greater 
wealth  to  distribute,  and  the  process  of  distribution  will  require  a 
growing  percentage  of  all  the  workers  for  its  efficient  action.  Hence 
the  more  the  social  organism  grows,  and  the  higher  its  evolution,  so 
much  greater  will  the  commercial  centers  become. 

We  are  not  especially  concerned  with  the  principles  of  city- 
location,  and  it  will  suffice  merely  to  indicate  the  fundamental  theory. 
It  may,  then,  be  stated  with  some  confidence  that  while  certain  cities 
derived  their  location  in  former  ages  from  proximity  to  a  fort  or  a 
religious  establishment;  while  many  modern  cities  have  had  their 
location  determined  by  political  reasons  (e.g.,  Washington  and  many 
of  our  state  capitals) ;  while  numerous  cities  in  all  periods  have  arisen 
in  the  vicinity  of  mines  or  other  riches  of  the  earth  which  furnished 


CONCENTRATION 


675 


natural  advantages  for  production— yet,  nevertheless,  the  prevailing 
influences  in  determining  the  location  of  cities  are  facilities  for  trans- 
portation. The  factor  of  chief  importance  in  the  location  of  cities 
is  a  break  in  transportation.  A  mere  transfer  of  goods  will  require 
considerable  machinery;  and  so  we  find  commercial  centers  at  the 
confluence  of  rivers,  heads  of  navigation,  fords,  meeting-points  of  hill 
and  plain,  and  other  places  where  the  physical  configuration  requires 
a  change  of  vehicle.  But  the  greatest  centers  will  be  those  where  the 
physical  transfer  of  goods  is  accompanied  with  a  change  of  ownership; 
there  is  then  added  to  the  mechanical  apparatus  of  temporary  storage 
and  transfer  the  complex  mechanism  of  commercial  exchange.  Impor- 
ters and  exporters,  merchants  and  money-changers,  accumulate  vast 
wealth  and  require  the  presence  of  other  classes  to  satisfy  their  wants, 
and  population  will  grow  rapidly.  It  is  therefore  easy  to  understand 
why  so  many  of  the  large  cities  of  the  world  are  commercial  centers, 
if  not  actual  seaports.  Every  great  city  owes  its  eminence  to  com- 
merce, and  even  in  the  United  States,  where  the  railways  are  popularly 
supposed  to  be  the  real  city-makers,  all  but  two  of  the  cities  of  100,000 
or  more  inhabitants  are  situated  upon  navigable  waters;  the  most 
rapidly  growing  cities  of  their  class  in  the  country  are  the  lake  ports: 
Chicago,  Buffalo,  Cleveland,  Detroit,  Milwaukee,  etc. 

Manufacturing  industries  also  tend  toward  the  concentration 
of  population,  and  up  to  recent  years  manufacturing  centers  were 
coincident  with  the  commercial  centers,  i.e.,  the  great  cities.  Re- 
cently the  equalization  of  transportation  facilities  and  the  excessive 
rents  of  great  cities  have  caused  the  managers  of  a  good  many  indus- 
tries to  abandon  them  as  sites  in  favor  of  the  suburb  or  small  town. 
The  reason  that  this  movement  does  not  make  for  complete  decen- 
tralization is  that  production  on  a  large  scale  is  the  goal  toward 
which  all  industries  are  tending  with  enlarging  and  more  regular 
markets  and  more  convenient  means  of  communication;  and  pro- 
duction on  a  large  scale  requires,  as  a  rule,  the  large  factory  and 
the  grouping  of  allied  trades.  Other  obstacles  to  decentralization 
are  the  presence  in  the  large  city  of  a  supply  of  cheap,  unskilled 
labor;  of  the  best  knowledge  of  art  and  technique;  and  espe- 
cially of  numerous  industries  whose  products  are  intended  for  local 
consumption. 

The  statistics  of  manufactures  furnished  by  the  United  States 
government  are  not  altogether  trustworthy,  but  they  at  least  show 
that  in  the  period  1860-90  the  movement  was  a  centralizing  one, 


676  INDUSTRIAL  SOCIETY 

toward  the  larger  cities.  In  i860  the  annual  production  of  manu- 
factures per  capita  was  $60  for  the  United  States  as  a  whole,  $193  .50 
for  ten  cities  having  a  population  of  50,000  or  more,  $424  for  ten 
cities  under  50,000,  and  $44  for  the  rural  districts.  Thus  the  per 
capita  production  was  at  that  time  largest  in  the  smaller  cities.  In 
1890,  however,  the  per  capita  product  of  manufactures  was  $455 
in  the  28  great  cities,  $355  in  the  137  cities  of  20,000-100,000  popula- 
tion, and  $58  for  the  remainder  of  the  country.  The  superiority  of  the 
smaller  cities  in  i860  had  in  1890  given  way  to  that  of  the  great  cities. 

At  bottom  the  question  of  the  distribution  of  population  is  a 
question  of  economic  organization,  of  the  play  of  economic  forces 
which  we  have  been  studying  in  the  preceding  sections.  These 
economic  forces,  however,  act  upon  men  in  various  ways  to  produce 
the  necessary  shifting  of  population;  they  play  upon  their  motives 
to  draw  them  where  their  productive  power  will  be  greatest.  Legisla- 
tion is  a  necessary  part  of  the  movement;  sometimes  legislators  aid 
the  action  of  economic  forces  blindly,  at  other  times  consciously  and 
deliberately.  In  many  cases  the  political  and  social  movement  seems 
to  be  independent  of,  and  even  antecedent  to,  the  economic  movement. 

It  would  be  tedious  to  enumerate  the  various  legislative  acts 
which  have  influenced  the  distribution  of  population;  they  may  be 
summarized  under  a  few  heads  as  follows:  (1)  Legislation  promoting 
freedom  of  trade.  This  acts  in  the  same  way  as  improved  means 
of  communication,  by  enlarging  the  market.  (2)  Legislation  promot- 
ing freedom  of  migration.  This  policy  also  favors  the  growth  of 
cities  by  giving  them  greater  opportunities  for  securing  laborers 
from  the  superfluous  rural  population.  (3)  Centralized  adminis- 
tration. The  tendency  toward  administrative  centralization  is 
undeniable,  both  in  the  United  States  and  in  England.  The  trans- 
ference of  governmental  machinery  from  the  country  to  the  city 
affects  directly  and  indirectly  considerable  numbers  of  the  population. 
Especially  is  this  true  of  military  states  like  France  and  Germany. 
Formerly  garrisons  were  much  more  scattered  than  they  are  now, 
when  strategical  reasons  (railways!)  require  concentration.  (4)  Mis- 
cellaneous. Various  special  acts  of  the  legislature  have  at  different 
times  contributed  toward  the  concentration  of  population.  Examples 
are  the  Enclosure  Acts  in  England,  so  numerous  during  the  reign  of 
George  III,  and  the  modern  creation  of  deer  forests. 

To  enumerate  the  social  advantages  that  the  cities  possess  as 
compared  with  the  country  would  demand  too  much  space,  but  most 


CONCENTRATION  077 


of  them  will  be  found  to  be  embraced  in  the  following  classification: 
(i)  Educational.  The  city  alone  must  be  the  residence  of  those  who 
study  art,  medicine,  music,  etc.  Even  in  the  matter  of  primary 
education,  city  advantages  are  superior  to  those  of  the  rural  districts, 
though  not  to  those  of  the  villages.  (2)  Amusements.  The  opera, 
philharmonic  concerts,  art  exhibits,  etc.,  may  be  classed  as  educa- 
tional advantages  or  mere  amusements,  but  there  are  many  other 
forms  of  recreation  afforded  by  the  city  and  not  by  the  country,  which 

►me  under  the  head  of  amusements  alone.  (3)  The  standard  of 
ing.     The  desire  for  a  higher  standard  of  life,  for  purely  material 

imforts  and  luxuries,  brings  many  people  to  the  city.  Food  is 
be  procured  at  prices  almost  as  low  as  in  the  country,  and  in  vastly 

eater  variety;    while  everything  else  is  cheaper.     Then  there  are 

»nveniences  to  be  had  in  the  city  which  in  many  cases  could  not  be 
obtained  in  the  country,  on  account  of  the  small  numbers  to  bear  the 
heavy  expenses.  Such  for  example  are  establishments  that  bring 
light  and  fuel  to  one's  door,  furnish  protection  against  fire  (water- 
works and  fire  departments),  sewerage,  rapid  transit,  etc.  The  field 
of  municipal  activity  has  been,  constantly  widening,  until  now  the 
city  furnishes  its  residents  not  only  parks  and  playgrounds  but 
museums,  libraries,  and  art  galleries;  not  only  hospitals  but  baths 
and  wash-houses,  municipal  lodging-houses,  and  model  tenements. 
In  order  to  guarantee  the  purity  of  food  supplies  the  city  has  its 
abattoirs  and  market  stalls,  its  public  analysts  and  milk  inspectors. 
(4)  Intellectual  associations.  The  village  is  dull,  not  only  to  the  man 
pursuing  light  amusements  but  to  him  who  seeks  cultivated  asso- 
ciations, for  in  these  days  the  cities  are  the  centers  of  intellect  as  of 
wealth.  (5)  Not  the  least  important  factor  in  city  growth  is  gregari- 
ousness  or  the  social  instinct  itself,  which  appears  to  be  stronger  than 
ever  before  in  these  days  of  restlessness.  "The  isolation  of  the  farm 
home;  no  provision  for  satisfying  the  cravings  of  the  young  people 
for  having  good  social  times"  are  reasons  given  for  discontent  with 
rural  life  by  farmers  of  New  York  to  a  committee  of  the  New  York 
Association  for  Improving  the  Condition  of  the  Poor.  Another  thing 
to  be  reckoned  with  is  the  passion  for  "  the  crowd,  the  hum,  the  shock 
of  men,"  among  those  who  have  once  lived  in  the  city. 


See  also    26.  Rise  of  Towns. 

146.  Geographical  Specialization. 


678  INDUSTRIAL  SOCIETY 

261.     SATELLITE  CITIES1 

Towns  made  to  order  entirely,  or  with  some  little  village  as  a  core, 
snatch  bundles  of  papers  from  the  morning  trains,  smudge  new  post- 
marks over  sheet  after  sheet  of  red  postage  stamps,  edge  their  way 
into  the  telephone  toll  books  and  the  freight  tariffs,  scrawl  their 
names  on  the  tags  of  new-coming  immigrants  at  Ellis  Island  and 
become  part  and  parcel  of  up-and-doing  municipal  America  before 
most  of  their  slower  going  sister  cities  have  even  heard  of  their  exist- 
ence. 

From  the  middle  of  Philadelphia,  several  departments  of  the 
Baldwin  Locomotive  Works  have  been  shunted  out  into  a  small 
suburb.  Flint,  Michigan,  two  hours  from  Detroit,  has  been  seized 
as  the  place  for  huge  automobile  factories.  While  the  population  was 
trebling  in  the  first  three  years,  several  hundred  operatives  had  to  be 
housed  in  tents  throughout  one  summer.  A  big  corn-products  plant 
moved  from  the  middle  of  Chicago  to  the  near-by  prairies  and  a 
"glucose  city,"  Argo,  started  up.  It  occupies  part  of  a  tract  of  ten 
square  miles,  which  one  promoting  company  is  developing  as  an 
"industrial  district"  and  into  which  Chicago  has  already  emptied 
more  than  two  dozen  establishments.  Just  outside  Cincinnati  a 
residential  suburb,  Norwood,  is  now  the  home  of  a  score  of  manu- 
facturing concerns.  Impelled  partly  by  the  arbitrary  tolls  charged 
on  coal  carried  across  the  Mississippi  River,  industrial  plants  have 
moved  over  the  bridges  from  St.,  Louis  and  founded  a  group  of  new 
towns  in  Illinois.  The  Standard  Oil  Company,  a  few  years  ago, 
poured  out  $3,500,000  on  the  bank  of  the  Missouri  a  few  miles  from 
Kansas  City,  and  the  town  of  Sugar  Creek  sprang  up.  Yonkers  long 
since  lost  its  staid  old  character  in  a  smother  of  hat  and  carpet  fac- 
tories. The  metropolitan  manufacturing  district  stretches  out  in 
belts  and  flanges  from  New  York  into  Long  Island,  Staten  Island, 
and  New  Jersey,  while  eastern  Massachusetts  is  a  mosaic  of  mill 
towns.  In  some  sections  of  the  South  scarcely  a  city  of  any  size 
lacks  one  or  more  satellites  thrumming  with  spindle  and  shuttle. 

Gary,  with  its  population  nearing  50,000,  where  in  1906  there 
were  only  rolling  sand  dunes  covered  with  scrub  oak,  is  thus  seen  to  be 
but  the  largest  and  most  spectacular  example  of  the  far-reaching 
industrial  exodus.  Far-reaching  and  fast-moving,  for  Gary  had 
scarcely  attained  four-year-old  dignity  when  work  started  on  a  still 

1  Adapted  by  permission  from  G.  R.  Taylor,  Satellite  Cities,  pp.  1-14. 
(D.  Appleton  &  Co.,  1915.) 


CONCENTRATION 


679 


lewer  member  of  the  United  States  Steel  Corporation's  brood  of 
steel  towns— Fairfield,  first  known  as  Corey,  on  the  edge  of  Birming- 
am,  Alabama.  On  the  heels  of  Fairfield  came  the  news  that  more 
lillions  and  another  plant  would  found  another  steel  town  near 
)uluth. 

This  industrial  exodus  from  city  center  to  suburb  was  first  seen 
conspicuously  in  the  establishment  of  Pullman  and  Homestead  in  the 
early  eighties.     These  two  places  were  by  no  means  the  only  fore- 


'INDIANA* 
w    BUTCMICAOO 
^EKK-y      HAMMOND 
\JTZGZR. 


GARX 


Chicago  and  Satellites 


runners.  South  Omaha,  for  example^  in  1883,  sprang  up  around  the 
stockyards  at  a  railway  junction  so  rapidly  as  to  win  the  name  "  Magic 
City."  These  exceptional  towns,  suddenly  created  at  the  dictate  of 
pioneer  master  minds  of  the  new  industrialism,  thrilled  the  popular 
imagination. 

But  they  were  freshets  where  the  present  movement  has  taken  on 
the  proportions  of  a  big  sweeping  current.  It  is  spreading  through 
suburban  areas  as  well  as  creating  made-to-order  towns. 

Many  reasons  are  readily  apparent  for  the  location  of  these  new 
industrial  communities.     The  impulse  toward  cheap  land,  low  taxes, 


68o 


INDUSTRIAL  SOCIETY 


and  elbow-room  throws  them  out  from  the  large  centers  of  population. 
These  are  the  centrifugal  forces.  The  centripetal  forces  are  equally 
powerful  and  bind  them  as  satellites  beyond  the  outer  rings  of  the 
mother  city.  Even  the  towns  which,  like  Gary,  have  attained  a 
considerable  measure  of  self-sufficiency  and  lie  perhaps  across  state 
boundaries  are  bound  by  strong  economic  ties.  Through  switch- 
yards and  belt-lines,  practically  all  the  railroad  facilities  developed 
during  years  of  growth,  which  are  at  the  disposal  of  a  downtown 
establishment,  are  at  the  service  of  the  industry  in  the  suburb.     It 


Cincinnati  and  Satellites 


means  much  to  be  within  easy  reach  of  at  least  one  large  market  for 
finished  product.  Proximity  to  a  big  labor  market  is  a  more  impor- 
tant factor. 

The  census  bulletin  sums  up  the  industrial  exodus  in  numbers  of 
manufacturing  establishments,  in  value  of  products,  etc.  From  the 
standpoint  of  the  common  welfare,  it  should  be  reckoned  also  in 
terms  of  citizenship  and  human  values.  What  of  health  and  housing  ? 
Of  leisure  and  income  to  make  it  count?  Of  playgrounds  and 
schools  ?  Of  living  costs  ?  "  Of  city  government,  politics,  and  civic 
spirit? 

There  is  a  public  challenge  in  the  very  fact  that  in  these  localities 
civic  and  industrial  conditions  are  being  created  brand-new,  on  a 


whi 


CONCENTRATION 


681 


olesale  scale,  without  the  handicaps  and  restrictions  which  high 
land  values  and  prior  improvements  impose  on  every  effort  to  recon- 
struct the  congested  centers.  Are  we  turning  these  advantages  to 
account?  In  our  general  municipal  development  we  pay  more 
and  more  heed  to  the  counsel  of  city  planner,  housing  expert,  and 
sanitarian.     We  struggle  to  reshape  our  rigid,  old-established  con- 


WEU/TON 


tJcDWANWIU 
(LPOAlK.)      / 


CTRANtTECnY 


MADUON 

VENICE 
BROOKLYN 


EA/T/T-LOUi/ 


St.  Louis  and  Satellites 

ditions  to  fit  newer  and  more  workable  molds,  just  as  the  manu- 
facturer has  to  tear  out,  rebuild,  and  build  higher  if  he  stays  in  the 
midst  of  congestion  while  his  business  expands. 

But  have  we  set  ourselves  to  inquire  whether  these  made- to- 
order  industrial  cities,  involving  living  conditions  for  thousands  of 
people,  are  so  shaped  at  the  outset  ?  In  the  planning  of  the  great 
suburban  industrial  plant,  marvelous  skill  and  foresight  are  shown  in 
adapting  buildings  and  machinery  to  the  processes  through  which 
stuff   becomes   finished   product.    Are   similar   skill   and  foresight 


682  INDUSTRIAL  SOCIETY 

applied  to  the  development  of  the  things  through  which  houses  ma 
become  homes,  a  construction  camp  a  community,  and  livelihood 
life  ?    Apparently  the  answer  is  often  in  the  negative. 


II.     CONCENTRATION  OF  WEALTH  AND  INCOME 
A.     Problems  at  Issue 


The  preceding  section  dealt  with  concentration  of  production. 
Such  concentration  has  occurred — but  this  is  clearly  not  saying  that 
small-scale  industry  is  doomed.  It  is  not  even  saying  that  an  increas- 
ing proportion  of  industry  is  being  conducted  on  the  large-scale  basis, 
although  this  is  probably  occurring. 

Concentration  of  production  may  or  may  not  be  attended  by  a 
concentration  of  the  ownership  of  wealth  and  income.  A  huge 
corporation  operating  a  large-scale  plant  may  have  its  shares  owned 
in  small  blocks  by  a  great  number  of  people.  Here  is  concentration 
of  production,  but  so  far  as  this  one  corporation  is  concerned  there 
is  diffusion  of  ownership.  Again,  a  single  individual  owns  outright 
several  small-scale  plants  engaged  in  sufficiently  diverse  tasks  to 
justify  our  saying  that  it  is  not  a  case  of  integration  of  industry  and 
it  is  not  unified  control  of  plants  of  the  same  kinds.  Here  we  have 
small-scale  production  and  concentration  of  the  ownership  of  wealth. 
These  illustrations,  arbitrary  as  they  are,  show  that  the  concentra- 
tion of  production  and  the  concentration  of  ownership  are  not  insepa- 
rably connected,  and  this  fact  has  considerable  bearing  on  matters  of 
social  policy. 

While  the  two  are  not  inseparably  connected,  there  are  neverthe- 
less strands  of  connection,  and  the  general  social  and  industrial 
environment  has  been  such  that  a  very  considerable  concentration 
of  ownership  has  synchronized  with  the  concentration  of  production. 

What  are  the  forces  making  for  and  against  concentration  of 
ownership?  What  is  the  resultant  factual  situation  flowing  from 
the  operation  of  these  forces  ?  What  difference  does  it  make  whether 
ownership  is  concentrated  or  diffused  ?  If  it  does  make  any  difference, 
what  courses  of  action  are  open  to  us  ?  What  is  the  bearing  of  the 
concentration  of  ownership  upon  economic  dependence  and  economic 
insufficiency  ?  What  structures  are  emerging  in  our  industrial  society 
as  a  consequence  of  the  concentration  of  ownership  or  as  a  consequence 
of  our  attempts  to  secure  diffusion  ?  These  are  some  of  the  problems 
at  issue  in  this  section. 


CONCENTRATION  683 

QUESTIONS 

Tabulate  the  forces  making  for  equality  and  for  inequality  with  respect 
to  the  ownership  of  wealth;  with  respect  to  the  ownership  of  income. 
"The  unearned  increment  of  land  makes  in  the  direction  of  the  con- 
centration of  wealth;  so  also  does  the  trust  movement,  war,  and  primo- 
geniture."    Explain  why  in  each  case. 

Why  is  a  distinction  made  between  the  distribution  of  wealth  and  the 
distribution  of  income  ?  In  general  terms,  what  are  the  possible  sources 
of  income  ? 

When  we  speak  of  economic  inequalities  today,  do  we  mean  inequalities 
of  wealth  or  of  income  ? 

Is  the  control  of  wealth  ever  confused  with  the  ownership  of  wealth  in 
discussing  the  great  fortunes  of  today  ? 

6.  Has  there  been  a  considerable  increase  in  the  total  wealth  available 
for  distribution  ?  Has  it  been  a  per  capita  increase  ?  What  difference 
does  it  make  whether  the  increase  has  been  per  capita  ? 

7.  "Widely  distributed  ownership  of  wealth  makes  for  social  stability." 
Why  or  why  not  ? 

8.  "Accumulated  wealth  furnishes  the  self-respecting  citizen  the  best 
form  of  protection  against  disaster."  What  proportion  of  our  citizens 
are  thus  protected  ?  Can  you  cite  any  structures  emerging  to  protect 
against  disaster  the  individual  who  has  not  accumulated  wealth  ? 

9.  "The  fact  that  most  of  the  wealth  is  in  possession  of  one-fifth  of  the 

•  inhabitants  does  not  mean  that  the  benefits  of  property  are  circum- 
scribed to  the  same  extent."  Why  not  ?  Is  this  statement  a  sufficient 
justification  of  unequal  distribution  ? 
10.  "Most  of  the  advantages  of  private  property  from  the  social  standpoint 
apply  to  the  well-to-do  and  wealthy  classes."  Is  this  true?  What 
can  be  done  about  the  poorer  classes  ? 
n.  "The  concentration  of  wealth  tends  to  great  political  evils."  Why  or 
why  not  ? 

12.  Does  it  really  make  any  difference  if  wealth  is  unequally  distributed? 
Can  the  multimillionaire  gratify  his  wants  (typically)  except  by  doing 
things  which  give  employment  to  labor  ?  If  this  is  true,  will  it  not  cause 
higher  wages  and  thus  automatically  correct  the  evils  of  inequality  ? 

13.  Does  anyone  today  advocate  equality  of  possessions  or  of  income? 
What  is  the  position  of  the  socialist?  What  is  the  position  of  the 
communist  ? 

14.  "After  all,  what  is  really  desired  today  is  not  equality  of  possessions, 
but  equality  of  opportunity."  Is  this  true?  What  are  some  of  the 
conditions  prerequisite  to  equality  of  opportunity  ? 

15.  Suppose  that  we  could  today  have  an  equal  division  of  present  wealth. 
Would  inequality  again  assert  itself  ?  If  so,  would  this  be  purely  an 
individual  matter  or  would  social  institutions  have  an  effect  ? 


684  '  INDUSTRIAL  SOCIETY 

1 6.  Do  you  understand  that  inequality  of  possessions  is  necessarily  an  evil 
thing  ?    If  you  do  not  so  understand,  what  elements  of  good  are  present  ? 

17.  If  inheritance  were  abolished  would  inequalities  of  wealth  disappear? 
If  not,  would  they  be  smaller  ?  Might  the  abolition  of  inheritance  have 
an  effect  upon  the  total  quantum  of  wealth  ? 

18.  Which  is  better,  (a)  a  small  total  wealth,  with  little  inequality  or  (b)  a 
large  total  with  much  inequality  ?     Is  any  other  possibility  open  ? 

19.  Is  it  possible  to  secure  greater  diffusion  of  wealth  by  means  of  legisla- 
tion ?    Is  it  wise  ?    If  so,  what  laws  would  secure  this  result  ? 

20.  Is  there  any  connection  between  the  concentration  of  wealth  and 
income  and  (a)  the  pecuniary  organization  of  society,  (b)  specialization, 
(c)  technological  industry,  (d)  the  emergence  of  the  wage  system, 
(e)  impersonal  relations,  (/)  competition,  (g)  private  property,  (h)  the 
sensitiveness  of  modern  industry,  (i)  large-scale  production  ? 

2 1 .  What  difference  does  it  make  whether  wealth  is  in  the  hands  of  the  many 
or  of  the  few  ? 

22.  "The  worker  has  never  been  so  well  able  to  satisfy  his  wants  in  any 
previous  period  of  the  world's  history.  In  view  of  this  fact,  it  is  amaz- 
ing that  he  is  not  contented  with  his  present  situation."  Suppose  that 
the  first  part  of  this  statement  is  true.  Is  the  worker  likely  to  be  con- 
tented if  he  sees  that  other  classes  of  society  have  fared  even  better 
than  he  has  ? 

23.  How  would  you  define  the  "standard  of  living"  ? 

24.  What  would  you  include  as  necessary  parts  of  a  reasonable  minimum 
standard  of  living  ?  How  would  you  define  a  fair  living  wage  ?  How 
would  you  define  "necessities,"  "comforts,"  "luxuries"  ? 

25.  What  is  the  significance  of  the  standard  of  living? 

26.  Distinguish  between  "economic  inequality,"  "economic  dependence," 
and  "economic  insufficiency." 

27.  Define  "poverty."  What  is  its  relation  to  pauperism  ?  What  propor- 
tion of  our  population  is  below  the  poverty  line  ? 

28.  "Any  nation  which  will  stop  its  visible  or  invisible  wastes  can  treble 
or  quadruple  her  output  of  material  wealth  without  any  increase  of 
human  strain."  What  are  some  of  these  wastes?  Is  the  quotation 
true  ?     If  it  is,  why  are  not  these  wastes  stopped  ? 

29.  "There  is  plenty  to  go  around.  With  equal  distribution  there  would 
be  no  necessity  of  men  working  more  than  two  or  three  hours  a  day." 
Why  or  why  not  ? 

30.  "Poverty  is  a  curse  sent  upon  men  because  of  their  own  shiftlessness." 
.  Do  you  agree  ? 

31.  "The  problem  of  poverty  is  not  primarily  why  certain  people  fall  into 
distress.  It  is  why  the  product  of  industry  is  distributed  as  it  is." 
Why  or  why  not  ? 


CONCENTRATION  685 

What  relation  has  machine  industry  to  poverty  ? 
Is  poverty  the  result  of  our  competitive  system  of  industry  ?    Would 
there,  in  your  opinion,  be  less  poverty  in  a  socialistic  state  ?     If  you 
answer  in  the  affirmative,  does  the  answer  commit  you  to  a  belief  in 
socialism  ? 

34.  What  relation,  if  any,  does  immigration  bear  to  poverty  ? 

15.  "If  the  unemployment  problem  were  solved,  poverty  would  have  been 
eliminated."     Do  you  believe  this  statement  ? 

"If  the  labor  market  were  only  organized  effectively,  poverty  would 
disappear."     What  does  this  mean  ?    Is  it  true  ? 
What  is  the  relation  of  thrift  to  the  abolition  of  poverty  ?    What  is  the 
relation  of  control  of  population  to  poverty  ? 

"It  is  easy  to  talk  of  the  stabilization  of  industry,  but  industry  is  after 
all  relatively  little  under  human  control.  You  might  as  well  promise 
to  smooth  out  the  Atlantic  Ocean  as  to  promise  to  establish  a  system 
which  will  secure  absolute  equilibrium  in  the  trade  and  concerns  of  the 
country."  Is  there  reasonable  ground  for  hope  of  improvement  of 
conditions  of  poverty  through  stabilization  of  industry  ? 
"National  insurance  against  death,  sickness,  and  unemployment  are 
essential  parts  of  any  program  to  prevent  poverty."     Do  you  agreee  ? 

40.  "Old  age  pensions,  labor  exchanges,  state  assistance  for  the  sick  and 
the  unemployed,  housing  schemes,  school  feeding,  and  other  forms 
of  provision  for  special  sections  of  the  wage-earning  class  are  desirable, 
even  imperative,  but  the  root  factor  in  destitution  is  the  factor  of  low 
wages,  and  until  that  is  dealt  with  no  substantial  improvement  in  social 
conditions  can  be  expected."     Do  you  agree  ? 

41.  "It  is  necessary  in  order  to  prevent  injury  to  the  community  as  a  whole 
that  there  be  maintained  from  one  end  of  the  country  to  the  other  a 
definite  standard  minimum  of  the  conditions  of  civilized  life,  below 
which  in  the  interests  of  the  whole  no  individual  shall  be  permitted  to 
fall."  Does  this  quotation  mean  that  it  is  possible  to  secure  a  "  national 
minimum  "  by  legislation  ? 

42.  "The  one  essential  is  to  give  a  given  group  of  people  adequate  eco- 
nomic resisting  power."  What  does  this  mean?  How  may  a  group 
secure  this  adequate  resisting  power  ? 

43.  "Poverty  can  be  prevented  if  we  will  but  choose  to  take  the  means  that 
a  whole  century  of  experience  and  the  teachings  of  economic  science 
show  to  be  requisite  and  effective."  What  do  you  suppose  this  means 
by  way  of  a  specific  program  ? 

44.  Find  out  what  proposal  a  single-taxer  would  make  for  the  abolition  of 
poverty  and  on  what  ground  he  would  make  this  proposal. 

45.  Certain  writers  speak  of  (a)  subjective  causes  and  (b)  objective  causes 
of  poverty.  What  is  meant  by  each  term  ?  Adopting  the  classifica- 
tion, which  type  of  causes  seems  to  you  to  have  the  greater  significance  ? 


686  INDUSTRIAL  SOCIETY 


46.  "The  sooner  our  philanthropic  workers  take  their  cue  from  the  work 
done  by  preventive  medicine  in  the  medical  field,  the  sooner  will  the 
problems  of  poverty  be  solved."     Explain. 

47.  Do  you  know  of  any  recent  legislative  measures  aimed  at  eliminating 
poverty  ? 

48.  Do  you  think  it  will  be  possible  in  the  future  for  society  entirely  to 
eliminate  all  poverty  ?    Why  ? 

B.     Guiding  Considerations 

262.    WHY  WEALTH  SHOULD  BE  IN  THE  HANDS  OF  THE 

MANY1 

If  we  presuppose  the  existence  of  a  legal  and  economic  system  of 
a  competitive  nature  such  as  that  with  which  we  are  most  familiar, 
we  find  that  there  are  four  fundamental  reasons  why  it  is  desirable 
that  wealth  should  be  in  the  hands  of  the  many  rather  than  of  the  few. 
These  may  be  enumerated  as  follows: 

1.  "Under  existing  conditions,  the  state  does  not  guarantee  a 
sufficient  degree  of  assistance  in  case  of  misfortune  to  prevent  want 
and  misery.  It  only  steps  in  to  prevent  starvation  or  to  relieve  acute 
distress.  Under  all  ordinary  circumstances,  the  individual  is  expected 
to  help  himself,  and  recourse  to  the  state  for  aid  generally  means 
that  the  applicant  feels  himself  disgraced  and  is  branded  as  a  pauper 
by  the  community.  This  being  true,  it  becomes  imperative  that 
every  self-respecting  citizen  provide  for  himself  protection  against 
disaster,  and  the  best  form  of  such  protection  is  accumulated  wealth. 

2.  Another  advantage  of  wealth,  akin  to  that  just  cited,  is  that  it 
gives  to  the  possessor  a  much  greater  freedom  of  movement,  a  wider 
sphere  of  action,  than  is  otherwise  vouchsafed  to  him.  Without 
wealth,  one  is  seldom  in  a  position  to  bargain  well  as  to  wages  or 
salary. 

3.  Another  useful  phase  of  widely  distributed  ownership  of  wealth 
is  that  it  makes  for  social  stability.  The  propertied  man  is  seldom 
an  enemy  of  law  and  order.  He  does  not  favor  revolution,  for  he  has 
something  to  lose.  True,  he  may  be  too  conservative,  but  history 
does  not  show  that  those  nations  have  advanced  most  in  which  revolu- 
tion has  been  frequent. 

4.  The  fourth  great  advantage  of  widely  distributed  wealth  is 
dynamic  rather  than  static  in  its  nature.    This  depends,  not  only 

1  Adapted  by  permission  from  W.  I.  King,  The  Wealth  and  Income  of  the 
People  of  the  United  States,  pp.  51-57.     (The  Macmillan  Co.,  1915.) 


. 


CONCENTRATION  687 

upon  the  fact  that  many  people  now  possess  wealth,  but  also  upon  the 
fact  that  they  acquired  this  property  by  their  own  efforts.  If  many 
people  were  well  to  do,  but  if  all  had  inherited  their  wealth,  the 
propertyless  young  man  would  then  feel  it  a  perfectly  futile  task  to 
attempt  to  acquire  a  competence.  No  one  in  the  vicinity  having 
succeeded  in  so  doing,  it  would  evidently  be  a  waste  of  energy  to  try. 
But,  on  the  other  hand,  if  the  older  men  of  his  acquaintance  have 
attained  affluence  through  hard  work  or  use  of  their  native  talents,  the 
young  man  feels  that  he  can  do  likewise.  Wealth  means  power  and 
ease  and  luxury  and  display.  These  lure  him  on  to  strenuous  en- 
deavor and  cause  him  to  toil  early  and  late  in  the  pursuit  of  riches. 
And  it  is  this  strenuous  endeavor  of  the  millions  that  amasses  the 
capital,  that  searches  out  the  new  inventions  and  discoveries,  that 
does  all  those  things  which  spell  economic  progress. 

263.    EVILS  OF  THE  CONCENTRATION  OF  WEALTH1 

Four  evils  grow  out  of  the  concentration  of  that  which  is  by 
nature  common  wealth  in  the  hands  of  a  comparatively  few. 

First  are  the  material  evils.  Where  industry  is  fairly  compen- 
sated, every  man,  by  his  industry,  supports,  not  only  himself,  but  his 
neighbor.  Riding  through  any  one  of  our  commercial  streets,  we 
wonder  who  it  is  that  buys  all  these  goods  in  all  these  shops.  The 
man  in  one  shop  buys  from  the  other  shops.  Each  man  purchases 
of  his  neighbor;  they  support  one  another.  The  children  of  the 
schoolmaster  must  be  shod;  they  support  a  shoemaker.  The  children 
of  the  shoemaker  must  have  clothes;  they  support  a  tailor.  The 
tailor  must  have  woolens;  he  supports  a  factory.  The  factory  hands 
must  have  their  children  taught;  they  in  turn  support  the  teacher. 
Every  one  of  us  is  thus  engaged  in  supporting  someone  else,  and 
every  one  of  us  is  in  turn  supported  by  someone  else.  We  hear 
much  glorification' of  independence,  but  there  is  no  such  thing  as 
independence.  The  more  complicated  society  and  the  more  advanced 
civilization,  the  less  the  independence. 

Let  any  one  of  these  interdependent  industries  stop,  and  all  are 
injured.  If  the  factory  stops,  the  children  no  longer  go  to  school,  the 
schoolmaster  can  no  longer  buy  shoes,  the  shoemaker  can  no  longer 
buy  clothes,    the    tailor   can   no   longer  buy  woolens.    Whatever 

Adapted  by  permission  from  Lyman  Abbott,  The  Rights  of  Man,  pp.  121-28. 
(Houghton  Mifflin  Co.,  1902.) 


688  INDUSTRIAL  SOCIETY 

distributes  wealth  energizes  industry;  whatever  concentrates  weall 
paralyzes  industry. 

In  the  second  place,  this  concentration  of  wealth  tends  to  gre* 
political  perils.    As  a  result  of  this  concentration  of  the  comm< 
wealth  in  a  few  hands,  one  small  body  of  men  control  the  coal-oil — th* 
is,  the  light;  another  small  body  of  men  control  the  anthracite  coal- 
that  is,  the  fuel;  another  small  body  of  men  control  the  gold  and  silve 
mines— that  is,  the  basis  of  currency  of  the  country;   another  small 
body  of  men  control  the  transportation,  on  which  the  whole  country 
depends  for  its  life;  and  another  small  body  of  men,  through  the  stock 
exchanges,  are  continually  trying,  with  more  or  less  success,  to  control 
the  food  supplies.     A  community  in  which  a  small  body  of  men  control 
the  light,  the  fuel,  the  transportation,  the  money,  and  the  food 
supplies  is  perilously  near  a  political  oligarchy.      And  out  of  this 
grows  that  political  corruption  which  is  the  worst  foe  and  the  greatest 
peril  to  the  United  States. 

A  third  evil  grows  out  of  this  concentration  of  wealth;  under  it, 
and  owing  to  it,  society  is  divided  into  two  classes,  the  tool-owners 
and  the  tool-users.  A  comparatively  small  body  of  men  own  the  raw 
material  and  the  tools  with  which  it  can  be  transformed  into  useful 
products;  a  large  body  of  men  use  those  tools  in  making  the  raw 
material  into  useful  products.  The  tool-owners  we  call  capitalists; 
the  tool-users  we  call  laborers. 

A  fourth  evil  resulting  from  this  concentration  of  wealth  and  con- 
sequent division  of  society  into  two  classes,  a  few  very  rich  and  the 
many  dependent  upon  them,  is  seen  in  the  vices  which  such  a  social 
organization  tends  to  produce;  the  vices  respectively  of  what  Mr. 
Gladstone  has  called  the  "idle  rich"  and  the  "idle  poor/'  It  is  true 
that  the  great  millionaires  are  not  idle;  they  are  generally  the  busiest 
of  men.  But  their  sons  are  not  the  busiest  of  men.  Given  an  idle 
rich  class,  with  plenty  of  money  and  none  of  that  self-control  which  is 
learned  in  the  school  of  industry,  and  there  inevitably  result  the  three 
vices  of  America — gambling,  drinking,  and  licentiousness.  On  the 
other  hand,  given  a  great  dependent  class  and  a  time  of  hardship  when 
some  of  them  can  no  longer  get  the  right  use  of  tools  and  earn  their 
bread,  and  they  become  literally  dependent  upon  charity  and  begin 
to  listen  to  the  man  who  says,  "The  world  owes  you  a  living";  and 
when  a  man  has  begun  to  think  that  the  world  owes  him  a  living  he 
has  taken  the  first  step  toward  getting  his  living  by  foul  means  if  he 
cannot  get  it  by  fair.     So  out  of  the  great  working  class  the  poor  are 


CONCENTRATION  689 

recruited,  and  out  of  the  poor  the  paupers,  and  out  of  the  paupers  the 
'  ramps,  and  out  of  the  tramps  the  thieves,  and  out  of  the  thieves 
ie  robbers. 

H.    FORCES  MAKING  FOR  EQUALITY  AND  FOR  INEQUALITY1 

Dr.  Spahr  describes  the  forces  which,  during  the  reign  of  George  III 
(1760-1820),  operated  to  concentrate  the  wealth  of  Great  Britain.  He 
ihows  us  that  somewhat  similar  forces  operated  in  this  country  during 
>ur  Civil  War  (1861-1865)  in  the  direction  of  concentration  of 
wealth.  He  mentions  particularly  three  great  causes  which  were  the 
sginning  of  vast  fortunes  and  of  the  concentration  of  a  very  appre- 
able  proportion  of  the  wealth  of  the  United  States  in  a  comparatively 
few  hands.  The  three  forces  which  he  mentions  are,  first,  monetary 
legislation;  secondly,  our  methods  of  taxation  and  our  financial 
legislation  generally;  and,  thirdly,  the  methods  of  railway  construction 
and  railway  financiering. 

Beginning  our  discussion  at  the  point  where  Dr.  Spahr  leaves  off, 
five  further  main  causes  of  concentration  of  wealth  may  be  mentioned. 

1.  The  unearned  increment  of  land,  especially  in  cities.  Dr. 
Spahr  himself,  however,  has  shown  that  it  is  easy  to  exaggerate  the 
unearned  increment  of  land. 

2.  The  trust  movement  is  operating,  in  its  earlier  phases  at  least, 
in  the  direction  of  concentration.  The  processes  which  accompany 
the  formation  of  trusts  have  brought  vast  wealth  into  a  few  hands,  and 
have,  In  the  interests  of  the  comparatively  few,  mortgaged  future 
wealth  production. 

3.  In  the  third  place,  war,  whenever  it  comes,  carries  with  it  forces 
which  bring  wealth  to  the  few  rather  than  the  many.  A  careful 
study  of  modern  warfare  will  amply  substantiate  the  position  that 
war  almost  invariably,  perhaps  invariably,  enriches  the  few  rather  than 
the  many.  .It  creates  a  demand  for  capital  rather  than  iqr  labor,  and 
it  introduces  a  speculative  element  into  business  which  is  disastrous 
to  the  economically  weak,  and  enriches  the  economically  strong. 

4.  Arrangements  of  one  kind  and  another  may  be  mentioned  by 
means  of  various  trust  devices  to  secure  the  ends  of  primogeniture  and 
entail.  This  applies  especially  to  large  wealth  in  great  cities,  where 
the  number  of  so-called  "trust  estates"  is  very  considerable. 

1  Adapted  by  permission  from  R.  T.  Ely,  Evolution  of  Industrial  Society, 
pp.  473-84.     (The  Macmillan  Co.,  1906.) 


690  INDUSTRIAL  SOCIETY 

5.  Another  force  operating  to  concentrate  the  ownership  of  wealth 
may  be  called  economic  inertia.  According  to  the  principle  of  inertia, 
forces  continue  to  operate  until  they  are  checked  by  other  forces  com- 
ing into  contact  with  them.  Those  who  have  great  possessions  find 
it  easy  to  add  to  them  by  a  process  of  accumulation  which  requires 
a  minimum  of  sacrifice. 

Let  us  turn  our  attention  now  to  forces  which  operate  to  diffuse 
wealth. 

1.  Education,  broadly  considered,  should  be  mentioned  first  of 
all.  Education,  as  it  is  carried  on  in  the  United  States,  operates 
in  a  double  manner  in  the  direction  of  the  diffusion  of  wealth:  first, 
it  requires  large  expenditure,  which  must  be  taken  out  of  the  cur- 
rent income  of  society;  and  secondly,  it  is  favorable  to  talent  wher- 
ever found. 

2.  Next,  mention  must  be  made  of  the  public  control  of  corpora- 
tions. 

3.  Changes  in  taxation  are  the  third  item  in  this  enumeration  of 
forces.  There  is  a  pronounced  movement  in  favor  of  taxation  which 
will  be  relatively  favorable  to  the  many,  and  operate  in  the  direction  of 
diffusion  of  wealth.  The  taxation  of  property  as  it  passes  from  one 
generation  to  another  by  means  of  inheritance — using  the  term  inherit- 
ance in  its  broadest  sense — is  one  of  the  most  pronounced  movements 
of  our  day. 

4.  The  development  of  the  idea  of  property  as  a  trust  is  next 
mentioned.  This  takes  place  chiefly  through  education  of  public 
opinion,  but  it  is  perhaps  already  affecting  legislation  and  judicial 
decisions,  and  is  likely  to  do  so  to  a  far  greater  extent  in  the 
future. 

5.  Profit-sharing  and  co-operation.  This  means  in  one  way  or 
another  a  participation  of  labor  in  the  profits  of  capital.  Both  profit- 
sharing  and.co-operation  have  quite  narrow  limits  at  the  present  time, 
but  their  extension,  so  far  as  practicable,  is  desirable. 

6.  Sound  currency  is  next  mentioned.  This,  perhaps,  can  be 
considered  as  a  force  bringing  about  diffusion  of  wealth,  in  the  nega- 
tive sense  only.  The  absence  of  a  sound  currency  is  favorable  to  a 
concentration  of  property;  a  sound  currency  system  is  the  basis  of  the 
operation  of  other  forces  in  favor  of  diffusion  of  wealth. 

7.  Public  ownership  of  public  utilities  is  a  further  force.  As 
private  ownership  has  been  an  avenue  through  which  property  has 


CONCENTRATION  691 

been  concentrated,  so  public  ownership  opeiates  in  favor  of  the  diffu- 
sion of  wealth. 

8.  Labor  organizations.  If  the  very  able  report  of  the  Industrial 
:ommission  brings  out  any  one  thing  clearly,  it  is  that  labor  organiza- 
tions are  a  force  making  for  diffusion  of  wealth. 

9.  Institutions,  especially  in  the  interest  of  the  wage-earning  and 
conomically  weaker  elements  of  the  community.  Labor  bureaus 
lay  be  mentioned,  also  free  employment  bureaus;  also  legal  aid 
Dcieties  of  one  kind  or  another,  which  help  the  economically  weaker 
lements  in  the  community  to  secure  their  rights.        . 

10.  Saving  institutions  and  insurance.     Building  societies  may 
mentioned.     Insurance,  so  far  as  it  goes,  helps  remove  the  con- 

lgencies  in  life  which  are  the  great  evil  for  the  economically  weak, 
id  also  for  the  upward-struggling  masses. 

265.    FORCES  GOVERNING  THE  DISTRIBUTION  OE 
PROPERTY1 

We  have  here  simply  to  explain  and  classify  the  causes  which 
>vern  the  distribution  of  property.     Perhaps  the  simplest  way  of 
iking  a  start  will  be  to  assume  that  we  should  expect,  in  the  absence 
reasons  to  the  contrary,  to  find  property  equally  distributed.    Then 
re  can  make  the  inquiry  why,  as  a  matter  of  fact,  some  individuals 
ive  much,  others  little,  and  many  scarcely  any  at  all. 

The  reason  which  seems  to  come  first  in  logical  order  is  that  all 
iople  are  not  equally  provident.    As  old-fashioned  opponents  of 
[ualitarian  schemes  used  to  say,  if  we  all  started  with  equal  amounts, 
lequality  would  soon  appear,  since  some  of  us  have  more  thrifty  dis- 
)sitions,  greater  desire  to  provide  for  the  future,  than  others.    Some 
us  would  consequently  save  considerable  amounts  from  income, 
rhile  others  would  save  little,  and  some  nothing.    Writers  exist  who 
speak  as  if  there  were  no  other  reason  than  this  for  the  actual  inequal- 
ity.    Mr.  Carnegie  and  the  Duke  of  Westminster,  they  think,  are 
the  thriftiest  men  alive. 

The  second  reason  is  that  we  are  not  all  equally  judicious  in  the 
selection  of  investments.  Even  if  we  all  started  on  equal  terms  and 
saved  the  same  amount,  inequalities  would  soon  rise,  since  the  wise 
men  would  make  better  investments  than  the  fools.  Some  people 
think  these  two  reasons  are  sufficient  to  account  for  the  existing 

1  Taken  by  permission  from  Edwin  Cannan,  "The  Division  of  Income,"  Quar- 
terly Journal  of  Economics,  XIX  (1904-5),  360-67. 


692  INDUSTRIAL  SOCIETY 

inequality.  Mr.  Carnegie  and  the  Duke  of  Westminster,  they  think, 
are  not  only  very  thrifty,  but  very  wise. 

The  third  reason  is. that  men  of  equal  wisdom  are  not  equally 
lucky  in  their  choice  of  investments.  Only  fools  invest  in  lottery 
tickets,  but  a  few  of  them  do  make  a  thousand  or  more  per  cent,  and 
win  fortunes.  Take  a  million  men  of  equal  wisdom,  and  you  will 
find  their  investments  better  than  those  of  another  million  men  of 
slightly  less  wisdom.  But  that  is  only  because  among  such  large 
numbers  the  average  luck  will  be  equal.  As  between  single  indi- 
viduals, everyone  knows  that  luck  plays  a  great  part. 

The  fourth  reason  is  that  earnings  are  unequal,  and  it  is  easier 
to  save  out  of  a  large  than  out  of  a  small  income.  If,  of  two  men  with 
exactly  the  same  disposition  as  regards  thrift,  the  one  has  £5,000  a 
year,  and  the  other  £50,  the  first  will  save  much  more  than  the  second, 
and  consequently  eventually  become  possessed  of  much  more  property. 

The  fifth  reason  is  that  persons  receive  different  amounts  of 
property  by  way  of  gift,  bequest,  and  inheritance.  It  is  curious  to 
notice  how  often  this  reason  is  overlooked,  in  spite  of  its  extremely 
obvious  nature.  Its  effect  is  cumulative,  since  when  once  a  man  has 
acquired  large  property  in  this  way,  it  is  easier  for  him  to  save  and 
acquire  still  more. 

On  each  of  these  reasons  much  might  be  written.  For  example, 
on  the  last,  a  great  investigation  might  take  place  into  the  different 
effects  of  different  laws  as  to  inheritance  and  bequest,  into  the  effect 
of  the  customs  observed  in  regard  to  dowries,  the  effect  of  large  and 
small  families  in  different  classes,  and  many  other  similar  subjects 
which  are  just  as  fitted  for  discussion  in  works  on  economic  theory 
as  the  matters  at  present  usually  discussed — for  example,  in  relation 
to  the  causes  of  differences  of  wages  in  different  occupations. 

266.    FORCES  GOVERNING  THE  DIFFERENCES  OF  INCOMES 
.  FROM  WORK1 

Difference  in  income  "received  from  work  is  not  all  a  question  of 
value,  since  the  quantity  of  work  done  is  a  factor.  The  quantity 
varies  from  individual  to  individual  with  industry  and  ability. 

The  income  derived  from  different  occupations  by  persons  of 
average  industry  and  ability  working  at  them  depends  on  the  value 
of  the  work  done.     Labour  does  not  create  value.     We  might  expect 

1  Taken  by  permission  from  Edwin  Cannan,  Wealth,  pp.  xviii-xx.  (P.  S.  King 
&  Son,  Ltd.,  1914.) 


CONCENTRATION  693 

competition  to  arrange  the  comparative  number  of  persons  in  the 
various  occupations  so  that  the  outputs  would  be  of  the  precise  value 
which  would  yield  the  same  remuneration  for  the  average  person  in 
every  different  occupation. 
But  we  could  see  that — 

1.  There  would  always  be  deviations  from  this  level,  some  of 
which  might  be  of  long  duration. 

2.  Occupations  offering  large  prizes  to  persons  of  exceptional  suc- 
cess would  yield  less  than  the  others  to  the  average  person. 

3.  Disagreeable  occupations  would  be  better  paid  than  agreeable 
ones. 

4.  Irregular  employments  would  be  better  paid  for  the  periods 
during  which  work  is  actually  carried  on,  and  also,  if  uncertainty  was 
a  deterrent,  on  the  whole. 

5.  Occupations  for  which  expensive  training  or  long  postponement 
of  earnings  is  necessary  would  bring  in  higher  incomes  during  working 
life. 

If  this  were  a  true  picture,  we  could  say  that  not  the  earnings  but 
the  whole  advantageousness  of  all  occupations  was  equal.  But  it  is 
not  a  true  picture,  because  even  if  proper  sums  for  original  cost  of 
training,  etc.,  are  deducted  from  earnings,  a  large  balance  of  advan- 
tageousness remains  in  favor  of  the  trades  which  require  expensive 
training  and  long  postponement  of  earnings.  This  comes  about 
because  the  rearing  of  children  is  not  a  matter  of  business,  but  is  left 
to  the  family,  charity,  the  Church,  and  the  State. 

Hence  differences  in  earnings  from  labour  are  much  more  largely 
hereditary  than  they  would  be  if  they  depended  only  upon  the  inherit- 
ance of  natural  qualities. 

There  is  considerable  difference  in  the  remuneration  of  the  two 
sexes  owing  to  their  having  different  qualities  and  the  field  for  employ- 
ment of  women  being  for  various  reasons  smaller  than  that  for  the 
employment  of  men. 

Heredity  and  sex  are  the  two  greatest  causes  of  inequality  of 
income. 


694  INDUSTRIAL  SOCIETY 

C.     The  Distribution  of  Wealth  and  Income 

267.    THE  INCREASING  TOTAL  AVAILABLE  FOR 
DISTRIBUTION1 

Estimates  of  Wealth  for  191 2,  1904,  and  1900 


Form  of  Wealth 

Total 

Real  property  and  improvements  taxed. . 
Real  property  and  improvements  exempt 

Live  stock 

Farm  implements  and  machinery 

Manufacturing    machinery,    tools,    and 

implements 

Gold  and  silver  coin,  bullion 

Railroads  and  equipment 

Street  railways,  etc. — 

Street  railways 

Telegraph  systems 

Telephone  systems 

Pullman  and  cars  not  owned  by  rail- 
roads   

Shipping  and  canals 

•Irrigation  enterprises '. 

Privately  owned  waterworks 

Privately  owned  central  electric  light 

and  power  stations 

All  others.— 

Agricultural  products 

Manufactured  products 

Imported  merchandise 

Mining  products 

Clothing  and  personal  adornments .  .  . 

Furniture,  carriages,  and  kindred 
property 


1912 


$187,739,071,090 

98,362,813,569 

12,313,519,502 

6,238,388,985 

1,368,224,548 

6,091,451,274 

2,616,642,734 

16,148,532,502 

4,596,563,292 

223,252,516 

1,081,433,227 

123,362,701 

i,49i,n7,i93 

360,865,270 

290,000,000 

2,098,613,122 

5,240,019,651 

14,693,861,489 

826,632,467 

815,552,233 

4,295,008,593 

8,463,216,222 


1904 


$107,104,192,410 

55,510,228,057 

6,831,244,570 

4,o73.79i,736 

844,989,863 

3,297,754,180 

1,998,603,303 

11,244,752,000 

2,219,966,000 
227,400,000 
585,840,000 

123,000,000 
846,489,804 


275,000,000 

562,851,105 

1,899,379,652 

7,409,291,668 

495,543,685 

408,066,787 

2,500,000,000 

5,750,000,000 


$88,517,306,775 

46,324,839,234 

6,212,788,930 

3,306,473,278 

749,775,970 

2,541,046,639 
1,677,379,825 
9,035,732,000 

1,576,197,160 
211,650,000 
400,324,000 

98,836,600 
537,849,478 


267,752,468 

402,618,653 

1,455,069,323 

6,087,151,108 

424,970.592 

326,851,517 

2,000,000;000 

4,880,000,000 


Estimated  Value  of  Property  (Taxable  and  Exempt)  in  the  United  States 


1912 

1904 

1900 

1890 

1880 

(Taxable) 
(Gold 
Basis) 
1870 

(Taxable) 
i860 

(Taxable) 
1850 

Total  in  mil- 
lions   

Per  capita. . . 

$i87,739 
1,965 

$107,104 
1,318 

$88,517 
1,165 

$65,037 
1,036 

$43,642 
870 

$24,054 
624 

$16,159 
514 

$7,135 
308 

268.    THE    DISTRIBUTION    OF    WEALTH   IN    DIFFERENT 
COUNTRIES2 

By  the  use  of  the  curves  devised  for  the  purpose  by  Dr.  Max  O. 
Lorenz,  now  statistician  of  the  Interstate  Commerce  Commission, 
it  is  much  easier  to  portray  clearly  in  our  minds  the  relative  distribu- 

1  Taken  from  United  States  Bureau  of  the  Census,  Wealth,  Debt  and  Taxa- 
tion, 1913,  I,  21,  24-26. 

2  Taken  by  permission. from  W.  I.  King,  The  Wealth  and  Income  of  the  People 
of  the  United  States,  pp.  71-73,  93.     (The  Macmillan  Co.,  1915.) 


CONCENTRATION 


695 


tion  of  wealth  at  different  times  and  places.  If  each  family  were 
equally  wealthy,  evidently  one-fourth  of  the  population  would  possess 
one-fourth  of  the  wealth,  one-half  of  the  population  one-half  of  the 
wealth,  and  so  on,  and  the  resulting  graph  would  be  a  straight  line  at 
an  angle  of  forty-five  degrees,  as  shown  in  the  illustration.  The 
more  that  the  curves  actually  bow  away  from  this  line  the  more 
unequally  is  wealth  distributed.  The  curves  in  Fig.  1  are  bent  so 
very  far  -away  from  this  line  of  equal  distribution  that  they  indicate 
an  extremely  uneven  apportionment  of  goods. 


100        90 


10        60        so 
Percentage  of   Families, 
Beginning  with  the  Poorest 


Fig.  i.— A  comparison  by  Lorenz  curves  of  the  estimated  distribution  of 
wealth  in  different  countries. 

269.    PROPERTY  CONDITIONS  OF  THE  VARIOUS  CLASSES 

A1 

An  accurate  picture  of  the  property  conditions  of  the  various 
classes  is  given  in  Fig.  11. 

In  this  illustration,  the  relative  wealth  is  represented  by  cubes 
whose  volumes  are,  in  each  case,  proportional  to  the  money  values  of 

i  Taken  by  permission  from  W.  I.  King,  The  Wealth  and  Income  of  the  People 
of  the  United  States,  pp.  98-102.     (The  Macmillan  Co.,  1915.) 


696 


INDUSTRIAL  SOCIETY 


the  holdings.  In  the  United  Kingdom,  the  little  cube  representing 
the  average  wealth  of  almost  two-thirds  of  the  people  could  be 
removed  from  the  massive  cube  standing  for  the  average  wealth  of  the 
rich  without  causing  much  more  than  a  nick  in  the  corner,  and  the 


Prussia 


01       C5'         S3 


Prance 
1909  0 


U-  Kingdom 
1909  g) 


0 


Wisconsin 

UOO  g) 

Poorest 

65 
Per  Cent 


& 

Lower 
Mlddlo 
Class 
85-80 


a      0 


& 


0 


Upper 
Middle 
Class 
80-98 
Per  Cent 


■S   y 

/    X 

) 

/  / 

) 

Richest 
Per  Cent 


Fig.  ii. — Relative  money  value  of  the  property  held  by  the  average  family  in 
each  fraction  of  the  population. 


same  would  hold  true  to  a  slightly  less  degree  in  each  of  the  other 
countries.  In  the  great  civilized  nations,  then,  most  of  the  wealth 
is  in  possession  of  one-fifth  of  the  inhabitants,  but  this  does  not  mean 
that  the  benefits  of  property  are  circumscribed  to  the  same  extent. 
Even  the  lower  middle  class  enjoys  to  a  considerable  degree  the  first 
advantage  of  wealth  ownership — viz.,  the  power  to  provide  against 


CONCENTRATION  697 

lergency  and  disaster.     They  also  receive,  to  a  certain  extent,  the 

;ond  advantage  of  private  property— freedom  of  movement— but 

ds  only  accrues  in  full  measure  to  the  upper  middle  class.    The  lower 

iddle  class  hold  to  their  limited  possessions  with  even  greater 

lacity  than  do  the  rich  to  theirs;  for,  as  a  man  grows  poorer,  the 

ility  of  a  dollar  increases  in  far  greater  ratio  than  the  diminution  of 

wealth.     As  a  result,  even  the  small  property  possessed  by  the 

rer  middle  class  tends  to  render  its  members  stable  and  law-abiding 

Ld  strongly  opposed  to  all  forms  of  anarchy  and  violence.    Hence,  the 

>t  three  advantages  of  private  property  from  the  social  standpoint 

)ly  to  most  of  the  upper  third  of  the  population.     For  the  lower 

ro-thirds  all  of  these  are  absent.    Only  the  fourth  advantage  of 

•ivate  property— the  stimulus  to  wealth  accumulation— affects  the 

>orest  two-thirds  of  the  people. 

Turning  to  the  private  standpoint,  we  see  that  only  a  small 
linority — the  upper  middle  class  and  the  rich — possess  enough  prop- 
ty  to  derive  any  considerable  income  therefrom  to  supplement  the 
roceeds  of  their  toil. 

B1 

The  ownership  of  wealth  in  the  United  States  has  become  con- 
centrated to  a  degree  which  is  difficult  to  grasp.  The  recently  pub- 
lished researches  of  a  statistician  of  conservative  views  have  shown 
that  as  nearly  as  can  be  estimated  the  distribution  of  wealth  in  the 
United  States  is  as  follows:  The  "rick"  2  per  cent  of  the  people, 
own  60  per  cent  of  the  wealth.  The  " middle  class"  $3  Per  cent  °f 
the  people,  own  35  per  cent  of  the  wealth.  The  "poor"  65  per  cent 
of  the  people,  own  5  per  cent  of  the  wealth.  This  means  in  brief  that 
a  little  less  than  two  million  people,  who  would  make  up  a  city  smaller 
than  Chicago,  own  20  per  cent  more  of  the  nation's  wealth  than  all 

re  other  ninety  millions. 
The  figures  also  show  that  with  a  reasonably  equitable  division 
of  wealth  the  entire  population  should  occupy  the  position  of  comfort 
and  security  which  we  characterize  as  " middle  class." 

The  actual  concentration  has,  however,  been  carried  very  much 
further  than  these  figures  indicate.  The  largest  private  fortune  in 
the  United  States,  estimated  at  one  billion  dollars,  is  equivalent  to  the 
aggregate  wealth  of  2,500,000  of  those  who  are  classed  as  "poor," 

1  Taken  from  the  Final  Report  of  the  Commission  on  Industrial  Relations. 
pp.  23-31.     (Government  Printing  Office,  1915O 


698 


INDUSTRIAL  SOCIETY 


who  are  shown  in  the  studies  cited  to  own  on  the  average  about 
$400  each, 

270.    DISTRIBUTION  OF  INCOME1 

If  the  estimates  are  correct  the  curves  illustrating  the  relative 
distributions  of  income  in  Prussia  and  the  United  States  bear  as  close 
a  resemblance  to  each  other  as  did  those  for  the  same  nations  which 
portrayed  the  distribution  of  wealth.     This  gives  additional  evidence 

3500 


1500 


1000 


P-    ViB- 


Poorest 

65 
Per-Cent 


R     U.8- 


Lower  Middle 

Class 

06-80 

"Per  Cent 


1 


£.     L.B. 


Upper  Middle 

Class 

80-88 

Per  Cent 


U.I 


Richest 

2 
Per  Cent 


*• ,  "-q- 


All 
Classes 


Fig.  29. — Average  per  capita  money  income  of  each  fraction  of  the  population 
in  Prussia  and  the  United  States. 

in  support  of  the  theory  that  the  relative  distribution  of  wealth  and 
income  is  dependent  rather  upon  the  laws  governing  industry  than 
upon  the  geography  or  natural  resources  of  the  country  concerned. 
This  is  indicated  by  the  fact  that  the  relative  distribution  is  very 
similar  in  Prussia  to  that  in  the  United  States  while,  at  the  same 
time,  Prussia  is,  absolutely,  extremely  poor  both  in  wealth  and  income 
as  compared  to  its  American  neighbors. 

1  Taken  by  permission  from  W.  I.  King,  The  Wealth  and  Income  of  the  People 
of  the  United  Stales,  pp.  232-37.     .(The  Macmillan  Co.,  1915.) 


I  CONCENTRATION  699 

The  richest  fifth  of  the  families  in  each  country. claims  about  half 
e  income— in  Prussia  the  fraction  being  a  trifle  more,  and  in  the 
lited  States  a  trifle  less. 
So  much  for  the  similarities.    The  differences  appear  when  we 
;ompare  the  absolute  amounts  as  is  done  in  Fig.  29  (p.  698). 

This  illustration  shows  us  that  every  fraction  of  the  American 
>ple  possesses  double  or  nearly  treble  the  income  of  the  correspond- 
classes  in  Prussia — and  yet  we  Americans  complain  greatly  of 
>verty! 

The  British  Board  of  Trade  reports  show  that  in  the  two  countries 

ie  prices  are  not  materially  different  for  most  articles.    House  rent 

id  vegetables  are  two  items  that  are  cheaper  in  Prussia,  and  with 

>tatoes  to  eat  and  a  roof  over  its  head,  a  family  can  live.    Yet 

issia  is  not  counted  one  of  the  poor  nations  of  Europe. 

D.     Poverty 
271.    THE  STANDARD  OF  LIVING1 

"The  amount  of  comforts  or  luxuries  customarily  enjoyed  by  any 
class  of  men  forms  the  'standard  of  living'  of  that  class."  There  is 
also  an  "ideal"  standard  of  living  which  is  always  in  advance  of 
achieved  satisfaction. 

What  is  the  content  of  the  lowest  tolerable  standard  of  living? 
In  the  first  place,  there  must  be  food,  clothing,  and  shelter  sufficient 
to  maintain  economic  efficiency.  Under  shelter  are  included  light, 
fuel,  and  necessary  furniture.  If  economic  efficiency  is  to  be  pre- 
served, there  must  be  provision  against  sickness  and  unemployment; 
for,  unless  his  strength  is  maintained  during  idleness,  when  he  returns 
to  work  the  individual  is  unfit  for  his  stint.  Moreover  the  man's 
standard  must  include  a  family,  else,  in  a  generation,  production  will 
cease. 

But  this  view  of  the  purpose  of  man  is  far  too  narrow.  Few 
people  would  today  have  the  hardihood  to  deny  that  man's  life  should 
contain  the  largest  possible  amounts  of  wholesome  pleasure.  This 
means  that  with  a  normal  standard  of  living  the  house  should  contain 
a  room  fit  for  entertainment  of  company,  that  the  family  should  have 
clothes  which  will  enable  them  to  appear  in  public  without  shame, 
and  that  the  routine  should  include  some  leisure  for  polite  intercourse. 

1  Adapted  by  permission  from  F.  H.  Streightoff,  The  Standard  of  Living  among 
the  Industrial  People  of  America,  pp.  5-6.     (Houghton  Mifflin  Co.,  191 1.) 


700  INDUSTRIAL  SOCIETY 

Still,  if  man  is  to,  be  an  end  in  himself  he  must  have  more  than  this. 
He  needs  some  education,  books,  pictures,  and  wholesome  recreation; 
he  must  have  time  for  the  home  life.  Beside  all  these  things,  a 
normal  standard  of  living  contains  provision  for  all  emergencies, 
sickness,  accident,  unemployment,  and  death,  and  for  material 
advance  savings;  religion,  too,  should  be  in  the  routine.  So  the 
ideal  standard  of  living  demands  the  satisfaction  of  reasonable  wants 
of  both  body  and  intellect  and  includes  an  ambition  to  improve. 

A  clear  understanding  of  what  the  standard  of  living  is  permits 
some  appreciation  of  its  significance.  Unless  they  believe  that  their 
descendants  will  be  able  to  maintain  the  parental  standard  men  will, 
if  thoughtful,  refuse  to  become  fathers.  By  this  limiting  of  propaga- 
tion, the  standard  of  living  limits  the  number  of  wage-workers,  and 
so,  if  high  enough,  it  can  change  the  ratio  of  supply  to  demand  for 
labor  and  thus  raise  compensation.  In  a  much  more  simple  and 
direct  way,  however,  the  desire  for  a  higher  standard  of  living  decides 
the  minimum  pay  demanded  by  trades  unions  and  operates  to  increase 
earnings.  More  satisfactions  will  breed  new  wants,  yet  higher  wages 
will  be  sought,  and  so  the  process  will  continue.  In  this  way  the 
" ideal"  standard  of  living  is  the  key  to  the  material  progress  of  the 
industrial  classes. 

272.    THE  NATURE  AND  EXTENT  OF  POVERTY1 

The  word  "poverty"  is,  in  ordinary  usage,  applied  indifferently 
to  three  distinct  conditions:  (a)  economic  inequality,  (b)  economic 
dependence,  and  (c)  economic  insufficiency.  A  man  is  said  to  be  poor 
in  mere  contrast  to  his  neighbor  who  is  rich;  this  is  economic  in- 
equality. Almshouses  and  public  relief  minister  to  those  who  in  the 
eye  of  the  state  are  poor;  this  is  economic  dependence.  Midway 
between  the  modestly  circumstanced  and  the  outright  dependent 
are  the  poor  in  the  sense  of  the  inadequately  fed,  clad,  and  sheltered; 
this  is  economic  insufficiency. 

It  is  poverty  in  the  sense  of  economic  insufficiency— i ts  wide 
extent,  its  assumed  necessity,  its  tragic  consequence — that  forms  the 
real  problem.  There  are  great  bodies  of  people  in  country  and  in  city 
who  from  birth  have  less  than  enough  food,  clothing,  and  shelter;  who 
from  childhood  must  toil  long  and  hard  to  secure  even  that  insufficient 
amount;  who  can  benefit  little  from  the  world's  advance  in  material 
comfort  and  in  spiritual  beauty  because  their  bodies  are  under- 

1  Adapted  by  permission  from  J.  H.  Hollander,  The  Abolition  of  Poverty, 
pp.  1-8.     (Houghton  Mifflin  Co.,  1914.) 


I 


CONCENTRATION  701 


ourished,  their  minds  overstrained,  and  their  souls  deadened  by 
bitter  struggle  with  want.  These  are  the  real  poor  of  every  community 
—the  masses  who,  not  lacking  in  industry  and  thrift,  are  yet  never 
really  able  to  earn  enough  for  decent  existence  and  who  toil  on  in 
constant  fear  that  bare  necessities  may  fail. 

Neither  racial  qualities  nor  national  characteristics  account  for  the 
presence  of  such  poverty.  It  persists  as  an  accompaniment  of 
modern  economic  life,  in  widely  removed  countries  among  ethnically 
different  peoples.  It  cannot  be  identified  with  alien  elements  in 
native  race  stocks.  Countries  which  have  for  generations  been 
relatively  free  from  foreign  influx  and  have  developed  industrialism 
from  within  exhibit  the  same  phenomenon  of  economic  want.  Whole- 
sale immigration  is  likely  to  be  attended  by  urban  congestion  and 
industrial  exploitation,  but  these  are  supplementary  phases  of  the 
problem  of  poverty.  Even  in  the  United  States,  where  immigration 
has  attained  proportions  unexampled  in  the  world's  history,  there 
is  no  reason  to  believe  that  such  influx— bearing  in  mind  the  part  it 
has  played  in  creating  and  enlarging  industrial  opportunity — has 
permanently  affected  the  condition  of  poverty. 

Appalling  in  its  own  misery,  this  mass  of  poverty  takes  on  even 
greater  significance  as  the  supply  source  of  pauperism.  Not  only  is 
the  interval  between  insufficiency  and  dependence  at  all  times  narrow, 
but  the  inability  to  provide  against  mishap  or  calamity,  indeed  the 
very  conditions  of  body  and  mind  which  grow  out  of  undernourishment 
and  overcrowding  make  fatally  easy  the  transition  from  self-support 
to  dependence.  Poverty  has  thus  been  likened  to  a  treacherous 
footpath  encircling  the  hopeless  morass  of  pauperism.  Those  who 
tread  it  are  in  constant  danger,  even  with  the  exercise  of  care  and 
foresight,  of  falling  or  of  slipping  or  of  being  crowded  off.  This 
insecure  foothold,  once  lost,  is  not  likely  again  to  be  regained; 
the  fallen  are  added  to  the  wretched  of  body  or  chronically 
dependent. 

The  probable  amount  of  such  poverty  is  as  impressive  as  its 
evident  quality.  In  the  unfortunate  absence  of  any  direct  enumera- 
tion, recourse  must  be  had  to  reasonable  computation.  The  remark- 
able study  of  the  nature  and  extent  of  poverty  in  the  United  States 
made  by  Robert  Hunter  ten  years  ago,  and  still  the  only  serviceable 
survey  of  the  subject,  sets  forth  that,  in  the  industrial  commonwealths 
of  the  United  States,  probably  as  much  as  20  per  cent  of  the  total 
population  are  ordinarily  below  the  poverty  line.  If  one-half  of  this 
estimate  be  applied  to  the  other  commonwealths,  the  conclusion  is 


702  INDUSTRIAL  SOCIETY 

that  in  fairly  prosperous  years  "no  less  than  10,000,000  persons  in  the 
United  States  are  in  poverty."  In  this  computation  a  purely  physical 
standard — "a  sanitary  dwelling  and  sufficient  food  and  clothing  to 
keep  the  body  in  working  order" — defines  the  poverty  line,  with  no 
monetary  allowance  for  intellectual,  aesthetic,  moral,  or  social  require- 
ments. 

Hunter's  estimate  seemed  at  the  time  incredible,  even  though 
the  aggregate  included  4,000,000  persons  dependent  upon  some  form 
of  public  relief;  but  the  computation  was  in  harmony  with  the  investi- 
gations of  Booth  in  East  London  and  with  the  inquiry  of  Rowntree 
in  York.  It  has  not  only  since  maintained  itself  against  any  serious 
challenge,  but  it  has  found  confirmation  in  other  accredited  studies 
of  living  conditions  in  this  country  and  abroad. 

One  of  the  most  recent,  as  well  as  most  instructive,  of  such 
investigations  was  made  in  the  autumn  of  19 12  into  the  general 
economic  conditions  of  the  working-class  of  Reading,  England,  by 
the  statistical  method  of  sampling.  Accepting  a  carefully  determined 
minimum  standard  for  food,  clothing,  and  other  purchases  barely 
sufficient  to  keep  workers  efficient  and  dependents  nourished,  it 
was  found  that  from  25  to  30  per  cent  of  the  working-class  popula- 
tion of  Reading  were,  in  191 2,  so  far  as  they  were  dependent  upon 
earnings,  pensions,  or  possessions,  below  this  minimum  standard. 
Further,  it  appeared  that  more  than  half  of  the  working-class  children 
of  Reading  during  some  part  of  their  first  fourteen  years  lived  in  house- 
holds where  the  standard  of  life  in  question  was  not  attained.  Not 
all  the  towns  of  the  United  Kingdom  would  afford  so  depressing  an 
exhibit.  But  making  all  reasonable  allowance,  Mr.  Bowley  reached 
the  conclusions  that  somewhat  over  13  per  cent  of  the  industrial 
working-class  population  of  Great  Britain  are  below  the  standard  at 
any  one  time,  as  compared  with  15  .5  per  cent  in  York  and  25  to  30 
per  cent  in  Reading;  that  a  very  much  larger  proportion  of  families 
pass  below  the  standard  at  one  time  or  another,  and  that  the  propor- 
tion of  children  affected  is  much  greater  than  the  proportion  of  adults. 

273.    CAUSES  OF  POVERTY1 

There  are  two  fundamental  causes  of  poverty,  related  in  their 
nature,  but  here  distinguished  for  convenience  of  argument:  (1)  waste 
of  human  power;    (2)  inequitable  distribution  of  opportunities. 

1  Adapted  by  permission  from  J.  A.  Hobson,  The  Crisis  of  Liberalism,  pp.  162- 
74.     (P.  S.  King  &  Son,  Ltd.,  1909.) 


I 


CONCENTRATION  7q3 


i.  We  produce  as  a  nation  an  annual  income  of  material  goods 
and  services  estimated  at  about  £1,800,000,000  per  annum,  and  this 
amount  of  money  income  is  distributed  as  wages,  profits,  interest, 
rent,  etc.,  to  those  who  own  labour-power,  business  energy,  land,  or 
capital,  which  contributes  to  this  output.  This  sum  of  wealth  (some 
of  it,  alas,  is  "illth"!)  sounds  big,  and  is  complacently  compared  with 
the  smaller  national  income  of  a  generation  ago.  In  reality  it  is  very 
little  compared  with  what  we  could  produce  if  we  applied  intelligently 
and  economically  our  existing  powers  of  production. 

Economists  are  fond  of  dwelling  upon  the  delicate  and  elaborate 
mechanism  of  industry  and  commerce,  working  by  intricate  adjust- 
ment of  parts  to  make  and  distribute  commodities  over  the  face  of  the 
earth.  In  point  of  fact,  the  machine  works  very  clumsily,  with  count- 
less dislocations,  innumerable  wastes  of  power,  and  almost  intolerable 
creaking. 

Much  of  this  waste  is  visible.  Wherever  we  look  we  find  during 
long  periods  of  time  great  quantities  of  capital  and  labour  lying  idle— 

t unemployed,  underemployed,  or  misemployed.  Everywhere  the 
te  of  duplication,  new  factories  built  where  the  existing  plant  is 
>ssive,  new  shops  arising  to  divide  the  custom  of  established  shops, 
the  endless  multiplication  of  agents,  branches,  commercial  clerks,  and 
travellers,  the  constantly  growing  proportion  of  human  energy  drawn 
off  from  effective  production  to  wasteful  competition.  I  do  not  say  all 
competition  is  wasteful:  our  present  system  requires  competition. 
But  where  six  competing  grocers  in  a  neighbourhood  do  the  distribut- 
ing work  which  could  be  done  by  two,  the  work  of  the  other  four  is 
costly  waste.  This  is  the  normal  state  over  large  areas  of  manufac- 
ture and  of  commerce. 

But  the  invisible  wastes,  due  to  a  failure  to  apply  existing  funds  of 
knowledge  to  the  actual  work  of  production,  are  still  greater.  Anyone 
acquainted  with  the  sciences  of  chemistry  and  mechanics,  who  knows 
what  is  being  done  in  various  parts  of  the  world  by  an  intelligent 
application  of  these  sciences  to  the  arts  of  manufacture,  by  improved 
machinery,  utilisation  of  waste,  economies  of  power,  will  perceive 
that  lack  of  efficient  education,  ignorance,  and  apathy,  absence  of 
keen  direction  and  bold  experiment,  weigh  down  enormously  the 
productivity  of  our  nation. 

Is  it  not  pretty  clear  that  if  England  could  stop  these  visible 
and  invisible  wastes,  could  organize  her  actually  available  resources 
for  the  production  of  wealth,  she  could  treble  or  quadruple  her  output 


704  INDUSTRIAL  SOCIETY 

of  material  wealth  without  any  increase  of  human  strain  ?  It  is  evi- 
dent that  poverty  is  not  any  longer  necessary  because  the  nation 
cannot  make  enough  wealth  to  "go  all  around." 

2.  The  main  cause  of  poverty  is  inequality  of  opportunity, 
because  such  inequality  implies  a  waste  of  productive  power  upon  the 
one  hand,  bad  distribution  or  waste  of  consuming  power  on  the  other. 

There  is  something  pathetic  in  reading  the  history  of  the  great 
Chartist  movement  to  recall  the  enthusiastic  confidence  of  the  workers 
of  that  day  in  the  immediate  efficacy  of  mere  political  machinery. 
Give  us,  they,  said,  shorter  Parliaments,  ballot,  etc.,  and  the  will  of 
the  people  will  find  free  expression  in  legislation  for  the  common 
good. 

Most  of  the  six  points  of  the  Charter,  not  all,  have  been  won,  but 
now  we  need  a  new  People's  Charter  with  six  new  points: 

a)  The  value  and  the  use  of  land  for  the  People. 

b)  Public  ownership  of  the  effective  highways  of  the  country, 
railways,  tramways,  canals,  and  suppression  of  the  abuses  of  "ship- 
ping conferences,"  controlling  transport  on  our  waterways. 

c)  Public  organisation  of  credit  and  insurance,  essentials  of  modern 
business. 

d)  Full  freedom  of  education;  equal  access  for  all  to  the  social 
fund  of  culture  and  of  knowledge. 

e)  Equal  access  to  public  law.  The  entire  cost  of  justice  to  be 
defrayed  out  of  the  public  purse,  and  the  machinery  of  the  law  courts 
free  to  all  citizens. 

/)  The  assertion  of  the  popular  power  to  tax  or  control  any  new 
form  of  monopoly  or  inequality  which  may  spring  up  in  the  changing 
conditions  of  modern  communities. 

It  is  right  to  add  that,  not  even  so  interpreted,  can  this  charter 
stand  alone.  Opportunities  proverbially  belong  to  the  young.  There 
is  a  mass  of  poverty  which  is  past  the  age  of  opportunity,  but  which 
no  wise  or  humane  nation  can  ignore. 

For  this  reason  the  curative  policy  here  expounded  needs  to  be 
supplemented  by  palliative  measures  which  cannot  be  defended  as 
organic  reforms,  but  which  belong  to  the  realm  of  public  charity. 
Those  who  realise,  not  merely  as  a  sentimental  phrase  but  a  scientific 
truth,  the  responsibility  of  society  for  poverty  will  not  grudge  the 
most  generous  outlay  of  public  money  for  dealing  gently  and  humanely 
with  the  debilitated  and  often  demoralised  lives  which  form  the  social 
wreckage  of  our  nation. 


CONCENTRATION  705 

See  also  112.         What  Mobility  Really  Involves. 
222.         The  Lot  of  the  Workingman. 
228-245  on  Some  Structures  Designed  to  Meet  the  Diffi- 
culties in  Which  the  Worker  Finds  Himself. 

369.  Property  for  Use;  Property  for  Power. 

370.  Property  at  Its  Zenith. 
413-         Some  Suggestions  Concerning  the  Direction  of 

Social  Control. 
414.         A  Vision  of  Social  Efficiency. 

274.     SUGGESTED  CURES  FOR  POVERTY 


Whatever  may  be  true  of  more  primitive  communities,  the  char- 
eristic  note  of  modern  poverty  is  its  association,  not  with  personal 
misfortunes  peculiar  to  individuals,  but  with  the  economic  status 
of  particular  classes  and  occupations.  The  problem  of  poverty,  as 
our  generation  understands  it,  is  not  primarily  why  certain  people 
fall  into  distress.  It  is  why  the  product  of  industry  is  distributed 
in  such  a  way  that,  whether  people  fall  into  distress  or  not,  large 
groups  among  them  derive  a  meager,  laborious,  and  highly  precarious 
living  from  industries  from  which  smaller  groups  appear  to  derive 
considerable  affluence.  The  problem  of  preventing  poverty  is  not 
primarily  to  assist  individuals  who  are  exceptionally  unfortunate. 
It  is  to  make  the  normal  conditions  under  which  masses  of  men  work 
and  live  such  that  they  may  lead  a  healthy,  independent,  and  self- 
respecting  life  when  they  are  not  exceptionally  unfortunate ;  so  that, 
when  they  are  exceptionally  unfortunate,  misfortune  may  not  descend 
upon  them  with  the  crushing  weight  with  which  it  falls  today  upon 
large  sections  of  the  working  classes,  for  many  of  whom  an  accident 
or  an  error  means  economic  ruin. 

Improve  the  character  of  individuals  by  all  means — if  you  feel 
competent  to  do  so — especially  of  those  whose  excessive  incomes 
expose  them  to  peculiar  temptations.  This  is  a  good  in  itself  which 
needs  no  justification.  But  unemployment,  short  time,  and  low 
wages  fall  upon  the  just  and  the  unjust  alike.  And  assuming— an 
surd  assumption — that  you  have  eliminated  all  those  whose  personal 


ab! 


1  Adapted  by  permission  from   R.  H.  Tawney,  "Poverty  as  an  Industrial 
Problem,"   Memoranda   on   Problems  of  Poverty,  -II,  10-18.     (The  Ratan  Tata 
ndation,  University  of  London,  1913.) 


Foundatic 


706  INDUSTRIAL  SOCIETY 

characteristics  cause  them  to  fall  below  the  average  in  energy  and 
foresight,  there  still  remains  the  fact  that  the  normal  conditions  of  the 
normal  worker  are  precarious,  that  the  barrier  which  separates  him 
from  actual  distress  is  thin,  and  that  his  economic  prospects  are  to 
a  great  extent,  except  in  a  very  few  well-organized  industries,  beyond 
control  of  himself  or  of  persons  like  himself.  If  I  am  told  that  indi- 
viduals here  and  there  do  in  fact  succeed  by  exceptional  effort  or  good 
fortune  in  doing  what  is  called  "  rising,"  I  answer  that  this  is  no  doubt, 
so  far  as  it  goes,  a  matter  for  congratulation,  but  that  it  leaves  almost 
unaltered  the  general  problems  arising  from  the  existence  of  economic 
inequality.  " Sweating"  does  not  disappear  from  our  towns  because 
a  certain  number  of  those  who  are  sweated  become,  as  they  do, 
sweaters  in  their  turn,  any  more  than  tadpoles  disappear  from  our 
ponds  because  a  large  number  of  them  are  annually  converted  into 
frogs;  and  the  vision  of  an  Elysium  to  be  attained  by  continuing  to 
play  with  marked  cards  and  simply  shuffling  the  pack,  by  everyone 
who  is  squeezed  now  watching  for  his  opportunity  of  squeezing  in 
the  future,  is,  happily,  as  impracticable  as  it  is  sordid. 

The  reason  for  holding  that  the  main  problem  with  which  the 
student  of  social  conditions  is  concerned  is  not  so  much  that  of  the 
man  below  the  margin  as  that  of  the  low  normal  standard,  must  be 
justified  by  an  appeal  to  experience.  It  is  that  if  any  group  of  people 
have  what  may  be  called,  for  want  of  a  better  phrase,  adequate 
economic  resisting  power,  they  may  usually  be  relied  upon  themselves 
to  protect  the  weaker  members  of  the  group  against  the  principal 
accident  of  life;  whereas,  if  they  have  not,  merely  to  supplement 
their  immediate  needs  is  often  to  pour  sand  through  a  sieve,  a  process 
at  once  tantalising  and  degrading  to  the  performer,  and  positively 
maddening  to  the  subjects  of  his  operations,  who  want  not  to  be  given 
their  living  by  someone  else  but  to  earn  it  under  fair  conditions  for 
themselves.  It  is  in  proportion  to  its  possession  of  such  resisting 
power  that  a  class  is  able,  when  some  larger  protective  apparatus 
than  the  family  is  needed,  to  build  up  its  own  institutions  with  its 
own  habits  and  ideals,  to  interpose  a  whole  network  of  personal  rela- 
tionship between  the  individual  and  either  the  offensive  intrusion  of 
sympathetic  outsiders  or  the  bare  machinery  of  bureaucracy.  It  is 
in  Lancastershire,  where  labour  is  protected  by  factory  acts  and  trade 
unions,  not  in  East  London,  where  it  is  not,  that  family  life,  co- 
operation, friendly  societies,  education,  social  institutions  for  a  hun- 
dred different  purposes,  find  their  fullest  development. 


CONCENTRATION  707 

Is  it  beyond  the  power  of  society  to*  increase  this  capacity  for 
resistance  in  those  of  its  members  who  are  in  a  weak  position  ?  Cer- 
tainly not— provided  it  really  desires  to  do  so.  It  is  done  in  one 
sphere  by  public  health  legislation,  in  another  by  factory  legislation, 
in  a  third  by  education.  It  is  done  by  action  which  substitutes 
regular  for  casual  employment,  for  example  by  employing  a  permanent 
staff  on  a  weekly  wage,  which  is  the  practice  at  some  docks  on  the 
continent,  instead  of  engaging  men  by  the  half-day,  which  is  the 
practice,  as  far  as  I 'know,  at  all  docks  in  England.  It  is  done  by 
taxation  which  transfers  economic  surpluses  from  private  individuals 
to  the  public.  It  is  done  by  direct  intervention  to  raise  wages,  and 
could  and  should  be  done  far  more  vigorously  and  persistently. 

It  is  a  mistake  to  think  that  economic  resisting  power,  if  it  develops 
at  all,  must  always  develop  spontaneously.  The  possession  of  It 
depends  on  a  combination  of  factors  which  none  but  the  most  for- 
tunate individual  can  determine  for  himself — the  distribution  of 
property,  the  organization  of  industry,  the  regularity  of  employment, 
the  level  of  wages,  the  healthiness  of  the  environment;  and  when  it 
is  absent  it  is  little  use  urging  individuals  to  display  the  character- 
istics which  develop  spontaneously  when  it  js  present.  To  expect 
an  English  agricultural  labourer  to  exercise  the  thrift  of  a  small 
landed  proprietor,  or  a  bricklayer's  labourer  the  independence  and 
professional  pride  of  a  cotton-spinner,  or  a  dock  labourer,  whose 
life  is  a  weekly  gamble  between  £2  and  nothing,  the  foresight  of  an 
official  with  a  quarterly  salary,  is  like  asking  people  to  be  clean  in 
Manchester  or  free  from  sickness  on  the  West  Coast  of  Africa. 

Since  one  cannot  skip  a  generation,  the  administrator  concerned 
with  the  alleviation  of  existing  destitution  will  always  have  his  hands 
full.  But  on  a  long  view  social  science,  like  medical  science,  is  most 
practical  when  it  least  considers  what  is  immediately  practicable. 
No  one  would  suggest  that  it  would  have  been  better  to  spend  the 
noney  devoted  to  discovering  the  bacillus  which  produces  sleeping 
sickness  to  alleviating  more  of  the  individuals  suffering  from  that 
iisease;  and  no  one  should  suggest  that  work  on  industrial  or  sani- 
:ary  administrative  organization  is  wasted  because  it  does  not  imme- 
liately  alleviate  poverty.  It  is  less  urgent,  I  would  suggest,  for  the 
;tudent  of  poverty  to  devote  himself  to  the  consideration  of  the  pal- 
iatives  with  which  the  administrator,  who  lives  in  the  present,  is 
:oncerned,  than  it  is  to  endeavor  to  discover  whether  these  things 
ire  really  necessary  or  not. 


708  INDUSTRIAL  SOCIETY 


Poverty  is  as  unnecessary  as  malaria  or  yellow  fever.  Let  that 
be  stated  once  and  for  all.  But  there  is  a  right  way  and  there  are 
multitudes  of  wrong  ways  of  trying  to  cure  any  of  these  maladies. 
The  so-called  orthodox  economist  believes  that  if  the  state  would  do 
a  few  right  things  it  would  then  be  unnecessary  to  do  the  thousand 
and  one  wrong  or  ineffective  things  now  being  advocated  in  behalf 
of  "labor." 

Not  only  is  poverty  unnecessary,  but  we  can  have  any  degree 
of  equality  we  want  if  we  are  willing  to  pay  the  price  and  if  we  are 
willing  to  work  in  harmony  with  economic  law  rather  than  against  it. 
Moreover,  we  can  have  this  equality  without  attacking  the  compet- 
itive system,  the  institution  of  private  capital,  of  freedom  of  contract, 
of  freedom  of  initiative  and  enterprise,  or  any  of  the  social  institu- 
tions which  have  helped  us  thus  far  in  our  progress.  We  can  have 
equality  as  between  different  occupations,  and  still  leave  every  man 
to  conduct  his  own  business,  everyone  to  find  his  own  employment, 
every  farm,  shop,  store,  and  factory  to  be  run  as  private  enterprises. 
This  would  be  as  much  better  than  socialism  as  a  living  organism  is 
better  than  a  machine. 

After  all  is  said  that  can  be  said  about  poverty,  we  come  back  in 
our  saner  moments  to  the  question,  Why  does  the  poor  man's  labor 
sell  for  so  little  ?  Why  does  his  service  bring  so  low  a  price  ?  This  is 
a  question  of  value  and  price.  Until  we  are  willing  to  face  this  ques- 
tion and  reason  it  out  as  we  would  the  question  of  the  price  of-  any- 
thing else,  we  shall  never  get  very  far.  The  question  of  the  low  price 
of  the  poor  man's  labor  resolves  itself  into  the  two  questions,  Why  is 
the  demand  for  his  labor  so  small  ?  and,  Why  is  the  supply  so  large  ? 
When  we  are  in  a  position  to  answer  these  two  questions  we  shall  then, 
but  not  before,  be  able  to  suggest  constructive  remedies.  That  is, 
we  can  then  begin  to  study  how  to  make  the  demand  greater  and  how 
to  make  the  supply  smaller.  Working  along  this  line,  we  can  go 
as  far  in  the  direction  of  equality  as  we  really  care  to,  provided  we  are 
willing  to  work  consistently  and  accept  the  consequences  of  equality 
when  they  come.  We  shall  also  find  that  equality  is  quite  consistent 
with  the  private  ownership  of  capital,  with  the  competitive  system, 
with  freedom  of  initiative,  freedom  of  enterprise,  etc. 

1  Adapted  by  permission  from  T.  N.  Carver,  Essays  in  Social  Justice,  pp.  349- 
51.     (Harvard  University  Press,  191 5.) 


CONCENTRATION  709 

III.     CONCENTRATION  OF  PRIVATE  CONTROL  OF  INDUS- 
TRIAL ACTIVITIES 

A.  Problems  at  Issue 

By  concentration  of  private  control  of  industry  we  mean  the  power 
of  a  given  individual  or  group  of  individuals  to  exercise  an  amount  of 
control  over  industry  quite  out  of  proportion  to  their  numerical 
importance.  This  control  may  be  exercised  in  one  of  two  main  ways : 
It  may  mean  control  of  the  apportionment  of  productive  energy 
into  various  channels,  or  it  may  mean  the  control  of  the  activities 
and  operations  of  a  given  business,  granted  that  productive 'energy 
has  already  been  committed  to  this  particular  channel.  This  latter 
form  of  control  may  flow  from  a  simple  ownership  of  a  controlling 
interest  in  the  business,  no  matter  what  form  of  business  organization 
may  have  been  used;  or  from  the  use  of  various  devices  in  connection 
with  the  corporate  form  of  organization;  or  from  various  other  con- 
trolling devices  which  may  or  may  not  constitute  what  is  popularly 
known  as  a  "trust"  or  "industrial  combination." 

Concentration  of  the  ownership  of  wealth  and  concentration  of 
private  control  of  industrial  activities  may  or  may  not  go  hand  in 
hand.  Take  the  case  of  a  capitalist  who  invests  heavily  in  the  bonds 
of  a  single  company.  Since  he  is  a  wealthy  capitalist,  we  have  here 
a  case  of  concentration  of  the  ownership  of  wealth.  There  is  also 
concentration  of  private  control  of  industrial  activities  in  the  sense 
that  this  capitalist  is  able  through  his  ownership  of  wealth  to  direct 
social  energy  into  a  given  channel.  Once  his  wealth  is  in  that  channel, 
however,  he  has  little  to  say  with  respect  to  control  of  the  activities 
and  operations  of  the  specific  business,  since  he  is  only  a  bondholder. 
Or,  take  the  case  of  a  wealthy  capitalist  who  invests  lightly  in  the 
bonds  of  many  companies.  Here  also  we  have  concentration  of 
ownership  and  accordingly  concentration  of  control  of  the  flow  of 
productive  energy,  but  no  concentration  of  control  of  the  operations 
and  activities  of  the  businesses.  On  the  other  hand,  if  a  wealthy 
capitalist  invests  heavily  in  the  stocks  of  a  single  company,  we  have 
a  case  of  concentration  of  ownership,  concentration  of  the  control 
of  the  direction  of  productive  energy,  and,  provided  the  amount  of  his 
holdings  is  sufficient,  concentration  of  the  control  of  the  activities  and 
operations  of  the  particular  business.  If,  finally,  this  capitalist  invests 
very  lightly  in  the  stocks  of  many  companies,  we  have  concentration 
of  ownership,  concentration  of  control  of  the  flow  of  productive 


710  INDUSTRIAL  SOCIETY 

energy,  but  there  is  nothing  in  the  case  which  necessarily  means 
concentration  of  control  of  the  particular  activities  of  the  plant. 

In  this  section,  concentration  of  the  control  of  the  flow  of  produc- 
tive energy  into  various  channels  will  not  be  considered  at  length. 
The  topic  is  a  very  important  one  but  it  has  already  been  treated  to 
some  extent  in  selections  105-112  on  the  apportionment  of  productive 
energy,  and  it  will  be  taken  up  again  when  we  discuss  the  guidance 
of  economic  activity  in  chapter  xii.  In  this  present  section  our  atten- 
tion will  be  given  mainly  to  a  consideration  of  the  concentration  of 
control  of  the  activities  and  operations  of  given  businesses,  once  it 
has  been  decided  to  commit  productive  energy  to  these  enterprises. 

In  popular  discussions  of  this  subject,  the  trust  or  industrial 
combination  movement  has  received  an  amount  of  attention  quite 
disproportionate  to  its  importance.  The  trust  movement  is,  of  course, 
a  significant  phase  of  our  modern  industrial  life,  and  it  is  clearly  a 
case  of  concentration  of  private  control  of  industrial  activities.  If, 
however,  this  monopolistic  phase  of  concentration  of  control  had 
never  taken  place,  we  should  nevertheless  be  justified  in  giving 
extended  treatment  to  the  concentration  of  private  control  of  indus- 
trial activities.  The  occasion  for  this  concentration  is  found  in  many 
of  the  outstanding  features  of  our  industrial  system.  The  devices 
used  in  bringing  the  concentration  about  may  or  may  not  be  devices 
which  are  also  used  in  trust  formation. 

QUESTIONS 

1.  Define  or  explain:  (a)  the  one-man  corporation,  (b)  the  voting  trust, 
(c)  limited  voting,  (d)  cumulative  voting,  (e)  preferred  stock,  (/)  holding 
company,  (g)  trust,  (h)  monopoly,  (i)  pool,  (J)  interlocking  directorates, 
(k)  community  interest,  (/)  reorganization,  (m)  rebates,  (n)  merger, 
(0)  amalgamation,  (p)  vertical  combination,  (g)  sequence  combination, 
(r)  horizontal  combination,  (s)  Interstate  Commerce  Commission, 
(/•)  Federal  Trade  Commission. 

2.  "The  corporation  has  made  possible  a  centralization  of  power."  Just 
how  ?    Is  the  corporation  an  indispensable  antecedent  of  concentration  ? 

3.  "Very  frequently  a  solid  block  of  20  per  cent  of  the  stock  of  a  corpora- 
tion will  give  effective  control  of  that  corporation.  Ordinarily  it  is  not 
necessary  to  have  as  high  as  51  per  cent  of  the  stock  in  order  to  control." 
How  can  this  be  true  ?  Would  it  be  true  under  a  system  of  cumulative 
voting  ? 

4.  Explain  in  detail  a  process  by  which  the  holders  of  ten  million  dollars' 
worth  of  securities  may  be  able  to  control  one  hundred  million  dollars' 
worth. 


CONCENTRATION  7n 

What  is  meant  by  saying  that  the  drift  of  modern  industry  in  America 
has  caused  the  stockholder  to  have  a  small  sense  of  responsibility? 
Is  it  true  ?     If  so,  why  has  it  occurred  ? 

Do  you  understand  that  a  voting  trust  is  designed  to  protect  minority 
stockholders  or  designed  to  guarantee  continuity  of  the  policy  desired 
by  majority  stockholders  ? 

"In  time  of  reorganization  the  defenseless  securityholders  must  take 
whatever  plan  is  offered,  however  unjust."  On  what  grounds  can  this 
be  said  ? 

11  Concentration  of  control  can  be  brought  about  through  the  manipula- 
tion of  securities."     What  does  this  mean  ? 
Make  a  list  of  ways  in  which  corporations  may  be  "associated." 
"Interlocking    relationships   are   brought    about   for   these   reasons: 
(a)  interlocking  for  financial  or  credit  purposes;    (b)  interlocking  for 
industrial  and  commercial  purposes;    (c)  interlocking  for  the  purpose 
of  construction  and  operation;    (d)  interlocking  to  restrain  competi- 
tion."    Show  how  there  could  be  any  advantage  in  each  of  these  four 
cases.     Is  the  advantage  to  the  manager  or  to  society  ? 
What  is  meant  by  saying  that  an  interlocking  directorate  runs  counter 
to  the  whole  scheme  of  organization  of  the  corporation  in  that  it  permits 
a  director  to  have  conflicting  interests  ? 

Is  there  any  causal  connection  between  the  corporation  and  the  con- 
centration of  the  ownership  of  wealth  ? 

"  Competition  these  days  tends  to  become  cut-throat  competition.  The 
modern  business  man  cannot  know  when  to  stop  competing.  He  cannot 
stop  if  he  could  know."  What  does  this  mean?  How  far  is  it 
true? 

"The  Interstate  Commerce  Act  of  1887  forbade  pooling  in  railroads  and 
ordered  them  to  continue  competing.  The  inevitable  consequence  was 
a  more  permanent  and  solid  form  of  consolidation."  Why  was  this 
an  inevitable  consequence  ? 

"Large-scale  production  tends  strongly  to  pass  over  into  monopoly." 
Why  or  why  not  ? 

16.  "Monopoly  is  merely  the  final  stage  of  a  sequence  which  starts  with 
the  introduction  of  machinery."  In  what  sense  is  this  true  ?  What  is 
the  relation  of  indirect  costs  to  the  trust  movement  ? 

17.  Is  monopoly  a  new  problem?  Make  a  list  of  as  many  forms  of 
monopoly  as  you  can. 

18.  Can  you  cite  any  cases  where  a  method  of  competition  that  would  be 
deemed  unfair  in  one  industry  or  in  one  set  of  circumstances  would  be 
deemed  fair  competition  in  another  industry  or  under  another  set  of 
circumstances  ? 

19.  What  is  the  standard  which  enables  one  to  judge  whether  competition 
is  fair  or  unfair  ?    Draw  up  a  list  of  the  forms  of  unfair  competition. 


712  INDUSTRIAL  SOCIETY 

20.  Make  a  list  of  the  various  instrumentalities  of  concentration  of  control. 
What  ones  may  be  parts  of  the  trust  problem  ?  What  ones  are  inevi- 
tably parts  of  the  trust  problem  ? 

21.  Were  there  any  trusts  before  the  industrial  revolution?  Why?  Is 
1 '  trust ' '  synonymous  with  ' '  monopoly  "  ? 

22.  "The  emergence  of  our  modern  trust  is  clo'sely  connected  with  the  fact 
that  in  our  generation  production  has  been  outrunning  market." 
What  does  this  mean  ? 

23.  "The  trusts  are  the  result  of  natural  growth."  "The  trusts  are  the 
result  of  artificial  conditions."  With  which  of  these  quotations  do 
you  agree  ?     Why  ? 

24.  "Of  course  the  trust  originated  in  private  gain.  In  some  respects  the 
private  gain  went  hand  in  hand  with  social  gain,  in  other  respects  with 
social  loss.  Sensible  handling  of  the  trust  problem  involves  control 
which  allows  society  to  reap  what  advantages  it  can  out  of  the  trust." 
What  specific  measures  would  such  a  policy  involve  ? 

25.  Review  the  alleged  advantages  of  large-scale  production.  Consider 
whether,  in  each  case,  monopoly  is  necessary  to  secure  that  particular 
advantage. 

26.  What,  if  any,  is  the  relation  of  the  trust  to  (a)  the  pecuniary  organiza- 
tion of  society,  (b)  machine  industry,  (c)  the  corporate  form  of  organi- 
zation, (d)  large-scale  production,  (e)  the  protective  tariff,  (J)  railway 
rebates,  (g)  discriminating  prices,  (h)  factor  agreements  ? 

27.  In  discussing  the  forces  making  for  combination,  one  writer  differ- 
entiates between  the  "driving  forces,"  the  "beckoning  conditions," 
and  the  "facilitating  conditions."  Make  as  long  a  list  as  you  can  of 
each  of  these  kinds  of  conditions. 

28.  "The  pool  was  the  dominant  form  of  combination  from  1870  to  1880. 
From  1880  to  1890  trustee  control  operated.  Since  1890  we  have  used 
the  holding  corporation  and  other  devices."  What  were  the  difficulties 
with  the  pooling  method  of  control  ?  What  were  the  difficulties  with 
trustee  control  ? 

29.  Many  people  are  more  disturbed  over  the  concentration  that  has 
occurred  among  our  financial  institutions  than  they  are  over  concen- 
tration in  any  other  line  of  business  activity.  Is  there  good  reason 
for  this  ? 

30.  Draw  up  in  parallel  columns  the  charges  made  in  Selection  295  and 
the  answers  made  in  Selection  296.  Which  seems  to  you  to  have  the 
better  argument  ?    Has  the  loser  stated  his  full  case  ? 

31.  In  the  table  in  Selection  294,  railroad  companies  are  shown  to  hold  a 
larger  proportion  of  one  another's  stock  than  of  one  another's  bonds. 
Why  should  this  be  true  ?    Is  not  a  bond  a  safer  investment  ? 

32.  Do  you  think  that  concentration  of  control  tends  to  bring  about  more 
stable  conditions  in  business  and  to  prevent  the  recurrence  of  crises? 


CONCENTRATION  ^3 

Why  should  the  regulation  of  railroads  and  of  capitalistic  monopolies 
be  regarded  as  among  the  most  critical  problems  in  social  organization  ? 
Draw  up  in  parallel  columns  the  advantages  and  disadvantages  of  con- 
centration of  control.  Do  you  need  to  subdivide  the  question  accord- 
ing to  social  advantages  and  disadvantages  and  individual  advantages 
and  disadvantages  ? 

Can  there  be  such  a  thing  as  a  good  big  business  ?  If  not,  is  the  remedy 
to  be  found  in  diminishing  the  size  of  the  business  or  in  increasing  the 
size  of  government  ? 

Federal  incorporation  is  frequently  urged  as  one  means  of  controlling 
our  big  businesses.  In  what  ways  would  federal  incorporation  assist 
in  this  control  ? 

37.  What  effect  would  the  abolition  of  proxy  voting  have  upon  concentra- 
tion of  control  ?    What  would  be  the  effect  of  limited  voting  ? 

38.  Make  a  list  of  things  which  have  been  done  in  the  field  of  corporation 
finance  to  counteract  the  evils  of  concentration  in  that  field. 

39.  What  is  meant  by  the  "sprinting  contest"  between  legislators  and 
corporation  lawyers  ? 

40.  "It  is  a  great  mistake  to  confuse  the  corporation  problem  with  the  trust 
problem."  What  are  some  of  the  issues  of  the  corporation  problem  ? 
What  are  some  of  the  issues  of  the  trust  problem  ? 

41.  Why  should  we  be  concerned  with  preventing  certain  kinds  of  inter- 
locking directorates?  Should  we  try  to  prevent  all  interlocking 
directorates  ? 

42.  Why  do  the  corner  grocer,  the  druggist,  the  barber  give  us  no  great 
concern  ?  Are  they  made  of  sterner  moral  fiber  than  are  the  railroad 
magnate  or  the  trust  promoter  ? 

43.  "The  necessary  inference  from  the  foregoing  analysis  is,  then,  (1)  that 
combinations  are  inevitable,  (2)  that  regulation  is  equally  inevitable." 
Do  you  agree  ? 

44.  "In  some  cases  probably  the  regulation  of  trusts  will  have  to  go  as 
far  as  the  limitation  or  the  fixation  of  selling  prices.  But  in  any  case, 
(1)  profits  of  promotion  will  have  to  be  limited;  (2)  the  issues  of 
securities  supervised;  (3)  the  separation  of  ownership  from  control, 
through  various  combinations  of  securities,  prevented;  (4)  full  pub- 
licity required;  (5)  interlocking  directorates  prohibited — though  this 
is  likely  to  avail  little;  (6)  adequate  taxation  imposed;  (7)  progressive 
participation  by  government  in  the  dividends  provided  for."  Explain 
the  significance  of  each  proposal. 

45.  Compare  the  program  for  limiting  the  evils  of  the  trust  in  1900  (Selec- 
tion 304)  with  the  program  of  19 13-14  (Selections  305-308).  What  are 
the  outstanding  points  of  similarity  ?    Of  difference  ? 

46.  "The  history  of  trust  legislation  represents  an  attempt  to  restore  com- 
petition   and    to    regulate   its   plane."     Do   the   Sherman   Act,    the 


7H  INDUSTRIAL  SOCIETY 

Seven  Sisters  of  New  Jersey,  and  the  Acts  of  19 14  bear  out  this 
statement  ? 

47.  Characterize  the  policy  underlying  the  trust  legislation  in  this  country. 

48.  "Concentration  of  private  control  of  industry  is  merely  one  device 
to  enable  the  modern  business  man  to  meet  the  risks  of  his  day."  Is 
this  true  ?    If  true  what  does  it  accomplish  ? 

49.  "After  all,  is  there  concentration  of  control  today?  Such  things  are 
relative.  Is  control  concentrated  in  relation  to  the  size  of  the  market 
and  the  scale  of  production  ?"    What  is  the  answer  ? 

B.  The  Corporation  as  an  Instrument  of  Concentration 
275.     CONTROL  BY  A  DOMINATING  SPIRIT1 

In  other  cases  a  single  enterpriser  dominates  the  corporation  and 
wields  full  authority.  The  stockholders  elect  his  candidate  to  office, 
the  directors  defer  to  his  judgment,  the  officials  act  as  his  agents.  His 
position  may  be  firmly  entrenched  by  outright  ownership  of  a  majority 
of  the  voting  shares,  or  it  may  rest  upon  personal  influence  over  the 
owners  of  voting  shares  sufficient  to  carry  elections.  In  these  "one- 
man"  corporations  the  theoretical  division  of  authority  and  function 
becomes  a  legal  fiction.  Practically,  the  dominating  head  of  affairs, 
who  may  not  be  an  officer  or  even  a  director,  corresponds  to  the  old 
capitalist-employer,  except  for  the  fact  that  he  furnishes  a  far  smaller 
proportion  of  the  capital,  carries  a  far  smaller  proportion  of  the  pecuni- 
ary risk,  and  performs  a  far  smaller  proportion  of  the  detailed  labor 
of  superintendence.  These  limitations  do  not  restrict,  but  on  the 
contrary  enhance,  his  power,  because  they  mean  that  the  individual 
who  "owns  the  control,"  or  dominates  those  who  own  it,  can  deter- 
mine the  use  of  a  mass  of  property  and  labor  vastly  greater  than  his 
own  means  would  permit. 

Thus,  while  the  corporate  form  of  organization  has  made  a 
theoretical  division  of  the  leadership  of  business  enterprises  among 
several  parties  at  interest,  it  has  also  made  possible  in  practice  a 
centralization  of  power.  The  great  captains  of  finance  and  industry 
wield  an  authority  swollen  by  the  capital  which  their  prestige  attracts 
from  thousands  of  investors,  and  often  augmented  still  further  by 
working  alliances  among  themselves.  Among  the  enterprisers  of  the 
whole  country,  this  small  coterie  exercises  an  influence  out  of  propor- 
tion, not  only  to  their  numbers,  but  also  to  their  wealth.    The  men 

1  Taken  by  permission  from  W.  C.  Mitchell,  Business  Cycles,  pp.  33-34. 
(University  of  California  Press,  19 13.    Author's  copyright.) 


CONCENTRATION  7I5 

the  head  of  smaller  enterprises,  while  legally  free  to  do  as  they  will 
ith  their  own,  find  their  field  of  initiative  limited  by  the  operations 
these  magnates. 

See  also  136.  Types  of  Business  Organizations. 
138.  Classes  of  Corporations. 

276.    MINORITY  CONTROL 


It  appears  from  the  evidence  that,  where  the  property  is  not  held 
ider  a  voting  trust  and  where  the  stock  has  its  voting  rights,  a  small 
iction  is  able  to  control  a  corporation  if  the  holdings  are  widely 
ittered,  and  that  this  is  due  mainly  to  the  supineness  and  absence 
initiative  of  stockholders  in  protecting  their  interests. 

In  this  connection  the  officers  of  great  life  insurance  companies 
sre  called  [before  the  committee]  and  extracts  from  the  minutes  of 
leir  meetings  of  policyholders  were  produced,  with  the  following 
;sults: 

NEW  YORK  LIFE  INSURANCE  CO. 


Year 

Number  of  Policyholders 

Number  of  Votes  Cast 
by  Policyholders 

1908 

About  900,000. 

62 

J909 

1911 

Between  900,000  and  1,000,000. 
About  the  same 

32 
41 

MUTUAL  LIFE  INSURANCE  CO. 

Year 

Number  of  Policyholders 

Number  of  Votes 
Cast  by  Policy- 
holders 

Remarks 

1908 

About  600,000 

93 
130 

13,527 

I909 

1911 

Between  600,000  and  700,000.  . 

Contested  election 

The  Equitable  Life  Assurance  Society  has  about  500,000  policy- 
holders; approximately  25  to  50  vote  at  annual  elections;  the  agency 
force  is  about  5,000.  As  the  result  of  extraordinary  efforts  to  get  out  a 
vote,  they  sent  out  500,000  requests  for  votes,  with  stamped  envelopes 
for  reply,  and  in  response  received  22,000  votes. 

1  Adapted  from  the  Report  of  the  Committee  to  Investigate  the  Concentration  of 
Control  of  Money  and  Credit,  February  28,  1913,  pp.  i45~47- 


716  INDUSTRIAL  SOCIETY 

The  situation  that  exists  with  respect  to  the  control  of  the  so-called 
mutual  companies  is  in  a  modified  way  illustrative  of  all  great  corpora- 
tions with  numerous  and  widely  scattered  stockholders.  The  manage- 
ment is  virtually  self-perpetuating  and  is  able,  through  the  power  of 
patronage,  the  indifference  of  stockholders,  and  other  influences,  to 
control  a  majority  of  the  stock. 

B1 

An  interesting  case  of  concentration  of  control  in  my  personal 
experience  is  the  following: 

A  corporation  with  an  authorized  capital  of  $5,000,000,  half 
preferred,  half  common,  each  stock  voting  unrestrictedly,  had,  after 
its  first  year  of  organization,  a  total  number  of  14,000  stockholders. 

Fourteen  thousand  notices  of  the  annual  meeting  procured  an 
attendance  of  12  stockholders.  Of  these  12  but  one  stockholder,  hold- 
ing one  $10.00  share,  demanded  a  detailed  financial  statement,  and 
when  asked  for  the  reason  of  his  intense  interest  confessed  that  he 
wanted  details  only  to  assist  him  in  forming  a  similar  corporation  in 
the  church  of  which  he  was  minister. 

277.    PREFERRED  STOCK  AND  CONCENTRATION  OF 
CONTROL 


In  most  corporations  all  the  stock  is  of  one  class  and  each  share 
has  an  equal  right  to  its  proportion  of  the  assets  and  earnings.  Such 
stock  is  called  "common"  because  no  share  has  any  privileges  which  do 
not  attach  to  all  the  other  shares.  In  general,  common  stock  may  be 
defined  as  stock  which  does  not  possess  any  special  or  peculiar  rights. 

Other  corporations,  however,  set  aside  certain  amounts  of  stock 
in  a  separate  class  and  grant  to  this  class  specific  privileges.  Such 
stock  is  called  preferred.  The  usual  preference  consists  in  giving  a 
fixed  dividend  to  the  stock  preferred  before  any  payment  whatever 
is  made  to  the  common  stock.  This  dividend  may  be  "cumulative'0; 
that  is,  if  profits  are  not  enough  to  pay  it  in  full  in  one  or  more  years, 
the  unpaid  portion  remains  as  a  claim  against  earnings  that  must  be 
settled  before  any  payment  is  made  to  the  common  stock.  Or  it  may 
be  "non-cumulative";  that  is,  if  profits  in  any  year,  including  usually 

1  Taken  from  an  unpublished  statement  of  Julius  Kahn. 

2  Adapted  by  permission  from  W.  H.  Lough,  Corporation  Finance,  pp.  71-73. 
(De  Bower-Elliott  Co.,  1909.     Author's  copyright,  19 17.) 


CONCENTRATION  7I? 

le  accumulated  profits  of  preceding  years,  are  insufficient  to  cover 
the  preferred  stock  dividend,  the  unpaid  portion  is  wholly  lost  to  the 
preferred  stockholders,  no  matter  how  large  the  earnings  in  succeeding 
years  may  be. 

The  stock  may  be  preferred  as  to  assets,  as  well  as  dividend  or 
to  both. 

It  may  be  a  convenient  means  of  separating  a  company's  stock 
lto  different  voting  classes.  Sometimes  the  preferred  stock  has  no 
)te  at  all;  sometimes  it  elects  a  limited  number  of  stockholders. 
l  either  case  the  owners  of  the  majority  of  the  common  stock  may 
set  a  majority  of  the  board  of  directors.  Therefore,  a  much  smaller 
interest  will  control  the  business  than  would  be  necessary  if  all  the 
;tock  issued  voted  alike. 

B1 

The  New  England  Investment  and  Security  Co.  controlled  the 
following  properties: 

The  Worcester  Railways  and  Investment  Co.,  which  controlled: 
The   Worcester   Consolidated   Street   Railway   Co.,   which 
leased: 

The  Worcester  &  Webster  Street  Railway. 
The  Webster  &  Dudley  Street  Railway. 
The  Springfield  Street  Railway,  a  consolidation  of: 
The  Western  Massachusetts  Street  Railway. 
The  Springfield  &  Western  Street  Railway. 
The  Milford,  Attleboro  &  Woonsocket  Street  Railway. 
The  Interstate  Consolidated  Street  Railway. 
The  Attleboro  Branch  Railroad. 

The  whole  outstanding  common  stock  represented  a  par  value  of 
$100,000.  The  preferred  stock,  largely  held  by  investors  in  Spring- 
field, Worcester,  and  Boston — "the  public" — and  of  a  par  value  of 
$4,000,000,  was  legally  in  the  position  of  a  minority. 

The  owners  of  the  1,000  common  shares  selected  four  of  the  seven 
trustees,  and  the  owners  of  the  40,000  preferred  shares  selected  but 
three. 

It  was  possible  thus  for  the  owners  of  a  majority  of  the  $100,000 
common  stock  to  dictate  the  policies  of  this  group  of  railways  that 
comprised  a  capital  of  over  $4,000,000. 


See  also  127.  Types  of  Investment  Credit  Instruments  (Stocks). 

1  Taken  by  permission  from  G.  J.  Shoholm,  The  Boston  Social  Survey,  p.  10. 
(Author's  copyright,  1916.) 


718  INDUSTRIAL  SOCIETY 

278.    VOTING  TRUSTS1 

Another  method  of  protecting  the  interests  of  minority  stock- 
holders and  of  the  creditors  of  a  corporation  is  the  formation  of  a  vot- 
ing trust.  This  is  an  agreement  under  which  a  majority  of  the  voting 
stock  of  a  corporation  is  placed  in  the  hands  of  trustees  who  are 
authorized  to  vote  it  under  whatever  limitations  may  be  prescribed. 
The  trustees  usually  issue  in  return  for  the  stock  so  deposited  "  voting 
trust  certificates,"  which  certify  that  the  stock  is  held  in  trust  by  the 
trustees  and  which  may  be  sold  and  transferred  in  the  same  manner  as 
certificates  of  stock.  As  the  trustees  are  usually  men  of  high  standing 
who  are  under  instructions  to  vote  the  stock  for  certain  officials  or  in 
behalf  of  certain  measures,  the  minority  stockholders  may  safely  feel 
that  so  long  as  the  agreement  exists  no  radical  change  in  the  policy 
of  the  corporation  can  take  place,  and  the  rights  of  all  stockholders 
alike  will  be  respected. 

A  voting  trust  agreement  which  seriously  restricts  the  freedom 
of  the  majority  stockholders  of  a  corporation  is,  of  course,  not  likely  to 
be  acceptable  to  those  stockholders.  The  agreement,  therefore,  as 
might  be  expected,  is  not  often  made  except  under  strong  pressure. 
It  is  most  frequently  used  either  when  a  corporation  is  first  formed 
and  can  secure  additional  capital  on  no  other  terms,  or  when  a  corpora- 
tion is  in  financial  difficulties  and  its  creditors  are  in  a  position  to 
demand  that  the  management  be  intrusted  to  certain  men  and  that  a 
well-defined  policy  be  pursued. 

279.    MANIPULATION  THROUGH  BROKERS2 

The  stocks  of  the  so-called  "public"  corporations — the  stocks 
that  are  listed  and  actively  dealt  in  on  the  Stock  Exchange — are 
usually  to  a  considerable  extent  in  the  hands  of  brokers  who  have 
bought  them  for  customers  on  margin  and  hold  them  as  security  for 
the  payment  of  the  balances  owing  them  on  the  purchase.  These 
stocks  are  the  pawns  in  the  gambling  game  that  constitutes  the  great 
bulk  of  the  dealings  on  the  Exchange.  They  are  usually  carried  on  the 
books  of  the  corporation  in  the  brokers'  names,  although  the  stock 
certificates  are  constantly  passing  from  hand  to  hand  among  the 

1  Taken  by  permission  from  W.  H.  Lough,  Corporation  Finance,  pp.  77-78. 
(De  Bower-Elliott  Co.,  1909.    Author's  copyright,  191 7.) 

2  Taken  by  permission  from  an  address  by  Samuel  Untermyer,  delivered  at  the 
meeting  of  the  Commercial  Law  League,  July  27,  1916,  pp.  26-27. 


CONCENTRATION  yI9 

rokers  without  apparent  change  of  ownership  on  the  stock  books  of 
le  company. 

In  the  very  rare  instances  in  which  disgusted  stockholders  outside 
ie  Wall  Street  circle,  driven  to  desperation  by  mismanagement  or 

>rse  by  their  trustees,  are  so  reckless  or  foolish  as  to  imagine  that 

ley  can  change  the  control  under  existing  law,  the  "insiders"  gather 

the  proxies  from  the  brokers  in  whose  names  these  pawns  are 

[istered  and  in  which  the  brokers  have  no  interest  except  as  pledgees. 

ie  speculating  owner  who  owes  his  broker  money  on  the  stock,  for 
mich,  by  the  way,  the  broker  sees  to  it  that  he  is  and  remains  amply 

:ured,  has  no  voice  in  the  matter.  The  broker  should  not  be 
emitted  to  vote  this  stock  without  the  written  consent  of  the  owner, 
id  the  Stock  Exchange,  instead  of  encouraging  him  to  do  so,  should 
>t  permit  it.  The  law  should  require  every  person  to  accompany 
vote  with  an  oath  that  he  is  the  beneficial  owner. 

280.  CONCENTRATION  THROUGH  REORGANIZATION 

A1 

It  is  not  unusual  for  the  interests  that  prompt  the  receivership  to 
it  the  stage  for  reorganization  before  the  appointment  of  the  receivers 
made.  This  is  done  by  selecting  a  committee  of  eminently  respect- 
able figureheads,  usually  composed  of  bankers  and  men  connected  with 
financial  institutions  who  are  named  by  the  prominent  banking  house 

|rhich  controls  the  reorganization  as  syndicate  manager.  The  raem- 
ers  of  the  committee  rarely  have  any  substantial  interest  in  the 
roperty. 
The  committee  publishes  a  call  for  the  deposit  of  securities  with 
lem  under  a  drastic  form  of  agreement  containing  extraordinary 
owers.  The  influence  of  the  banking  house  and  of  the  members  of 
the  committee  in  the  financial  world  is  such  that,  with  the  aid  of  the 
brokers  who  hold  the  securities  as  collateral  to  loans  and  in  other 
ways,  they  secure  such  a  hold  upon  the  securities  that  the  scattered 
securityholders  have  usually  no  alternative  but  to  assent  to  the  plan 
of  reorganization. 

Unless  there  happens  to  be  a  concerted  movement  among  the 
securityholders  for  their  protection,  which  is  very  difficult  and  rarely 
happens,  these  reorganization  committees  begin  their  activities  as 
self-constituted  guardians  of  other  people's  property.  When  the 
1  Taken  by  permission  from  an  address  delivered  by  Samuel  Untermyer  at  a 
meeting  of  the  Commercial  Law  League,  July  27,1916,  pp.  19-22. 


720  INDUSTRIAL  SOCIETY 

securities  have  been  deposited  with  them,  they  secure  such  a  grip 
on  the  property  that  the  scattered  owners  have  in  effect  no  voice 
in  the  formulation  of  the  plan  for  the  reorganization  of  their  property. 
No  matter  how  unjust  the  plan  may  be  to  a  given  class  of  security- 
holders, or  how  unfairly  it  may  discriminate  between  one  class  and 
another,  they  are  helpless  because  of  the  large  sums  usually  required 
to  rehabilitate  the  property  and  the  difficulty  of  concerted  action. 
The  proceeding  is  extra-judicial  from  beginning  to  end.  The 
courts  have  no  control  over  it.  If  a  securityholder  does  not  happen 
to  like  the  way  in  which  his  property  is  being  dealt  with  by  strangers 
to  it,  whose  only  interest  is  in  making  money  out  of  his  misfortunes, 
his  only  remedy  is  to  attend  the  sale  and  bid  upon  the  property  in 
competition  with  the  committee,  which  alone  holds  the  bulk  of  the 
securities  and  can  deliver  them  in  payment  of  the  purchase  price. 
This  means  that  his  position  is  impossible  and  that  he  is  forced 
to  subscribe  to  any  terms  that  the  committee  may  impose  on  his  par- 
ticipation in  the  reorganization.  The  committee  controls  the  judicial 
proceedings.  When  it  is  ready  to  reorganize,  the  court  is  asked  to 
sell  the  property  at  public  auction.  As  the  committee  then  speaks 
for  the  securityholders,  the  court  has  no  alternative.  The  so-called 
"sale"  under  these  conditions  is  always  a  farce.  The  property  is 
invariably  bought  by  the  committee  at  the  upset  price  fixed  by  the 
court — just  about  enough  to  pay  the  receiver's  certificates  that  have 
been  issued  by  the  court  against  the  property  and  the  vast  expenses 
of  foreclosure. 

Our  archaic,  extravagant,  and  utterly  indefensible  procedure  for 
the  reorganization  of  insolvent  railroads  has  furnished  these  banking 
groups  the  opportunities,  of  which  they  have  not  been  slow  to  avail 
themselves,  of  securing  the  dominating  relation  that  they  now  hold  to 
many  of  our  leading  railroad  systems.  At  one  time  or  another  within 
the  past  thirty  years  the  bulk  of  our  railways  have  gone  through 
insolvency  and  receivership.  The  proceedings  are  sometimes  insti- 
gated by  the  management  through  a  friendy  creditor  (and  are  then 
generally  collusive  in  their  inception)  or  through  the  trustees  for  bond- 
holders with  the  co-operation  of  the  company.  The  railway  company 
admits  its  insolvency,  consents  to  the  receivership,  and  one  or  more  of 
the  officers  under  whose  administration  insolvency  was  brought  about, 

1  Adapted  from  the  Report  of  Committee  to  Investigate  the  Concentration  of 
Control  of  Money  and  Credit,  February  28,  1913,  pp.  148-49. 


CONCENTRATION  7  2 1 

or  their  nominees,  is  made  a  receiver,  and  sometimes  the  sole  receiver. 
Neither  creditors  nor  stockholders,  who  are  the  parties  really  inter- 
ested, are  notified  or  have  an  opportunity  to  be  heard,  either  on  the 
question  of  insolvency  or  of  the  personnel  of  the  receivers.  The  stage 
has  been  set  in  advance  and  so  we  find  that  simultaneously  with  the 
appointment  of  the  receivers,  or  perhaps  before,  a  self-consituted 
mmittee  is  announced,  frequently  consisting  of  men  well  known  in 
e  financial  world,  most  of  whom  have  no  interest  in  the  property, 
lected  by  a  leading  banking  house.  They  invite  the  deposit  of 
urities  for  mutual  protection. 

This  committee  in  due  course  presents  a  plan  for  the  organization 
the  property.     If  the  securityholders  do  not  like  it,  their  only 
ternative  is  to  form  another  committee,  if  they  can  arrange  to 
mbine  their  scattered  forces  and  find  influential  men  who  have  the 
ourage  to  oppose  the  banking  house  and  who  can  finance  the  cash 
requirements  of  these  colossal  transactions  in  hostility  to  the  banking 

*ouse  that  was  first  in  the  field.     It  is  not  easy  to  find  such  men. 
t  is  becoming  daily  more  difficult  and  it  is  well-nigh  impossible  to 
find  rival  banking  houses  to  lead  the  opposition. 

I  The  usual  outcome  has  been  that  the  defenseless  securityholders 
ake  whatever  plan  is  offered,  however  unjust,  as  against  the  alterna- 
te of  being  entirely  wiped  out  through  the  sale  of  the  property  under 
oreclosure.  These  plans  have  usually  provided  that  the  securities 
of  the  new  or  reorganized  company  shall  be  placed  for  a  term  of  years 
in  a  voting  trust  named  by  the  bankers.  In  that  way  and  as  the 
result,  also,  of  reorganizations  in  which  there  was  no  voting  trust, 
but  in  which  the  initial  officers  and  directors  were  named  by  the 
bankers  as  reorganization  managers,  banking  domination  of  the 
following  railroad  systems  was  secured  by  Messrs.  Morgan,  and 
Kuhn,  Loeb&Co.: 

First.  The  Baltimore  and  Ohio,  where  Kuhn,  Loeb  &  Co.,  with 
Speyer  &  Co.,  were  the  reorganization  managers,  the  plan  of  reorgan- 
ization being  approved  by  J.  P.  Morgan  &  Co.,  and  Mr.  Coster  of 
that  firm,  becoming  a  voting  trustee. 

Second.  The  Chesapeake  ■  &  Ohio,  where  the  reorganization 
managers  were  Drexel,  Morgan  &  Co.,  as  the  present  firm  of  J.  P. 
Morgan  &  Co.,  was  formerly  named. 

Third.  The  Cincinnati,  Hamilton  &  Dayton,  where  Morgan  & 
Co.  were  the  reorganization  managers  and  Mr.  Morgan  is  a  voting 
trustee,  the  voting  trust  being  still  in  force. 


722  INDUSTRIAL  SOCIETY 

Fourth.  The  Chicago  Great  Western,  where  Morgan  &  Co.  were 
the  reorganization  managers  and  Mr.  Morgan  and  his  associate, 
Mr.  Baker,  are  voting  trustees,  the  voting  trust  being  still  in  force. 

Fifth.  The  Erie,  where  Morgan  &  Co.  were  the  reorganization 
managers  and  Mr.  Morgan  became  a  voting  trustee. 

Sixth.  The  Northern  Pacific,  where  Morgan  &  Co.  were  the 
reorganization  managers  and  Mr.  Morgan  became  a  voting  trustee. 

Seventh.  The  Pere  Marquette,  which  was  reorganized  by 
Morgan  &  Co. 

Eighth.  The  Southern,  which  was  reorganized  by  Morgan  &  Co., 
Mr.  Morgan  and  Mr.  Baker  becoming  voting  trustees  and  still  con- 
tinuing as  such. 

Ninth.  The  Reading,  which  was  reorganized  by  Morgan  &  Co., 
Mr.  Morgan  becoming  a  voting  trustee. 

Tenth.  The  Union  Pacific,  which  was  reorganized  by  Kuhn, 
Loeb  &  Co. 

281.    INTERLOCKING  DIRECTORATES  AND  ASSOCIATED 
CORPORATIONS 


An  interlocking  directorate  seems  by  its  terms  to  denote  mutual 
exchange  of  directors  between  associated  corporations,  each  cor- 
poration being  represented  designedly  on  the  board  of  the  other. 
But  if  the  term  ever  was  so  narrowly  used,  it  has  now  been  widened 
materially  in  scope.  It  no  longer  necessarily  suggests  the  practice 
of  exchange  of  representatives.  Two  corporations  would  be  inter- 
locked in  their  directorates  were  a  member  of  one  board  to  secure  his 
election  on  another;  that  is,  were  a  member  of  the  board  of  Corpora- 
tion A  to  be  made  a  member  of  the  board  of  Corporation  B  without 
B  of  its  own  volition  seeking  any  representation  on  the  directorate 
of  A.  By  a  strict  use  of  terms  these  two  corporations  would  be  locked 
but  not  interlocked.  I  shall  confine  myself  to  " associated"  cor- 
porations, for  while  interlocking  can  be  said  to  exist  whenever  direc- 
torates contain  the  same  individuals,  no  matter  how  remotely  related 
the  two  corporations  may  be,  yet  such  remote  affiliations  have  no 
great  economic  significance.  The  essence  of  the  relationship  which  I 
propose  to  discuss  lies  in  the  mutuality  of  interest  of  the  connected 
corporations. 

1  Taken  by  permission  from  F.  H.  Dixon,  "Interlocking  Directorates  in  Rail- 
way Finance,"  Journal  of  Political  Economy,  XXII  (1914),  937-38. 


CONCENTRATION  723 

But  we  shall  not  reach  the  heart  of  the  problem  if  we  confine  our 
Lttention  to  service  as  directors  by  the  same  individuals  on  boards 
associated  corporations.     We  should  be  regarding  the  mere  form 
things  and  overlooking  the  substance.    What  concerns  us  is  the 
Lterlocking  of  interests  in  such  manner  as  to  effect  a  substantial 
luence  upon  the  policy  of  both  corporations.    To  be  sure  this  may 
most  directly  accomplished  by  the  election  of  the  same  individual 
both  boards;  but  it  may  also  be  attained  in  some  indirect  manner, 
by  a  substantial  stock  ownership  resulting  in  a  request  for  repre- 
Ltation  on  the  directorate.     Such  representative  may  be  a  person 
capacity  and  initiative  or  a  mere  dummy,  but  the  desired  inter- 
:ing  is  effective  in  either  case.     It  therefore  seems  proper  to  widen 
ir  definition  so  as  to  bring  under  our  consideration  not  only  the 
idividuals  with  large  interests  in  associated  corporations  but  their 
^presentatives  as  well.     Finally,  for  any  adequate  treatment  of  the 
luestion  it  is  necessary  to  include  not  only  directors  of  corporations 
>ut  also  officers,  for  many  of  the  problems  of  interlocking  now  occupy  - 
lg  attention  arise  out  of  situations  with  which  directors  of  a  corpora- 
ion  as  such  have  had  little  to  do. 

Confining  our  attention  to  the  problem  of  interlocking  as  it  con- 
;rns  the  railways,  our  discussion  falls  naturally  into  four  divisions, 
xording  to  the  purpose  in  mind  in  the  creation  of  the  interlocking 
jlationship:  (i)  interlocking  for  financial  or  credit  purposes;  (2)  inter- 
ring for  industrial  and  commercial  purposes,  of  which  the  principal 
le  is  the  purchase  of  supplies;  (3)  interlocking  for  the  purpose  of 
lilway  construction  and  operation;    (4)   interlocking  to  restrain 

>mpetition. 

B1 

Combined  power  of  Morgan  &  Co.,  the  First  National,  and  National 
fUy  banks. — First,  as  regards  banking  resources:  The  resources  of 
[organ  &  Co.  are  unknown;  its  deposits  are  $163,000,000.  The 
sources  of  the  First  National  Bank  are  $150,000,000  and  those  of  its 
appendage,  the  First  Security  Co.,  at  a  very  low  estimate,  $35,000,000. 
The  resources  of  the  National  City  Bank  are  $274,000,000;  those 
•of  its  appendage,  the  National  City  Co.,  are  unknown,  though  the 
capital  of  the  latter  is  alone  $10,000,000.  Thus,  leaving  out  of 
account  the  very  considerable  part  which  is  unknown,  the  institutions 
composing  this  group  have  resources  of  upward  of  $632,000,000,  aside 
1  Adapted  from  the  Report  of  the  Committee  to  Investigate  the  Concentration  of 
:ontrol  of  Money  and  Credit,  February  28,  1913,  pp.  86-89. 


Cot, 


724  INDUSTRIAL  SOCIETY 

from  the  vast  individual  resources  of  Messrs.  Morgan,  Baker,  and 
Stillman. 

Further,  as  heretofore  shown,  the  members  of  this  group,  through 
stockholdings,  voting  trusts,  interlocking  directorates,  and  other  rela- 
tions, have  become  in  some  cases  the  absolutely  dominant  factor,  in 
others  the  most  important"  single  factor,  in  the  control  of  the  following 
banks  and  trust  companies  in  the  city  of  New  York: 

a)  Bankers  Trust  Co.,  resources $    205,000,000 

b)  Guaranty  Trust  Co.,  resources 232,000,000 

c)  Astor  Trust  Co.,  resources 27,000,000 

d)  National  Bank  of  Commerce,  resources. 190,000,000 

e)  Liberty  National  Bank,  resources 29,000,000 

/)  Chase  National  Bank,  resources 1 50,000,000 

g)  Farmers  Loan  &  Trust  Co.,  resources 135,000,000 

in  all,  7,  with  total  resources  of $    968,000,000 

which,  added  to  the  known  resources  of  members  of  the 

group  themselves,  makes 1,600,000,000 

as  the  aggregate  of  known  banking  resources  in  the  city  of 
New  York  under  their  control  or  influence.  If  there  be 
added  also  the  resources  of  the  Equitable  Life  Assurance 
Society  controlled  through  stock  ownership  of  J.  P. 
Morgan 504,000,000 


the  amount  becomes $2,104,000,000 

Second,  as  regards  the  greater  transportation  systems: 

a)  Adams  Express  Co. 

b)  Anthracite  coal  carriers.  • 

c)  Atchison,  Topeka  &  Santa  Fe  Railway. 

d)  Chesapeake  &  Ohio  Railway. 

e)  Chicago  Great  Western  Railway. 

/)  Chicago,  Milwaukee  &  St.  Paul  Railway. 

g)  Chicago  &  Northwestern  Railway. 

h)  Chicago,  Rock  Island  &  Pacific  Railway. 

i)  Great  Northern  Railway. 

j)  International  Mercantile  Marine  Co.  (through  a  voting  trust). 

k)  New  York  Central  Lines. 

/)  New  York,  New  Haven  &  Hartford  Railroad. 

m)  Northern  Pacific  Railway. 

n)  Southern  Railway. 


CONCENTRATION  725 

o)  Southern  Pacific  Co. 
p)  Union  Pacific  Railroad. 

Third,  as  regards  the  greater  producing  and  trading  corporations: 

a)  Amalgamated  Copper  Co. 

b)  American  Can  Co. 

c)  J.  I.  Case  Threshing  Machine  Co. 

d)  William  Cramp  Ship  and  Engine  Building  Co.  (through  a  voting 
trust). 

e)  General  Electric  Co. 
/)  International  Harvester  Co. 
g)  Lackawanna  Steel  Co. 
h)  Pullman  Co. 
i)  United  States  Steel  Corporation. 

Fourth,  as  regards  the  greater  public  utility  corporations: 

a)  American  Telephone  and  Telegraph  Co. 

b)  Chicago  Elevated  Railways. 

c)  Consolidated  Gas  Co.  of  New  York. 

d)  Hudson  &  Manhattan  Railroad  (large  stockholdings). 

e)  Interborough  Rapid  Transit  Co.  of  New  York  (marketing  securities). 
/)  Philadelphia  Rapid  Transit  Co. 
g)  Western  Union  Telegraph  Co. 

Summary  of  directorships  held  by  these  members  of  the  group. — It 
appears  that  firm  members  or  directors  of  these  institutions  together 
hold: 

One  hundred  and  eighteen  directorships  in  4  banks  and  3  trust 
companies  having  total  resources  of  $2,679,000,000  and  total  deposits 
of  $1,983,000,000. 

Thirty  directorships  in  10  insurance  companies  having  total 
assets  of  $2,293,000,000. 

One  hundred  and  five  directorships  in  32  transportation  systems 
having  a  total  capitalization  of  $11,784,000,000  and  a  total  mileage 
(excluding  express  companies  and  steamship  lines)  of  150,200. 

Sixty-three  directorships  in  24  producing  and  trading  corpora- 
tions having  a  total  capitalization  of  $3,339,000,000. 

Twenty-five  directorships  in  12  public  utility  corporations  having 
a  total  capitalization  of  $2,150,000,000. 

In  all,  341  directorships  in  112  corporations  having  aggregate 
resources  or  capitalization  of  $22,245,000,000. 


726  INDUSTRIAL  SOCIETY 

282.    THE  HOLDING  COMPANY1 

In  the  case  of  certain  systems  the  so-called  holding  company 
takes  a  prominent  part.  By  holding  company  is  meant  a  corporation 
which  exists  merely  for  the  purpose  of  holding  and  dealing  in  the 
securities  of  other  corporations. 

The  Atlantic  Coast  Line  Company  was  chartered  in  Connecticut 
in  1889  for  the  purpose  of  consolidating  under  one  ownership  the  net- 
work of  southern  railways  along  the  Atlantic  coast,  these  railways 
being  amalgamated  in  1900  into  the  Atlantic  Coast  Line  Railroad 
Company.  The  Atlantic  Coast  Line  Company,  the  holding  company, 
on  June  30,  1906,  owned  (including  capital  stock  subscribed  for  but 
not  fully  paid)  $25,266,300  out  of  $50,134,200  of  the  stock  of  the 
Atlantic  Coast  Line  Railroad  Company,  or  a  little  over  50  per  cent. 
It  also  owned  $11,500,000  of  the  bonds  of  the  same  company.  This 
stock  ownership  carried  with  it  equities  of  very  great  value.  This 
becomes  clear  when  we  observe  that  the  Atlantic  Coast  Line  Railroad 
Company  owned  on  the  same  date  $30,600,000  out  of  $60,000,000,  or 
51  per  cent  of  the  stock  of  the  Louisville  &  Nashville  Railroad  Com- 
pany. This  latter  corporation  and  its  controlling  railway,  the 
Atlantic  Coast  Line  Railroad  Company,  were  the  lessees  of  the  rail- 
way properties  of  the  Georgia  Railroad  and  Banking  Company ;  and 
the  Louisville  &  Nashville  Railroad  Company,  jointly  with  the 
Southern  Railway  Company,  owned  88  per  cent  of  the  stock  of  the 
Chicago,  Indianapolis  &  Louisville  Railway  Company.  The  capital 
stock  of  the  Atlantic  Coast  Line  Company  was  reduced  in  May,  1897, 
from  $10,000,000  to  $5,000,000  by  the  issue  of  certificates  of  indebted- 
ness in  lieu  of  the  shares  retired.  In  1898  the  stock  was  again  restored 
to  the  original  amount  of  $10,000,000  by  a  stock  dividend  of  100  per 
cent,  representing  the  accumulated  profits.  The  company  had 
outstanding  on  June  30,  1906,  $10,500,000  of  stock  (excluding  $2,100,- 
000  of  stock  subscribed  for  but  not  fully  paid)  and  $13,000,000  of 
certificates  of  indebtedness.  It  therefore  appears  that  an  ownership 
of  slightly  over  $5,000,000  of  capital  stock  in  this  holding  company 
controlled  solely  and  jointly  through  ownership  and  lease  a  railway 
system  of  over  11,000  miles  in  extent,  with  a  capitalization  of  over 
$725,000,000. 

1  Adapted  from  Interstate  Commerce  Commission,  Special  Report  No.  1,  "Inter- 
corporate Relationships  of  Railways  in  the  United  States,  as  of  June  30,  1906," 
pp.  21-24. 


CONCENTRATION 


727 


The  accompanying  diagram  will  make  clear  the  more  important 
intercorporate  relationships  of  the  Atlantic  Coast  Line  System. 


LINE  CD. 
DDD 


GDUTHERI 
\  RY  CD. 


LDUIBVILLE 
RY.  CD. 


283.  FORMS  OF  CONTROL  OVER  A  CORPORATION 

A1 
Control  of  or  over  a  corporation  means  "ability  to  determine  the 
action"  of  that  corporation.     Control  has  been  classified  under  eight 
different  headings: 

a)  Right  to  possess  all  the  property  of  the  corporation  except 
its  instrumentalities  of  organization. 

1  Adapted  from  Interstate  Commerce  Commission,  Special  Report  No.  r,  "Inter- 
corporate Relationships  of  Railways  in  the  United  States,  as  of  June  30,  1906," 
PP.  15-16. 


728  ■    INDUSTRIAL  SOCIETY 

b)  Right  to  possess  all  the  property  of  the  corporation  except  its 
instrumentalities  of  organization,  its  money,  and  its  choses  in  action 
other  than  corporate  securities. 

c)  Right  to  possess  such  portion  of  the  tangible  property  of  the 
corporation  as  is  capable  of  being  employed  in  discharging  its  specific 
duties.  The  principal  form  of  control  contemplated  under  this  class, 
as  well  as  under  class  (b),  is  the  control  effected  through  lease,  class  (b) 
differing  from  class  (c)  only  in  the  extent  of  the  property  and  interests 
covered  by  the  contract. 

d)  Right  to  exercise  the  major  part  of  the  voting  power  attached 
to  the  shares  of  stock  and  other  securities  of  the  corporation. 

e)  Right  to  name  the  major  part  of  the  board  of  directors  of  the 
corporation,  whether  by  virtue  of  voting  trust  agreement  or  by  virtue 
of  title  to  securities  or  otherwise. 

/)  Right  to  foreclose  a  first  lien  upon  all  property  of  the  corpora- 
tion. 

g)  Right  to  foreclose  a  first  lien  upon  a  major  part  of  the  property 
of  the  corporation. 

h)  Right  to  determine  the  action  of  the  corporation  in  a  specific 
respect  or  respects. 

This  last  class  is  intended  to  cover  any  peculiar  forms  of  control 
not  included  in  the  other  classes.  Under  this  class  would  fall  control 
through  advances  for  construction  purposes. 

It  will  be  observed  that  the  various  forms  of  control  here  defined 
may  be  classified  roughly  into  ownership  and  lease. 

B1 

The  American  Tobacco  Company  not  only  controls  the  other  three 
principal  companies  named  below,  but  is  itself  a  great  manufacturing 
concern,  and  it  also  directly  controls  a  large  number  of  other  sub- 
sidiary companies. 

The  American  Snuff  Company  with  its  subsidiary  companies,  is 
exclusively  concerned  with  the  manufacture  of  snuff. 

The  American  Cigar  Company,  with  its  subsidiaries,  handles  the 
cigar  business  of  the  Combination,  including  the  manufacture  of  ordi- 
nary cigars,  cheroots,  and  stogies  in  the  United  States  and  the  manu- 
facture of  cigars  and  cigarettes  in  Cuba  and  Porto  Rico. 

1  Adapted  from  the  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco 
Industry,  1909,  I,  14-19. 


CONCENTRATION  729 

The  British-American  Tobacco  Company  is  distinguished  from 
others  by  being  confined  to  export  business  and  to  the  manu- 
:ture  and  sale  of  tobacco  in  foreign  countries. 

The  American  Tobacco  Company  holds  considerably  more  than 

majority  of  the  capital  stock  of  the  American  Cigar  and  British- 

lerican  companies  and  over  40  per  cent  of  the  stock  of  the  American 

luff  Company.     By  reason  of  the  fact  of  certain  large  individual 

)ckholders  in  the  American  Snuff  Company,  and  by  reason  of  the 

identity  of  purposes,  the  American  Snuff  Company  may  properly 

*  considered  as  controlled  by  the  American  Tobacco  Company. 
Aside  from  these  four  principal  companies,  there  are  82  other 
companies  in  the  Combination  which  do  business  in  the  United 

t States,  Porto  Rico,  and  Cuba,  besides  a  considerable  number  con- 
lled  by  the  British-American  Tobacco  Company,  which  do  business 
other  countries.  In  practically  every  one  of  these  82  companies, 
a  majority  of  the  stock  is  held  either  by  one  of  the  four  principal  com- 
panies or  by  some  company  subsidiary  to  them.  In  a  large  number  of 
cases  the  entire  stock  of  these  subsidiary  companies  is  thus  held. 
The  Combination  in  buying  stocks  has  apparently  sought  control 

(en  more  than  investment. 
The  American  Tobacco  Company  itself  controls  directly  or 
lirectly  47  of  these  subsidiary  companies  aside  from  controlling  the 
3  principal  subsidiary  combinations.  The  American  Snuff  Company 
controls  6  other  companies,  the  American  Cigar  Company  26,  and 
the  British- American  Tobacco  Company  3,  as  well  as  many  subsidiary 
companies  operating  in  other  countries. 

The  American  Tobacco  Company,  therefore,  stands  in  a  con- 
trolling position  over  the  entire  Tobacco  Combination  with  its  86 
companies  operating  in  the  United  States,  Porto  Rico,  and  Cuba. 
The  control  of  the  American  Tobacco  Company  itself  rests  in  a  very 
few  hands.  That  company  had  at  the  end  of  1906  a  total  capitaliza- 
tion of  a  little  over  235  millions,  including  bonds,  but  of  this  capitaliza- 
tion only  about  one-sixth — namely,  the  common  stock,  amounting 
to  a  little  over  40  millions — has  voting  power  for  the  election  of 
directors  for  the  ordinary  management  of  the  business.  The  great 
bulk  of  the  common  stock  is  held  by  members  of  the  directorate 
of  the  American  Tobacco  Company  and  their  intimate  associates. 
The  28  directors  and  4  other  stockholders  together  own  77  per  cent 
of  this  stock.  Indeed,  the  10  largest  stockholders,  7  of  whom  are 
directors,  together  hold  over  60  per  cent,  and  these  10  alone  can 


730  INDUSTRIAL  SOCIETY 

therefore  readily  dominate  the  entire  Combination.  They  are  J.  B. 
Duke  (president  of  the  company),  A.  N.  Brady,  O.  H.  Payne,  P.  A.  B. 
Widener,  Thomas  F.  Ryan,  B.  N.  Duke,  G.  B.  Schley,  the  banking 
and  brokerage  firm  of  Moore  and  Schley  (chiefly  as  agents  for  clients), 
and  the  estates  of  W.  C.  Whitney  and  W.  L.  Elkins. 

The  total  capitalization  of  all  the  86  companies  making  up  the 
Combination  in  the  United  States,  Porto  Rico,  and  Cuba  amounted 
at  the  end  of  1906  to  $450,395,890,  consisting  of  about  130  millions 
of  preferred  stock,  about  183  millions  of  common  stock,  and  about 
137  millions  of  bonds. 

C.     Other  Instruments  of  Concentration 

284.    FORMS  OF  COMBINATION1 

An  outline  classification  of  combinations,  then,  would  run  some- 
what as  the  following: 

I.  Simple  Combinations: 

1.  Association  (direct  combination  of  natural  persons  as  in  partnerships) . 
II.  Compound  Combinations: 

1.  Association  (the  loosest  agreements  directly  between  individual 
members  of  different  associations:  trade  "associations,"  some  simple 
"agreements,"  etc.). 

2.  Federation  (combination  of  organizations  which  remain  separate  and 
retain  considerable  autonomy:  most  simple  "agreements"  and  pools). 

3.  Consolidation  (combination  of  organizations  in  which,  while  mem- 
bers may  remain  nominally  separate,  direction  of  business  is  fused). 

a)  Partial  consolidation: 

(1)  Securities  holding  (direction  of  business  organizations  con- 
solidated through  stock  ownership,  with  separate  existence 
formally  maintained). 

b)  Complete  consolidation: 

(1)  Merger  (complete  consolidation,  members  of  one  business 
organization  absorbed  by  another). 

(2)  Amalgamation  (complete  consolidation,  members  of  two  or 
more  organizations  coalesce  to  form  a  newprganization). 

From  a  more  strictly  economic  point  of  view,  all  combinations 
may  be  classed  as  trade-combinations  and  industry-combinations. 
The  trade-combination  is  a  horizontal  or  parallel  combination,  as  it 
were,  for  it  reaches  out  and  unites  organizations  which  are  competing 
on  the  same  plane,  or  in  the  same  trade,  or  which  are  in  the  same 

1  Adapted  by  permission  from  L.  H.  Haney,  Business  Organization  and  Com- 
bination, pp.  131-32.     (The  Macmillan  Co.,  1914.) 


CONCENTRATION  73I 

general  line  of  business.  This  has  been  the  most  frequent  type 
of  combination  and  the  one  most  inveighed  against  by  the  public.  On 
the  other  hand,  an  industry-combination  is  a  vertical  or  sequence 
combination  in  that  it  unites  organizations  which  are  on  different 
planes  and  which  represent  the  successive  stages  or  "trades"  within 
an  industry. 

285.    A  CLASSIFICATION  OF  AGREEMENTS1 

To   facilitate   an   understanding   of   agreements   the   following 
ttempts  at  classification  are  presented: 
As  to  scope  and  membership: 
I.  Local. 

1.  Trade  Conditions. 

a)  Sellers  (with  or  without  sales  agency). 

(1)  Manufacturers,  growers,  etc. 

(2)  Wholesalers  or  jobbers. 

(3)  Retailers. 

(4)  Wholesalers  and  retailers. 

(5)  Manufacturers  and  jobbers. 

(6)  Manufacturers,  jobbers,  and  retailers. 

b)  Buyers  (as  under  a),  but  not  so  full). 

2.  Prices. 

a)  Sellers  (as  under  I,  a)),  "Factors'  Agreements"  included). 

b)  Buyers  (as  under  I,  b)). 

3.  Output,  and  Prices  and  Output. 
II.  State  and  National  (as  under  I). 

III.  International  (as  under  I,  but  perhaps  not  I,  1,  a),  (3),  (4),  (6)). 

B.  As  to  methods: 

I.  Monopolistic  (generally  secret). 

1.  Gentlemen's  agreement  (generally  voluntary). 

2.  Contract  agreement. 

a)  Voluntary  (with  or  without  a  sales  association). 

(1)  Without  forfeit. 

(2)  With  forfeit. 

(a)  Refusing  to  sell  to  or  buy  from  violators. 

(b)  Boycotting. 

(c)  Pledge  deposit. 

(d)  Fines. 

(e)  Use  of  patents. 

b)  Involuntary  or  compelled  (with  or  without  sales  association,  as 
under  a)). 

Taken  by  permission  from  L.  H.  Haney,  Business  Organization  and  Com- 
bination, p.  148.     (The  Macmillan  Co.,  1914O 


732  INDUSTRIAL  SOCIETY 

II.  Open. 

i.  Gentlemen's  agreement  (generally  secret  and  voluntary). 
2.  Contract  agreement  (as  under  I,  2). 

a)  Secret. 

b)  Public. 

286.    THE  ORIGINAL  TRUST1 

The  form  of  organization  that  has  given  them  their  name  "  trusts  " 
was  the  one  started  by  .the  Standard  Oil  Trust  in  1882,  afterward 
followed  by  the  Whisky  Combination — the  Distillers  and  Cattle 
Feeders'  Trust — and  by  the  Sugar  Trust — the  American  Sugar- 
Refineries  Company.  The  plan  of  that  organization  was  as  follows: 
The  stockholders  of  the  different  corporations  entering  the  combina- 
tion assigned  their  stock  in  trust  to  a  board  of  trustees  without  the 
power  of  revocation.  That  board  of  trustees  then  held  the  voting 
power  of  the  stocks  of  the  different  companies,  and  was  thus  enabled, 
through  the  election  of  directors,  to  control  them  absolutely.  In 
place  of  the  stock  thus  received  the  trustees  issued  trust  certificates 
upon  which  the  former  holders  of  the  stock  drew  their  dividends, 
these  being  paid  upon  the  certificates  regardless  of  what  disposition 
was  made  of  the  plants  of  the  different  corporations.  Owing  largely  to 
hostile  legislation  and  to  the  bitter  feeling  against  the  trusts  above 
named,  these  trusts,  after  some  adverse  decisions  of  the  courts,  went 
out  of  existence,  reorganizing  as  single  corporations  in  most  cases, 
and  none  at  the  present  time  remain. 

287.    POOLS 
A2 

American  experience  shows  that  pools  and  associations  fall  into 
one  of  two  broad  general  classes,  i.e.,  simple  pools  or  mixed  pools. 
For  example,  each  of  several  manufacturers  agrees  to  sell  only  a  certain 
percentage  of  all  the  goods  sold  by  the  group,  or  a  group  of  manu- 
facturers agree  among  themselves  that  they  will  sell  their  goods  only 
at  certain  prices.  In  either  case  the  pool  is  simple  or  simplex  accord- 
ing to  the  classification  the  writer  has  developed. 

1  From  the  Report  of  the  Industrial  Commission,  1900,  I,  10. 

2  Adapted  by  permission  from  W.  S.  Stevens,  "A  Classification  of  Pools  and 
Associations  Based  on  American  Experience,"  American  Economic  Review,  III 
(1913),  545-56. 


CONCENTRATION  733 

Suppose,  however,  that  the  group  of  manufacturers  instead  of 
3ing  only  one  of  these  two  things  had  agreed  to  do  both.    In  that 
se  the  pool  or  association  would  no  longer  be  a  simple  but  a  mixed 
)ol.    And,  as  it  contemplates  two  things,  i.e.,  dividing  output  and 
fixing  prices,  it  may  be  termed  a  duplex  pool.    Add  a  third  object 
id  the  pool,  still  of  course  a  mixed  pool,  becomes  triplex,  and  so  on. 
1  these  mixed  forms,  duplex,  triplex,  and  quadruplex  pools,  are 
rely  varied  combinations  of  the  simple  or  simplex  pool  which  has 
^en  distinct  type  forms  as  follows: 

I.  Output  or  traffic  division. 
II.  Output  curtailment. 

III.  Territorial  division. 

IV.  Joint  sales. 
V.  Price. 

VI.  Clearing  house. 
VII.  Legitimate  trader. 

I.  Output  or  traffic  division. — The  earliest  pools  in  the  United 
Itates,  of  which  there  is  any  definite  record,  were  those  formed  in  the 

cordage  industry.  So  far  as  the  evidence  shows,  they  were  simplex 
pools  for  the  purpose  of  dividing  the  output.  The  first  of  them  was 
organized  about  i860  and  they  continued  a  more  or  less  intermittent 
existence  until  the  formation  of  the  National  Cordage  Company 
many  years  later.  The  manufacturers  met  together  and  divided  the 
business  of  the  country  according  to  certain  percentages.  Each 
manufacturer  was  required  to  make  his  returns  monthly  to  a  super- 
visor. If  he  had  exceeded  his  percentage  he  was  required  to  pay  to  the 
supervisor  a  certain  amount  per  pound  to  balance  the  excess.  Those, 
on  the  other  hand,  who  fell  below  their  percentage  allotment  drew 
upon  the  supervisor  to  make  up  the  deficiency. 

II.  Output  curtailment. — The  pool  curtailing  output,  either  in 
simple  or  the  mixed  form,  does  not  seem'  to  have  been  common. 
Its  simple  form  is  shown  in  the  Kentucky  Distillers'  Agreement  of 
1887.  This  combination  had  its  origin  in  the  depressed  condition 
of  the  trade  which  had  been  practically  continuous  since  a  period 
of  great  overproduction  in  the  earlier  eighties.  Although  expressly 
stating  the  right  of  every  signatory  to  make  as  much  whiskey  as  he 
chose,  this  document  provided  that  it  was  "for  the  pecuniary  advan- 
tage of  each"  to  make  only  the  amount  set  opposite  his  name,  and 
further  imposed  a  penalty  of  twenty  cents  per  proof  gallon  upon  all 
whiskey  made  by  any  signatory  in  excess  of  the  stipulated  amount. 


734  INDUSTRIAL  SOCIETY 

Such  money  was  then  to  be  distributed  among  those  confining  them- 
selves to  the  production  allotted  to  them.  On  its  face,  the  agreement 
thus  appears  to  be  for  division  of  output,  but  such  was  not  in  reality 
the  case.  The  significance  of  the  agreement  can  be  appreciated  only 
when  it  is  known  that  the  amount  set  opposite  the  names  of  the 
various  signatories  (which  does  not  appear  in  the  text  of  the  original 
agreement)  was  ioo  gallons  each,  an  amount  so  small  that  no  distillery 
could  afford  to  begin  operations.  It  is  thus  seen  that  in  reality  the 
pool  was  purely  for  curtailing  output,  and  did  not  in  any  sense  con- 
template a  division  of  output. 

III.  Territorial  division. — The  United  Refining  Company,  organ- 
ized in  the  late  eighties,  dealt  in  an  article  which  is  the  product  of  coal 
tar,  a  residuum  of  the  gas  works,  and  which  is  produced  whether 
there  is  any  demand  for  it  or  not.  When  a  large  surplus  above 
demand  occurred  in  any  one  section  of  the  country  the  whole  tendency 
was  to  "dump"  that  surplus  upon  a  market  in  another  section  where 
there  was  only  a  moderate  amount  available.  This  tended  to  dis- 
tribute among  all  the  manufacturers  the  loss  occurring  through 
surplusage,  instead  of  throwing  it  upon  the  party  in  whose  territory 
it  took  place.  Such  a  state  of  affairs  led  to  a  territorial  agreement. 
Each  party  to  the  compact  bound  itself  to  confine  its  trade  and  sales 
to  a  definite  territory  and  not  to  send  the  surplus  above  such  trade 
and  sales  elsewhere  unless  it  were  required.  In  event  of  a  large 
surplusage  and  no  other  concern  requiring  the  product,  the  manufac- 
turer was  to  destroy  it  by  changing  it  into  pitch,  which  was  accom- 
plished through  distillation.  The  pitch  was  used  as  fuel  and  was 
also  shipped  abroad.  The  manufacturer  retained  for  himself  the 
oils  thus  secured. 

IV.  Joint  sales. — Historically  the  joint-sales  pool  is  nearly  as 
old  as  the  output-division  pool.  In  the  former  type  of  organization 
the  various  manufacturers  agree  to  employ  a  common  sales  agent 
through  which  agent  the  products  of  the  combination  are  marketed. 
The  first  organization  of  this  type  was  formed  in  'the  sixties  in  the 
salt  industry. 

It  is  probably  evident  to  the  reader  that  the  joint-sales  pool  must 
by  virtue  of  the  function  of  joint  selling  bear  a  definite  relation  to 
price.  The  act  of  selling  implies  the  fixing  of  a  price,  but  the  methods 
of  price  determination  in  pools  of  this  type  are  significant.  Where  the 
selling  agent  has  full  control  of  the  marketing  of  the  product  as  appears 
to  have  been  the  case  with  the  Michigan  Salt  Association,  the  parties 


CONCENTRATION  735 

to  the  combination  have  no  real  voice  in  the  matter  of  prices.  An 
entirely  different  situation  appears,  however,  when  the  members  of 
the  combination  employing  the  joint-sales  agent  determine  the 
prices  at  which  their  agent  shall  sell. 

V.  Price.— The  price  pool  scarcely  calls  for  definition  since  the 
majority  of  people  are  more  familiar  with  this  manifestation  of 
combination  than  with  any  other.  It  is  simply  an  organization  for 
the  purpose  of  fixing  and  controlling  prices.  Its  earliest  appearance, 
at  least  in  the  simple  form,  seems  to  have  been  in  the  Gunpowder 

Irade  Association  of  the  United  States,  an  organization  perfected 
pril  29,  1872,  in  New  York  City.  The  purpose  of  the  combination 
as  to  fix  and  establish  prices  upon  powder  throughout  the  United 
:ates.  Each  of  the  seven  parties  to  the  agreement  was  entitled  to  a 
certain  number  of  votes.  Three  concerns  were  allotted  ten  votes  each, 
three  others,  four  votes  each,  and  the  last,  six  votes.  The  association 
was  to  meet  four  times  a  year  for  the  purpose  of  establishing  prices.  A 
"council"  of  five  persons  was  to  meet  weekly  to  adjudicate  upon  dis- 
crepancies in,  and  deviations  from,  prices. 

VI.  Clearing  house. — The  significant  feature  of  the  joint-sales  pool 
is  the  employment  of  a  sales  agent  to  market  the  product.  In  the 
case  of  the  clearing-house  pool,  on  the  contrary,  each  party  to  the 
combination  retains  control  of  the  marketing  of  its  own  product,  while 
the  central  organization  is  used  simply  as  a  clearing  house  for  the 
division  of  the  profits  realized.  The  clearing  house  may  be  an  incor- 
porated company  or  a  purely  voluntary  association. 

VII.  Legitimate  trader. — For  several  years  past  there  has  been 
noticeable  an  increasing  tendency  toward  the  elimination  of  the 
middleman  in  American  business  life.  More  and  more,  people  are 
endeavoring  to  supply  their  wants  directly.  As  this  tendency 
develops,  the  retailer  first  finds  his  means  of  livelihood  menaced  and 
the  jobber  and  wholesaler  are  also  able  to  read  the  handwriting  on 
the  wall.  It  is  out  of  this  situation  that  what  I  term  the  "legitimate- 
trader"  association  has  developed.  This  type  of  organization  is  of 
interest  largely  because  of  the  striking  contrast  between  its  aims  and 
methods  of  operation  and  those  of  the  ordinary  manufacturers' 
pool.  The  legitimate-trader  association  has  in  view  one  object — 
the  confining  of  the  trade  to  its  (in  their  view)  legitimate  channel. 
But  this  will  be  found  to  resolve  itself  into  three  separate  parts:  (1)  to 
prevent  shipments  from  the  manufacturer  direct  to  the  consumer; 
(2)  to  confine  the  shipments  of  manufacturers  to  wholesalers  and  of 


736  INDUSTRIAL  SOCIETY 

wholesalers  to  retailers;   (3)  to  confine  the  trade  of  the  retailer  to  his 
legitimate  territory. 

To  accomplish  these  ends  several  methods  have  been  resorted  to. 

B1 

The  late  President  Roberts,  of  the  Pennsylvania  Railroad,  defines 
a  pool  as  "an  association  of  railroad  companies  for  the  purpose  of  a 
proper  division  of  the  traffic  at  competitive  points  and  the  mainte- 
nance of  equitable  rates  that  may  be  agreed  upon."  A  great  number 
of  other  functions,  such  as  the  prevention  of  fraud  and  the  manage- 
ment of  a  clearing  house,  have  in  the  past  been  intrusted  to  traffic 
associations,  which  at  the  same  time  exercised  supervision  over  pooling. 

These  pooling  agreements  to  divide  competitive  traffic  may 
assume  a  number  of  different  forms.  They  fall,  in  the  first  instance, 
into  two  great  classes,  known  as  traffic  and  money  pools,  respectively. 
The  distinction  between  them  is  perfectly  clear.  In  a  traffic  pool, 
the  Lake  Shore  road  for  instance,  is  guaranteed  let  us  say,  16  per  cent 
of  the  east  bound  dead-freight-tonnage  from  Chicago  by  all  its  com- 
petitors. If  its  percentage  falls  for  some  reason  to  less  than  16, 
enough  tonnage  is  diverted  from  other  roads  whose  percentage  is  in 
excess  of  their  allotment  to  make  up  the  difference.  A  serious  objec- 
tion to  this  form  of  pool  is  patent.  It  necessitates  the  diversion  of 
freight  from  one  road  to' another,  thereby  often  running  counter  to 
the  expressed  wish  of  the  shipper.  It  seems  to  be  proved  that  the 
amount  of  such  variation  from  established  percentages  is  usually  very 
small,  and  that  there  is  always  enough  freight  open  to  shipment  by  any 
route,  without  expressed  preference  of  the  shippers,  to  obviate  this 
difficulty.  Nevertheless,  it  must  be  conceded  that  this  objection  is  a 
real  one.  In  order  to  meet  it,*  the  railroads  have  often  preferred 
to  organize  their  pools  upon  another  basis.  This  second  type  of  divi- 
sion is  known  as  a  money  pool.  Under  such  an  arrangement  the 
railroads  severally  guarantee  one  another  a  certain  percentage  of  the 
total  revenue  accruing,  either  in  gross  or  net,  from  the  transaction  of 
the  business  pooled.  Under  such  arrangement  the  gross  or  net 
earnings,  as  the  case  may  be,  are  divided  in  certain  percentages, 
entirely  irrespective  of  the  amount  of  business  which  may  happen  to 
pass  over  the  several  lines.  This,  of  course,  would  be  unfair  unless 
some  allowance  were  made  for  the  actual  expense  of  conducting  trans- 

1  Adapted  from  the  Final  Report  of  the  Industrial  Commission,  1902,  XIX, 
329-42. 


portalion  when  the  amount  over  a  particular  road  happened  to  be 
greater  than  its  particular  allotment  of  earnings  would  be.  Con- 
sequently, it  is  often  customary  to  allow  each  road  to  handle  all  the 
traffic  which  comes  to  it  naturally,  but  to  provide  that  after  the 
deduction  of  a  certain  proportion,  usually  40  or  50  per  cent  for  actual 
outlay,  the  remainder  in  excess  of  its  accrued  proportion  shall  be  paid 
over  to  other  roads  whose  proportion  of  business  carried  during  the 
xiod  happens  to  fall  below  their  allotment.  In  order  to  accomplish 
*.s  result  without  friction,  the  roads  have  sometimes  deposited  a 
tain  sum  of  money  with  the  chairman,  subject  to  his  draft. 

[Note.— Pooling,  of  the  sort  here  described,  was  at  its  height  in 
70's  and  8o's.     Such  devices  are  not  open  to  the  railroads  today.] 

288.    PATENTS1 

Several  manufacturers  of  harrows,  under  various  United  States 
Ltents,  assigned  to  the  National  Harrow  Co.  the  patents  severally 
owned  by  them,  together  with  good  will,  agreeing  among  other  things 
not  to  be  interested  in  the  sale  or  manufacture  of  such  harrows  except 
as  agents  or  licensees  of  said  corporation.  The  National  Harrow  Co. 
issued  licenses  to  the  several  manufacturers,  subject  to  uniform  terms 
and  conditions;  its  licensees  manufactured  and  sold  at  least  90  per 
cent  of  such  harrows  made  in  the  United  States.  The  licenses  issued 
prohibited  among  other  things  the  cutting  of  prices,  and  provided 
that  the  licensees  should  not  sell  other  harrows  than  those  authorized 
by  the  licenses. 

The  Standard  Sanitary  Manufacturing  Co.  and  15  other  manu- 
facturers of  sanitary  enameled  ironware  combined  in  the  form  of  an 
association.  Certain  patents  for  enameling  devices  were  issued  to 
one  Wayman,  secretary  of  the  association,  who  issued  licenses  to  the 
various  members  of  the  association  to  manufacture  such  ware.  Prior 
to  this  such  manufacturers  were  independent  and  competitive.  By 
agreements  they  subjected  themselves  to  certain  rules  and  regulations, 
among  others  not  to  sell  their  product  to  the  jobbers  except  at  a  price 
fixed,  not  by  competitive  trade  conditions,  but  by  the  decision  of  a 
committee  of  six  of  their  number,  of  which  Wayman  was  chairman, 
and  sale  zones  were  established  and  prices  fixed  in  each  of  them.  A 
jobber  could  not  obtain  enameled  ware  from  any  manufacturer  who 

1  Adapted  from  United  States  Bureau  of  Corporations,  Trust  Laws  and  Unfair 
Competition,  19 15,  pp.  11 5-1 7. 


738  INDUSTRIAL  SOCIETY 

was  in  the  combine  unless  he  entered  the  combination,  and  the 
condition  of  entry  was  not  to  resell  to  plumbers  except  at  prices 
fixed  in  the  jobber's  license  agreement.  The  potency  of  the  scheme 
was  established  by  the  co-operation  of  85  per  cent  of  the  manufac- 
turers, and  their  fidelity  to  it  was  secured,  not  only  by  trade  advan- 
tages, but  by  a  provision  for  the  return  of  80  per  cent  of  the  royalties 
if  the  agreement  was  faithfully  observed.  The  jobbers  also  were 
entitled  to  certain  rebates  for  the  faithful  observance  of  their  engage- 
ments. It  was  testified  that  90  per  cent  of  the  jobbers  in  number 
and  more  than  90  per  cent  in  purchasing  power  joined  the  com- 
bination. 

289.    THE  DINNER  PARTY1 

Article  XIII  of  the  petition  alleges  that — 

Under  the  auspices  of  the  Corporation,  these  interests  [steel  manu- 
facturing], naturally  competitive,  but  harmonized  by  this  network  of  corre- 
lations [interlocking  directorates],  and  overshadowed  and  dominated  by  the 
power  of  the  Corporation  arising  from  its  pre-eminence  in  the  business  and 
the  irresistible  strength  of  its  alliances,  come  together  from  time  to  time, 
find  out  the  views  of  the  Corporation  in  respect  of  prices  and  output,  and  all 
that  hitherto  was  affected  by  pools  and  formal  agreements,  reach  a  common 
understanding  and  purpose,  and  proceed  to  carry  them  out.  It  is  not 
here  alleged  that  merely  assembling  and  exchanging  information  and 
declaration  of  purpose  amounts  to  an  agreement  or  combination  in  restraint 
of  trade.  These  meetings  and  their  results  have  gone  further.  What  they 
actually  accomplished  shows  the  great  and  dangerous  power  achieved  by 
the  Corporation  through  unlawful  combination  exercised  over  the  trade 
and  commerce  of  the  country.  The  concerted  action  taken  has  prevented 
fluctuations  in  prices  and  competition. 

The  petition  further  alleges  that  fully  90  per  cent  of  the  iron  and 
steel  trade  of  the  United  States  was  represented  at  the  meetings 
referred  to;  that  these  meetings  brought  about  the  maintenance  of 
prices,  and  accomplished  more  than  did  the  old  pools  and  agreements 
which  were  frequently  broken. 

The  answer  admits  that  representatives  of  a  large  proportion  of 
the  steel  manufacturing  interests  in  the  United  States  have  met 
together  from  time  to  time  since  November  20,  1907,  but  denies 
that  such  meetings  were  brought  about  by  the  influences,  or  that  they 
were  held  for  the  purposes,  or  that  they  accomplished  the  results, 

1  From  the  Statement  of  the  Case  between  the  United  States  of  America  and  the 
United  States  Steel  Corporation  and  Others  in  the  District  Court  of  the  United  States 
for  the  District  of  New  Jersey,  pp.  311-13. 


I 


CONCENTRATION  739 


alleged  in  the  petition.  It  denies  that  said  meetings  or  any  of  them, 
or  the  manufacturers  assembled  thereat,  went  further  than  the 
mutual  exchange  of  information  and  of  views  with  regard  to  the 
business  situation,  or  that  what  they  accomplished  showed  any  great 
or  dangerous  power  achieved  by  the  Steel  Corporation  either  through 
unlawful  combination  exercised  over  the  trade  and  commerce  of  the 
country  or  otherwise.  It  denies  that  concerted  action  was  taken  by 
lid  manufacturers  to  prevent  either  fluctuations  in  prices  or  compe- 
ion  or  that  any  action  taken  at  said  meetings  has  produced  any  such 
suit.  It  says  that  the  first  of  said  meetings  was  held  on  November 
1907;  that  the  country  was  then  suffering  from  a  severe  financial 
dc  and  that  the  steel  manufacturers  came  together  for*mutual 
msel  and  advice  as  to  the  best  means  of  averting  disastrous  conse- 
mces  to  their  industry  such  as  had  followed  nearly  every  other 
Lie  that  had  theretofore  occurred  in  this  country.  It  says  that 
lid  meeting  was  largely  attended;  that  there  was  a  full  exchange  of 
information  as  to  the  condition  of  the  various  businesses  represented 
and  a  frank  interchange  of  views  with  regard  to  the  business  situation; 
that  similar  meetings  with  similar  objects  followed,  but  that  neither 
then  nor  at  any  other  time  was  there  any  attempt  to  reach  any  agree- 
ment or  understanding  with  respect  to  output  or  prices  nor  was  there 
anything  said  or  done  which  was  calculated  or  intended  to  suppress 
competition  or  restrain  trade.  It  says  that  said  meetings  did  not 
prevent  frequent  changes  and  fluctuations  in  prices  or  competition  in 
steel  products,  but  that  they  did  tend  to  prevent  the  misunderstand- 
ings and  unfair  practices  out  of  which  had  grown  nearly  all  the  trade 
wars  of  the  past. 

These  meetings  have  come  to  be  known  as  the  Gary  dinners. 

290.    TRADE  ASSOCIATIONS1 

The  remarkable  growth  of  trade  associations  makes  this  form  of 
co-operation  of  especial  importance  in  the  consideration  of  legislation 
against  restraint  of  trade  and  unfair  competition.  A  trade  associa- 
tion is  an  efficient  means  by  which  those  engaged  independently  in  a 
particular  line  of  trade  may  redress  wrongs  and  improve  conditions 
through  collective  action.  It  is  capable  of  symbolizing  the  highest 
ideals  in  trade,  or  of  expressing  that  which  invites  the  odium  of  public 
censure  and  legal  penalty.    Directed  within  legal  limits  and  along 

1  Adapted  from  United  States  Bureau  of  Corporations,  Trust  Laws  and  Unfair 
Competition,  1915,  PP-  7°5~7I4« 


74©  INDUSTRIAL  SOCIETY 

proper  lines,  it  may  accomplish  much  good,  but,  if  ostensibly  formed 
for  a  legitimate  purpose,  when  in  reality  designed  to  accomplish  illegal 
or  questionable  ends,  it  will  result  in  much  harm. 

As  employed  in  this  chapter  the  term  " trade  associations"  com- 
prises associations  of  manufacturers,  dealers  (wholesale  or  retail), 
and  producers  of  raw  materials,  such  as  mining  companies  and  agri- 
cultural enterprises,  in  so  far  as  their  activities  relate  to  the  promotion 
of  the  commercial  aspects  of  the  business.  Occasionally  a  mixed 
association  includes  both  manufacturers  and  dealers  in  the  same 
industry  or  in  related  industries. 

Associations  may  be  further  classed  into  local,  state,  and  inter- 
state or  national.  The  few  associations  which  are  international 
in  their  scope  are  here  classed  with  interstate  and  national  associa- 
tions. 

The  members  of  some  of  these  associations  are  individual  busi- 
ness concerns;  others,  particularly  those  of  national  scope,  have  as 
members  other  associations.  The  National  Federation  of  Implement 
and  Vehicle  Dealers'  Associations,  for  instance,  is  composed  of  dele- 
gates from  state  and  interstate  associations  of  implement  and  vehicle 
dealers. 

The  first  and  most  general  object  of  most  trade  associations,  as 
stated  in  their  by-laws  or  constitutions,  is  to  advance  the  general  pros- 
perity of  the  industry.  "This  association,"  says  one,  "is  formed  for 
the  purpose  of  promoting  the  welfare  of  the  flour  millers  of  the  United 
States."  Another  aims,  among  other  things,  "to  promote  fellowship 
among  members  and  advance  the  welfare  of  trade  and  commerce." 
The  objects  of  an  association  of  retail  jewelers  are  "to  unite  the  retail 
jewelers  of  the  State  in  a  sentiment  promotive  of  the  highest  welfare 
of  the  trade;  to  cause  the  elimination  of  unmercantile  methods  and 
practices;  to  encourage  the  supremacy  of  standards  of  truth  and 
honesty  in  all  jewelry  and  related  products;  and  in  general  to  promote 
measures  calculated  to  redound  to  the  material  and  moral  advantage  of 
retail  jewelers." 

In  actual  practice,  the  advancement  of  the  general  welfare  of  the 
industry  has  been  interpreted  to  cover  a  wide  field  of  activities,  from 
promoting  the  widest  use  of  the  product  to  "safeguarding  legitimate 
profit"  in  various  ways.  The  following  is  a  partial  list  of  their 
activities : 

i.  Publicity  of  product — co-operative  advertising. 
2.  Price  control. 


CONCENTRATION  74I 

3.  Fixing  the  channels  of  trade;  opposition  to  "direct  selling";   the 
'irregular"  dealer. 

4.  Uniform  terms. 

5.  Marketing  and  other  co-operative  associations. 

6.  Standardizing  materials,  processes,  or  products. 

7.  Standard  cost  accounting. 

8.  Improving  processes  or  product;  technical  activities. 

9.  Credit  bureaus. 

10.  Collection  agencies. 

11.  Traffic  matters. 

12.  Labor  matters. 

13.  Employment  bureaus  and  clearance  cards. 

14.  Apprenticeship  and  trade  education. 

15.  Legislative  activities. 

16.  Supplying  insurance  to  members. 

17.  Foreign  trade. 

18.  Publications. 

See  also  254  B.  Concentration  in  Marketing. 

386.  Control  by  Voluntary  Associations. 

291.     SOME  METHODS  OF  CONSOLIDATION  AMONG 
RAILROADS1 

It  is  important  to  consider  some  of  the  methods  by  which  these 
consolidations  have  taken  place.  These  may  be  denoted  as,  first, 
actual  purchase  or  ownership  in  fee;  secondly,  acquisition  by  lease; 
thirdly,  stockholding  control;  and  fourthly,  minority  representation 
in  directorates. 

Actual  purchase. — As  illustrative  of  the  method  of  consolidation 
and  extension  by  actual  purchase,  we  may  instance  particularly  the 
cases  of  the  Chicago,  Burlington  &  Quincy  sale  to  the  Northern  Pacific 
and  Great  Northern  railroads  jointly;  of  the  Lake  Shore  to  the  New 
York  Central;  of  the  Central  Railroad  of  New  Jersey  to  the  Reading; 
and  of  the  Mobile  &  Ohio  to  the  Southern  Railway.  In  the  first 
three  of  these  we  have  the  purchase  effected  by  an  exchange  of  bonds  of 
the  purchasing  company  for  the  stock  of  the  road  acquired.  Thus, 
for  instance,  stockholders  of  the  Burlington  road  receive  for  their  hold- 
ings twice  the  value  at  par  in  4  per  cent  bonds,  guaranteed  jointly  by 
the  Northern  Pacific  and  the  Great  Northern  railroads.    The  same 

1  Adapted  from  the  Final  Report  of  the  Industrial  Commission,  1902,  XIX, 
310-14- 


742  INDUSTRIAL  SOCIETY 

proportion,  namely,  twice  the  par  value,  was  given  in  the  case  of  the 
Lake  Shore  road,  the  New  York  Central  issuing,  in  place  of  the  old 
stock,  3!  per  cent  bonds.  The  terms  of  purchase  of  the  Central  Rail- 
road of  New  Jersey  did  not  differ  in  principle  from  this.  In  the  case 
of  the  purchase  of  the  Mobile  &  Ohio  by  the  Southern  Railway,  the 
policy  was  slightly  different,  inasmuch  as  new  bonds  were  exchanged 
for  the  old,  while  the  stock  of  the  Southern  Railway  was  issued  under  a 
guaranteed  dividend  for  the  stock  of  the  road  absorbed.  The 
peculiarity  of  this  method  of  consolidation  is  that  it  often  involves  a 
great  expansion  in  the  capitalization  of  the  parent  company;  in  at 
least  two  cases  above  mentioned  there  having  been  an  issue  of  bonds 
equal  to  twice  the  volume  of  the  stock  retired. 

Consolidation  by  lease. — One  fundamental  objection  to  consolida- 
tion by  purchase  is  to  be  found  in  the  hostility  of  state  legislatures. 
For  this  reason  most  of  the  consolidations  in  New  England,  and  par- 
ticularly the  recent  absorption  of  the  Boston  &  Albany  Railroad  by 
the  New  York  Central,  and  of  the  Fitchburg  Railroad  by  the  Boston 
&  Maine  Railroad,  have  been  by  means  of  lease.  Such  acquisition 
by  lease  has  one  marked  advantage.  The  transaction  involves  no 
issue  of  new  securities  and  consequently  no  opportunity  for  an  undue 
increase  of  capitalization.  The  rental  is  fixed  as  a  dividend,  which 
is  a  matter  of  public  record.  Such  leases,  moreover,  do  not  involve  the 
sacrifice  of  the  identity  of  the  subsidiary  company.  Of  course,  where 
they  are  made  for  long  periods,  as  in  the  case  of  the  West  Shore 
lease  to  the  New  York  Central  for  475  years,  or  of  the  Chesapeake  & 
Ohio  by  the  Pennsylvania  for  999  years,  such  a  lease  practically 
amounts  to  entire  consolidation.  But  where  public  supervision  is 
enforced,  as  in  the  recent  lease  of  the  Boston  &  Albany  Railroad  in 
Massachusetts,  the  term  is  expressly  limited  in  this  case  to  08  years. 
Such  a  policy  opens  the  way,  consequently,  to  a  readjustment  of  finan- 
cial and  traffic  burdens  under  the  changed  conditions  which  may  pre- 
vail at  the  expiration  of  that  term. 

Control  by  holding  of  stock. — A  third  method  of  expansion,  more 
elastic  than  either  purchase  or  lease,  is  that  of  control  by  means  of 
the  purchase  of  capital  stock.  Among  the  recent  consolidations 
effected  by  this  means  may  be  instanced  the  control  of  the  various  soft 
coal  roads  by  the  Pennsylvania  Company,  and  the  acquisition  of 
the  Southern  Pacific  system  by  the  Union  Pacific  Railroad.  Such 
ownership  of  the  stock  or  bonds  of  one  railroad  by  another  may 
accomplish   either    one    of    two   objects.     It  may  be   intended   to 


I 


CONCENTRATION  743 


secure  corporate  control,  or  it  may  serve  merely  for  purposes  of 
investment. 

The  distinction  between  actual  purchase  or  absorption  of  one 
road  by  another  and  of  mere  control  by  stockholdings  lies  in  the  fact 
that  in  the  latter  case  a  bare  majority  of  the  stock,  and  in  some  cases 
even  less,  is  necessary.  It  is  a  well-known  fact  that  a  relatively 
small  but  compact  minority  of  stockholders  can  exercise  a  dispro- 
portionate influence  upon  corporate  policy.  For  this  reason  the 
investment  necessary  by  one  road  in  the  securities  of  another  may  be 
very  considerably  diminished,  at  the  same  time  all  purposes  of  control 
ing  effectually  attained. 

Community  of  interest. — The  consolidations  of  1 899-1 900  have 
iven  rise  to  a  new  phase  of  railroad  policy,  novel  alike  both  in  this 
ountry  and  in  Europe.  This  policy,  denoted  as  either  community  of 
terest  or  community  of  ownership,  is  nothing  more  nor  less  than 
fficient  representation  by  one  railroad  upon  the  directorate  of  another. 
This  representation,  intended  to  affect  the  policy  of  the  junior  com- 
pany, may  represent  actual  control  or  merely  a  minority  interest,  as 
the  case  may  be.  Its  objects  at  the  same  time  may  vary  all  the  way 
from  the  entire  elimination  of  the  disturbing  element  of  a  rate-cutting 
road,  to  the  maintenance  of  harmonious  railroad  policy  between  a 
number  of  rivals.  , 

P292,  UNFAIR  METHODS  OF  COMPETITION1 
Since  the  methods  of  competition  are  of  infinite  variety,  it  is  obvi- 
ously impossible  to  specify  all  that  may  be  regarded  as  unfair.  The 
following  list  is  believed,  however,  to  cover  most  of  the  methods  that 
have  been  so  condemned  by  economists  and  publicists  and  have  thus  far 
attained  any  considerable  importance.  Not  every  method  listed  will 
seem  unfair  to  all  people,  or  perhaps  to  most.  Sometimes,  indeed, 
complaint  is  noted  of  two  lines  of  conduct,  one  of  which  is  the  opposite 
of  the  other.  Fixing  resale  prices  and  cutting  fixed  resale  prices, 
defining  the  channels  of  trade  and  refusal  to  observe  defined  chan- 
nels, each  is  felt  as  injurious  by  one  group  or  another,  and  is  therefore 
condemned  by  it  as  unfair. 

Local  price  cutting.— The  buyers  of  most  articles  are  more  numer- 
ous than  the  sellers,  and  a  reduction  of  the  price  seems  to  benefit  more 
people  than  it  injures.    In  general,  therefore,  it  is  naturally  regarded 

«  Adapted  from  United  States  Bureau  of  Corporations,  Trust  Laws  and  Unfair 
Competition,  1915,  PP-  3IO~3l- 


744  INDUSTRIAL  SOCIETY 

as  a  public  benefit.  But  a  large  corporation  may  cut  its  prices  below 
cost  till  its  competitors  are  destroyed,  and  then  recoup  its  losses  by 
making  its  prices  higher  than  before.  It  may  make  its  reduction  only 
in  localities  reached  by  a  certain  competitor  which  cover  but  a  small 
part  of  its  own  field,  and  so  may  constantly  secure  a  profit  on  its  total 
business,  while  the  competitor  meets  ruinous  losses.  The  ultimate 
result  of  such  a  process  is  high  prices,  based  upon  a  practical  monopoly. 

One- commodity  price  cutting. — A  company  that  sells  several  brands 
or  several  articles  can  cut  the  price  of  one  article  or  brand  and  still 
make  a  large  profit  on  its  business  as  a  whole,  while  destroying  the 
profits  of  competitors  whose  line  is  less  varied.  A  brand  on  which 
the  price  is  cut  in  this  manner  is  often  called  a  " fighting  brand." 

Price  reduction  in  general. — Any  reduction  of  price  is  often  felt 
to  be  unfair  by  manufacturers  and  dealers  who  are  interested  in  main- 
taining a  higher  price. 

Use  of  trading  stamps,  coupons,  and  the  like. — The  American 
Tobacco  Co.  has  made  effective  use  of  the  coupon  or  premium  system 
— giving  with  each  package  of  certain  goods  a  coupon,  tag,  or  other 
mark,  redeemable  in  " premiums."  The  system  is  said  to  lend  itself 
readily  to  local  price  discrimination,  and  to  be  especially  effective  in 
making  sales  because  it  enlists  the  interest  of  the  whole  family  in  the 
kind  and  quantity  of  tobacco  consumed  by  the  user.  For  years  the 
business  of  the  tobacco  combination  along  this  line  was  so  great  that 
it  maintained  a  separate  corporation  to  redeem  its  coupons.  It  is 
alleged  that  a  small  company  cannot  effectively  compete  with  a  large 
one  in  using  the  premium  system,  and  that  this  system  tends  toward 
monopoly  under  present  industrial  conditions.  It  has  therefore  come 
to  be  widely  condemned  as  unfair. 

Excessive  credits. — The  report  of  a  former  Commissioner  of 
Corporations  on  the  International  Harvester  Co.  criticized  the  long 
credits  given  by  that  company  on  certain  kinds  of  farm  machinery, 
and  said: 

There  is  a  very  general  complaint  from  competing  manufacturers, 
especially  the  smaller  concerns,  that  the  International  Harvester  Co.  uses 

these  long  credits  as  a  means  of  wresting  trade  from  its  rivals 

There  is  no  doubt  that  the  smaller  competitors  of  the  International  Har- 
vester Co.  find  this  situation  very  difficult  to  meet,  because  their  financial 
resources  are  generally  inadequate  to  do  business  in  that  way. 

Reductions  of  price  for  quantity. — It  is  usually  admitted  that  large 
buyers  should  have  lower  prices  than  small  buyers,  but  persons 


CONCENTRATION  745 

rho  admit  this  sometimes  complain  that  the  actual  differences  are 
inf airly  large. 

Special  advantages  in  transportation  (rebates,  etc). — In  several 
ldustries  the  dominant  producers  control  the  only  or  the  best  avail- 
ible  means  of  transportation.  For  anthracite  coal,  the  control  of  the 
lines  rests  in  the  same  hands  as  the  control  of  the  railroads  over 
mich  it  is  hauled  to  market.  A  more  widespread  condition  is  rate 
liscrimination  in  favor  of  powerful  interests  on  public  means  of 
transportation  which  they  do  not  directly  control. 

Fixing  resale  prices. — Fixing  of  resale  prices  by  manufacturers  is 

regarded  by  some  as  an  unfair  method  of  controlling  the  market. 

)n  the  other  hand,  some  hold  that  refusal  to  adhere  to  resale  prices 

ixed  by  manufacturers  is  unfair.    Louis  D.  Brandeis  is  one  of  the  best 

mown  advocates  of  this  position.    He  says  that  to  sell  an  advertised 

-tide  below  its  regular  price  "is  not  only  unfair,  but  it  is  in  effect  a 

lander  of  the  reputation  of  the  article."    A  department  store  makes 

leader  of  such  an  article,  he  says,  and  thereby  ruins  the  trade  in  it. 

'he  small  stores  will  cease  to  sell  it  when  they  cannot  sell  it  at  a  profit, 

md  then  the  department  stores  will  drop  it  also  when  it  has  lost  its 

ralue  for  advertising  purposes. 

Bogus  independents. — The  popular  feeling  against  monopoly  is  so 
strong  that  many  people  dislike  to  buy  from  a  trust.  Prudent  men 
therefore  like  to  avoid  the  appearance  of  monopoly,  however  much 
:hey  desire  the  substance.  So  they  sometimes  maintain  separate 
>rganizations  to  simulate  competition,  and  to  secure  the  trade  of 
>ersons  who  would  avoid  them  if  the  facts  were  known. 

Exclusive-dealing  requirements. — Powerful  companies  can  often 
increase  their  power  by  discriminating  against  persons  who  buy 
From  their  competitors.  The  discrimination  may  take  the  form  of 
higher  prices,  or  the  form  of  refusal  to  sell  at  all.  Perhaps  the  best 
known  case  is  that  of  the  United  Shoe  Machinery  Co.  which  leases  cer- 
tain of  its  machines  on  the  condition  that  the  lessee  forfeits  his  right 
to  use  them  if  he  uses  any  similar  machines  made  by  others. 

Full-line  forcing— -This  consists  in  a  requirement  that  specified 
goods  be  handled  on  pain  of  refusal  to  furnish  certain  other  goods  or 
to  give  certain  discounts  or  other  favorable  terms.  It  is  often  called 
full-line  forcing,  because  a  manufacturer  of  a  particular  brand  of 
goods  which  is  specially  desired  may  insist  that  all  his  other  goods, 
for  which  there  is  no  special  preference,  shall  be  taken  in  lieu  of  those 
of  rival  makers  as  a  condition  of  obtaining  supplies  of  specially  desired 


746  INDUSTRIAL  SOCIETY 

goods,  thus  attempting  to  force  the  dealer  to  handle  the  "full  line" 
of  the  manufacturer. 

Inducing  breach  of  contract. — Complaints  have  been  made  by 
manufacturers  of  harvesting  machinery,  both  against  the  salesmen 
of  the  International  Harvester  Co.  in  its  earlier  years  and  against  those 
of  various  companies  before  that  company  was  formed,  that  they  made 
a  practice  of  following  up  their  competitors  and  inducing  farmers  to 
back  out  of  orders  they  had  given. 

Enticement  of  competitors'  employees. — Accusations  are  not  in- 
frequently made  of  attempts  to  entice  away  important  employees 
for  the  purpose  of  embarrassing  a  competitor's  business.  In  the 
celebrated  case  of  People  v.  Everest,  a  prosecution  of  certain  persons 
alleged  to  have  acted  in  the  interests  of  the  Standard  Oil  Co.,  it  was  one 
of  the  grounds  of  complaint  that  they  had  conspired  to  entice  certain 
skilled  employees  from  the  Buffalo  Lubricating  Oil  Co.,  particularly 
Albert  A.  Miller,  superintendent  of  the  construction  of  its  work,  and 
the  only  man  in  the  company  able  to  superintend  the  manufacture 
of  oil. 

Espionage  by  corruption  and  bribery. — A  part  of  the  "restraint 
upon  unfair  competition"  which  the  independent  tobacco  manu- 
facturers asked  the  court  to  impose  on  the  new  corporations  into  which 
the  tobacco  combination  was  dissolved  was  that:  "Each  corporation 
which  is  to  carry  forward  any  part  of  the  manufacturing  business  of 
the  trust  should  be  restrained  ....  from  espionage  on  the  business 
of  any  competitor,  either  through  bribery  of  any  agent  or  employee 
of  such  competitor  or  obtaining  information  from  any  United  States 
revenue  official." 

Secret  commissions. — The  widespread  practice  of  giving  com- 
missions and  making  gifts  to  persons  who  make  purchases  for  others, 
including  domestic  servants,  buyers  for  department  stores,  purchasing 
agents  for  railroads,  and  others,  has  been  complained  of  as  unfair 
competition. 

The  practice  of  giving  "premiums"  or  commissions  to  salesmen 
of  wholesale  dealers,  and  so  inducing  them  to  push  one  manufacturer's 
goods  at  the  expense  of  others,  is  said  to  be  condemned  as  an  "unfair 
practice"  by  salesmen  who  have  profited  by  such  premiums,  even 
while  they  deny  any  element  of  underhandedness  on  their  own 
part. 

Misrepresenting  competitors. — This  may  take  the  form  of  misrepre- 
senting the  competitor's  goods,  or  his  character,  responsibility,  or 


CONCENTRATION  747 

isiness  methods.     Complaint  of  such  methods  has  in  past  times  been 
ide  by  persons  in  the  harvesting  machine  business.     Mail-order 
Lber  houses  have  complained  that  the  members  of  retail  lumber 
tiers'  associations,  in  their  efforts  to  drive  the  mail-order  houses  out 
business,  have  made  systematic  use  of  misrepresentation. 
Abuses  in  advertising. — Complaints  under  this  head  relate  to  two 
lifferent  practices— deceptive  advertising  and  excessive  advertising, 
deceptive  advertising  is  not  so  different  in  principle  from  other  forms 
misrepresentation  or  cheating.     "Overadvertising,"  however,  has 
;en  condemned  also  as  one  of  "the  acts  which  wicked  ingenuity  has 
ivised  ....  to  drive  others  out  of  business  and  exclude  them  from 
te  free  right  to  trade."    The  point  is  that  advertising  takes  money, 
md  that  extraordinary  financial  resources  give  an  advantage  which 
has  no  relation  to  any  superiority  of  products  or  service,  and  which  is, 
Lerefore,  felt  to  be  injurious  to  the  public,  and  so  unfair. 

Passing  off  goods  for  those  of  another. — This  signifies  any  method 

mding  to  confuse  one  person's  product  with  another's  so  that  a 

istomer  buys,  or  may  buy,  under  a  mistake  as  to  whose  goods  he  is 

jetting.     No  other  practice,  perhaps,  has  been  so  often  called  unfair 

>mpetition  in  the  law  of  English-speaking  peoples. 

Shutting  of  competitors'  credit.— This  may  take  many  forms. 
*ressure  may  be  exerted  on  banks  and  capitalists  to  refuse  loans.  A 
*presentative  of  a  farmers'  co-operative  organization  complained  that 
a  co-operative  warehouse  at  Memphis,  storing  cotton  and  making 
advances  on  it,  had  been  subjected  to  a  financial  boycott  of  this  kind. 
An  attempt  may  be  made  to  throw  a  rival  company  into  a  receiver- 
ship, or  insinuations  injurious  to  credit  may  be  made.  A  mail-order 
lumber  company  complained  that  it  had  been  attacked  with  such 
insinuations  by  the  retail  lumber  dealers'  associations. 

t  Shutting  of  materials,  supplies,  or  machines  from  competitors.— 
he  complaints  under  this  head  presuppose  something  in  the  nature 
of  a  monopoly;  without  this  the  alleged  injury  could  not  be  inflicted. 
It  may  be  a  legal  monopoly,  as  one  based  upon  patents  or  on  the 
ownership  of  practically  the  whole  supply  of  a  natural  resource,  or  it 
may  rest  on  a  practical  monopoly  of  an  industry  without  such  a 
•  definite  legal  guaranty. 

Acquiring  stock  in  competing  companies  for  purposes  of  reducing  or 
destroying  competition— h  large  company  sometimes  obtains  an  inter- 
est in  a  competitor  without  obtaining  control/and  uses  its  interest  to 
destroy  or  injure  it.    Persons  interested  in  the  United  States  Pipe  Line 


748  INDUSTRIAL  SOCIETY 

Co.,  which  had  been  formed  by  the  independent  refiners  and  crude-oil 
producers  to  transport  both  crude  and  refined  oil,  complained  that 
the  Standard  Oil  Co.  obtained  an  interest  in  it  with  such  ends  in  view. 

Wrongful  and  malicious  suits. — It  is  often  not  easy  to  determine 
how  far  suits  are  malicious  and  how  far  they  are  merely  proper  efforts 
to  maintain  supposed  rights.  There  is  in  most  cases,  of  course,  ground 
of  suit.  Often  it  is  an  alleged  infringement  of  patent.  Among  the 
" unfair  means"  by  which  the  National  Cash  Register  Co.  was  accused 
of  restraining  trade  in  the  indictment  brought  against  its  officers  in 
191 2  was  this:  That  it  brought  suit  against  competitors  and  against 
purchasers  of  their  machines,  alleging  infringement  of  patent  rights, 
when  it  knew  that  no  patents  existed  by  which  such  suits  could  be 
sustained. 

Intimidation. — While  threats  are  often  a  separate  basis  of  com- 
plaint, they  are  in  general  only  subsidiary  to  actual  injuries.  Threats 
are  apt  to  be  effective  only  as  the  power  and  the  disposition  to  injure 
are  actually  manifested. 

Fixing  channels  of  trade. — Retailers  feel  themselves  aggrieved  if 
wholesalers  sell  to  consumers,  and  often  endeavor  to  stop  it.  In 
many  towns,  it  is  said,  wholesale  grocers  understand  that  they  will 
be  boycotted  if  the  retailers  catch  them  selling  to  consumers.  The 
retailers  feel  that  they  are  only  taking  proper  action  to  restrain  com- 
petition which  they  regard  as  unfair. 

D.     The  Trust 
293.    FORCES  MAKING  FOR  COMBINATION1 

First,  then,  the  driving  forces.  Becoming  clearly  apparent  about 
1890,  there  was  a  marked  decrease  in  the  opportunity  for  speculative 
gains  along  the  old  lines.  Formerly  there  had  been  a  wide,  uncertain 
field  of  natural  resources  to  be  exploited,  and  great  prizes  were  drawn 
from  physical  environment.  Now  this  field  has  been  narrowed  down 
and  become  pretty  definitely  known.  The  tillable  public  lands  are 
gone;  the  gold,  coal,  iron,  and  copper  mines  are  exploited,  and  so  with 
the  forests;  the  railway  map  requires  little  revision.  Consequently 
the  old  opportunities  for  great  gains  through  exploiting  such  fields 
have  rapidly  diminished.  This  fact,  when  coupled  with  the  desire 
for  gain  through  the  employment  of  a  greatly  increased  fund  of 
capital  and  a  multiplied  labor  force,  impelled  industrial  leaders  to 

1  Adapted  by  permission  from  L.  H.  Haney,  Business  Organization  and  Com- 
bination, pp.  134-38.     (The  Macmillan  Co.,  1914.) 


CONCENTRATION  74Q 


seek  new  fields,  such  as  existed  in  control  of  manufacturing  industry 

1   ough  combination. 

At  the  same  time,  a  development  in  the  character  of  markets  and 

iusiness  risks  which  had  long  been  unfolding  came  to  a  head.  As 
markets  became  more  truly  continent- wide,  or  world-wide,  that  part  of 
production  which  consists  in  moving  goods  from  place  to  place  and 
holding  them  from  time  to  time  became  more  important,  and  the 
conditions  of  exchange  seemed  to  dominate  the  technical  conditions  of 
manufacture,  etc.  Business  risks  arising  from  changes  in  expenses 
and  prices  came  to  bulk  larger  in  comparison  with  technical  problems. 
Now  the  way  to  control  the  business  situation,  and  reduce  the  risks  of 
exchanges  which  involve  widely  separated  places  and  time,  is  to  com- 

§e  the  direction  and  management  of  the  various  producers. 
But  doubtless  the  most  active  impelling  force  was  the  increasing 
severity  of  competition.  In  the  days  before  the  Civil  War,  business 
was  on  a  relatively  small  scale.  There  was  generally  a  close  personal 
relation  between  producer  and  consumer,  and  less  specialization 
existed.  Capital,  too,  was  relatively  less  important;  and  this  was 
notably  true  of  fixed  and  specialized  capital,  so  that  the  danger  of 
great  loss  was  less.  As  a  result  of  such  conditions,  competition  was 
less  intense.  But  with  modern  large-scale  capitalistic  production, 
competition  often  becomes  cut-throat  and  intensely  wasteful. 

tSo  much  for  the  more  important  driving  or  impelling  forces.  On 
other  hand,  certain  conditions  invited  combination,  the  beckoning 
conditions.  Thus,  in  the  potential  gains  to  be  secured  by  regulating 
prices  and  trade  conditions,  the  obverse  of  the  driving  force  of  intense 
competition  was  to  be  seen.  Even  at  low  prices,  if  economies  could 
be  effected,  there  was  still  an  opportunity  for  gain.  More  particu- 
larly characteristic  of  the  time,  however,  was  an  almost  conscious 
realization  of  the  possibilities  of  profits  on  a  large-scale  production  of 
the  common  necessities  of  life — coal,  ice,  lumber,  nails,  meat,  salt, 
tobacco,  sugar,  etc.  Captains  of  industry  arose  who  saw,  first,  that 
great  profits  might  be  made  by  selling  large  quantities  of  such 
products  even  at  a  small  gain  per  unit;  and  second,  that  in  selling 
such  things  monopoly  would  have  great  power  because  the  demand 
for  them  does  not  fall  off  rapidly  when  prices  are  raised  or  kept  up. 
Both  of  these  visions  were  based  on  the  width  of  the  market  or  the 
inelastic  character  of  the  demand  for  such  necessaries. 

A  distinct  feature  of  this  phase  of  the  matter  was  formed  by  the 
tariff  protection  afforded   to  these  industries.    Though  excepting 


750  INDUSTRIAL  SOCIETY 

his  own  industry,  Mr.  Havemeyer,  of  sugar-trust  fame,  testified 
before  the  Industrial  Commission  that  the  tariff  had  been  the  occasion 
for  the  formation  of  most  of  the  large  combinations  prior  to  1900.  It 
is  too  obvious  to  need  discussion  that  whenever  a  tariff  wall  is  built 
the  control  of  prices  is  made  easier  and  combination  is  invited. 

Another  condition  which  invited  the  combination  movement  was 
the  possibility  of  gain  by  overcapitalization.  By  watering  stock  and 
making  two  shares  grow  where  one  grew  before,  it  was  possible  to 
reap  large  speculative  profits,  and  such  profits  were  reaped  from  bounti- 
ful crops.  There  is  no  doubt  that  several  large  combinations  have 
been  promoted  chiefly  because  the  promoters  believed  that  they  could 
sell  an  increased  capitalization  for  more  money  than  they  had  to  pay 
for  the  properties  combined. 

But  had  these  driving  and  beckoning  conditions  not  operated  in 
conjunction  with  certain  facilitating  conditions,  the  combination  move- 
ment would  not  have  come  just  when  it  did  nor  in  just  the  same 
way.  The  tariff,  for  example,  was  such  a  condition.  Under  Repub- 
lican administrations  the  principle  of  protection  was  more  and  more 
strongly  applied,  reaching  a  high  point  in  the  McKinley  Tariff  Act 
of  1890  and  a  climax  in  the  Dingley  Act  of  1897.  While  it  can  hardly 
be  maintained  that  tariffs  cause  trusts,  they  certainly  facilitate  their 
formation  by  raising  a  wall  against  foreign  competition,  and  such 
cases  as  salt  and  sugar,  rails  and  nails,  paper  and  window  glass,  are 
evidence  to  the  fact. 

Last,  but  by  no  means  least,  the  development  of  corporate  organi 
zation  was  itself  a  factor  in  facilitating  combination.  Prior  to  1850 
the  use  of  the  corporation  in  business  had  not  been  great,  and  it  was 
not  until  the  seventies  that  the  general  corporation  laws  were  much 
utilized.  The  result  was  that  capital  was  limited  in  amount  and  com- 
bination difficult.  Through  the  agency  of  joint-stock  shares,  control 
over  a  large  number  of  business  organizations  may  readily  be  concen- 
trated in  the  hands  of  a  few  men.  They  have  merely  to  purchase 
enough  stock  to  control  each  corporation  and  vote  that  stock  with  a 
united  policy,  and  to  make  the  purchase  they  need  only  form  a  new 
corporation  whose  shares  may  be  exchanged  for  the  controlling  hold- 
ings. By  proceeding  in  this  way  they  do  not  have  to  gain  the  consent 
of  the  organizations  which  they  desire  to  combine,  nor  do  they  increase 
their  financial  liability.  Such  a  means  of  combination  sharpened  one 
of  the  most  effective  weapons  of  the  trust  builder — secret  control  of 
plants  used  locally  to  cut  prices  under  those  of  particular  competitors 


CONCENTRATION 


751 


die  keeping  them  up  elsewhere.    In  so  far  as  the  corporate  form 
be  used  to  minimize  legal  responsibility,  it  also  facilitated 
>mbination. 

See  also  136.         Types  of  Business  Organization. 

171-175  on  Indirect  Costs  and  Social  Control. 

252-258  on  Large-Scale  Production. 

275-292  on  Instruments  of  Concentration. 

345.         What  Firm  Shall  Survive  Within  an  Industry  ? 

347.         What  Marketing  Methods  Shall  Survive  ? 

350.         Competition  Faulty  as  a  Regulator  of  Prices. 

294.    CONCENTRATION  AMONG  THE  RAILROADS  (1906)1 
[The  following  table  shows  the  extent  to  which  railway  securities, 
)th  stocks  and  bonds,  are  held  by  other  railway  companies.    These 

,R  VALUES,  RAILWAY  SECURITIES  AND  HOLDINGS,  JUNE  30,  1906 


Funded  Debt 

Stock 

Funded  Debt 

Stock 

Outstanding   securi- 
ties, active  corpo- 
rations  

$8,930,687,740 
412,273,736 

$8,113,101,169 
771,133,756 

$9,342,961,476 

Outstanding   securi- 
ties, inactive  cor- 
porations  

Total      outstanding 

$8,884,234,925 

Held  within  the  sys- 
tem,   active    cor- 
porations  

Held  within  the  sys- 
tem, inactive  cor- 
porations  

1,109,498,887 
291,870,986 

2,908,658,305 
765,674,139 

Total    held    within 

the  system 

Held  outside  the  sys- 

1,401,369,873 
38,990,507 

3,674,332,444 
440,519,546 

Total    holdings    by 
railway     corpora- 
tions  

1,440,360,634 

4,1 14/851,990 

Total    securities    in 
hands    of    public 
(total  outstanding 
less  total  holdings) 

$7,902,600,969 

$4,769,382,935 

1  Adapted  from  Interstate  Commerce  Commission,  Special  Report  No.  1,  "Inter- 
corporate Relationships  of  Railways  in  the  United  States  as  of  June  30,  1906," 
PP-  44-48. 


752  INDUSTRIAL  SOCIETY 

data  may  be  supplemented  by  a  statement  showing  the  rapid  increase 
of  mileage  under  single  operating  control.  Down  to  1870,  700  to 
1,000  miles  was  regarded  as  the  maximum  for  efficient  operation  under 
one  management;  by  1890  this  had  increased  to  5,000  miles;  by  1898 
to  10,000  miles;  and  by  1900  to  15,000  to  20,000  miles.] 

A  final  word  of  explanation  seems  necessary  as  to  the  use  of  the 
term  "in  the  hands  of  the  public."  This  investigation  has  had  to  do 
solely  with  the  holdings  in  railway  securities  by  steam  railway  com- 
panies, and  it  has,  therefore,  been  necessary  to  regard  all  securities 
not  held  by  steam  railway  companies  as  "in  the  hands  of  the  public." 
It  is  recognized  that  large  amounts  of  securities  are  held  by  corpora- 
tions and  by  individuals  so  closely  identified  with  other  railway 
corporations  that  such  securities  are  not  in  the  hands  of  the  public  in 
any  real  sense,  but  should  properly  be  regarded  as  the  holdings  of  those 
railways  with  which  such  corporations  and  individuals  are  associated. 
It  must  be  obvious,  however,  that  any  attempt  by  this  office  to  inter- 
pret the  statistics  in  this  manner  would  have  resulted  inevitably  in 
difficulties  which  could  have  been  removed  only  by  arbitrary  methods. 
All  that  can  be  done  is  to  introduce  this  word  of  explanation  in 
order  to  guard  against  the  danger  of  an  improper  use  of  the  results 
obtained. 

295.     CONTROL  OF  MONEY  AND  CREDIT 
(AN  ACCUSATION)1 

If  by  a  "money  trust"  is  meant — 

an  established  and  well-defined  identity  and  community  of  interest  between 
a  few  leaders  of  finance  which  has  been  created  and  is  held  together  through 
stockholdings,  interlocking  directorates,  and  other  forms  of  domination 
over  banks,  trust  companies,  railroads,  public-service  and  industrial  corpora- 
tions, and  which  has  resulted  in  a  vast  and  growing  concentration  of  control 
of  money  and  credit  in  the  hands  of  a  comparatively  few  men — 

your  committee  has  no  hesitation  in  asserting  as  the  result  of  its 
investigation  up  to  this  time  that  the  condition  thus  described  exists 
in  this  country  today. 

This  increased  concentration  of  control  of  money  and  credit  has 
been  effected  principally  as  follows: 

First,  through  consolidations  of  competitive  or  potentially  com- 
petitive banks  and  trust  companies,  which  consolidations  have  in  turn 
been  brought  under  sympathetic  management. 

1  Adapted  from  the  Report  of  the  Committee  to  Investigate  the  Concentration  of 
Control  of  Money  and  Credit,  February  28,  1913,  pp.  55-56,  130-33. 


CONCENTRATION  753 

Second,  through  the  same  powerful  interests  becoming  large  stock- 
holders in  potentially  competitive  banks  and  trust  companies.  This 
is  the  simplest  way  of  acquiring  control,  but  since  it  requires  the 
largest  investment  of  capital,  it  is  the  least  used,  although  the  recent 
investments  in  that  direction  for  that  apparent  purpose  amount  to 
tens  of  millions  of  dollars  in  present  market  values. 

Third,  through  the  confederation  of  potentially  competitive  banks 
and  trust  companies  by  means  of  the  system  of  interlocking  direc- 
torates. 

Fourth,  through  the  influence  which  the  more  powerful  banking 
houses,  banks,  and  trust  companies  have  secured  in  the  management 
of  insurance  companies,  railroads,  producing  and  trading  corporations, 
and  public  utility  corporations,  by  means  of  stockholdings,  voting 
trusts,  fiscal  agency  contracts,  or  representation  upon  their  boards 
of  directors,  or  through  supplying  the  money  requirements  of  railway, 
industrial,  and  public  utilities  corporations  and  thereby  being  enabled 
to  participate  in  the  determination  of  their  financial  and  business 
policies. 

Fifth,  through  partnership  or  joint-account  arrangements  between 
a  few  of  the  leading  banking  houses,  banks,  and  trust  companies  in 
the  purchase  of  security  issues  of  the  great  interstate  corporations, 
accompanied  by  understandings  of  recent  growth— sometimes  called 
" banking  ethics" — which  have  had  the  effect  of  effectually  destroying 
competition  between  such  banking  houses,  banks,  and  trust  companies 
in  the  struggle  for  business  or  in  the  purchase  and  sale  of  large  issues 
of  securities. 

The  parties  to  this  combination  or  understanding  or  community 
of  interest,  by  whatever  name  it  may  be  called,  may  be  conveniently 
classified,  for  the  purpose  of  differentiation,  into  four  separate 
groups. 

First:  The  first,  which  for  convenience  of  statement  we  will  call 
the  inner  group,  consists  of  J.  P.  Morgan  &  Co.,  the  recognized 
leaders,  and  George  F.  Baker  and  James  Stillman  in  their  individual 
capacities  and  in  their  joint  administration  and  control  of  the  First 
National  Bank,  the  National  City  Bank,  the  National  Bank  of  Com- 
merce, the  Chase  National  Bank,  the  Guaranty  Trust  Co.,  and  the 
Bankers  Trust  Co.,  with  total  known  resources,  in  these  corporations 
alone,  in  excess  of  $1,300,000,000,  and  of  a  number  of  smaller  but 
important  financial  institutions.  This  takes  no  account  of  the 
personal  fortunes  of  these  gentlemen. 


754  INDUSTRIAL  SOCIETY 

Second:  Closely  allied  with  this  inner  or  primary  group,  and 
indeed  related  to  them  practically  as  partners  in  many  of  their  larger 
financial  enterprises,  are  the  powerful  international  banking  houses 
of  Lee,  Higginson  &  Co.,  and  Kidder,  Peabody  &  Co.,  with  three 
affiliated  banks  in  Boston — the  National  Shawmut  Bank,  the  First 
National  Bank,  and  the  Old  Colony  Trust  Co. — having  at  least  more 
than  half  of  the  total  resources  of  all  the  Boston  banks;  also  with 
interests  and  representation  in  other  important  New  England  financial 
institutions. 

Third:  In  New  York  City  the  international  banking  house*  of 
Messrs.  Kuhn,  Loeb  &  Co.,  with  its  large  foreign  clientele  and  con- 
nections, whilst  only  qualifiedly  allied  with  the  inner  group,  and  only 
in  isolated  transactions,  yet  through  its  close  relations  with  the 
National  City  Bank  and  the  National  Bank  of  Commerce  and  other 
financial  institutions  with  which  it  has  recently  allied  itself  has  many 
interests  in  common,  conducting  large  joint-account  transactions 
with  them,  especially  in  recent  years,  and  having  what  virtually 
amounts  to  an  understanding  not  to  compete,  which  is  defended 
as  a  principle  of  ''banking  ethics."  Together  they  have  with  a 
few  exceptions  pre-empted  the  banking  business  of  the  important 
railways  of  the  country. 

Fourth:  In  Chicago  this  inner  group  associates  with  and  makes 
issues  of  securities  in  joint  account  or  through  underwriting  participa- 
tions primarily  with  the  First  National  Bank  and  the  Illinois  Trust 
and  Savings  Bank,  and  has  more  or  less  friendly  relations  with  the 
Continental  and  Commercial  National  Bank,  which  participates  at 
times  in  the  underwriting  of  security  issues  by  the  inner  group.  These 
are  the  three  largest  financial  institutions  in  Chicago,  with  combined 
resources  (including  the  two  affiliated  and  controlled  State  institutions 
of  the  two  national  banks)  of  $561,000,000. 

Radiating  from  these  principal  groups  and  closely  affiliated  with 
them  are  smaller  but  important  banking  houses,  such  as  Kissel, 
Kinnicut  &  Co.,  White,  Weld  &  Co.,  and  Harvey  Fisk  &  Sons,  who 
receive  large  and  lucrative  patronage  from  the  dominating  groups  and 
are  used  by  the  latter  as  jobbers  or  distributors  of  securities  the  issuing 
of  which  they  control,  but  which  for  reasons  of  their  own  they  prefer 
not  to  have  issued  or  distributed  under  their  own  names.  Messrs.  Lee, 
Higginson  &  Co.,  besides  being  partners  with  the  inner  group,  are 
also  frequently  utilized  in  this  service  because  of  their  facilities  as 
distributors  of  securities. 


CONCENTRATION  755 

Beyond  these  inner  groups  and  subgroups  are  banks  and  bankers 
throughout  the  country  who  co-operate  with  them  in  underwriting 
or  guaranteeing  the  sale  of  securities  offered  to  the  public  and  who  also 

(ct  as  distributors  of  such  securities.  It  was  impossible  to  learn  the 
lentity  of  these  corporations,  owing  to  the  unwillingness  of  the 
lembers  of  the  inner  group  to  disclose  the  names  of  their  underwriters, 
ut  sufficient  appears  to  justify  the  statement  that  there  are  at  least 
undreds  of  them  and  that  they  extend  into  many  of  the  cities  through- 
out this  and  foreign  countries. 

The  patronage  thus  proceeding  from  the  inner  group  and  its  sub- 
groups is  of  great  value  to  these  banks  and  bankers,  who  are  thus  tied 
by  self-interest  to  the  great  issuing  houses  and  may  be  regarded  as  a 

i>art  of  this  vast  financial  organization.  Such  patronage  yields  no 
nconsiderable  part  of  the  income  of  these  banks  and  bankers  and 
vithout  much  risk  on  account  of  the  facilities  of  the  principal  groups 
or  placing  issues  of  securities  through  their  domination  of  great 
banks  and  trust  companies  and  their  other  domestic  affiliations  and 
their  foreign  connections. 

It  can  hardly  be  expected  that  the  banks,  trust  companies,  and 
other  institutions  that  are  thus  seeking  participations  from  this  inner 
group  would  be  likely  to  engage  in  business  of  a  character  that  would 
be  displeasing  to  the  latter  or  that  would  interfere  with  their  plans 
or  prestige.  And  so  the  protection  that  can  be  offered  by  the  members 
of  this  inner  group  constitutes  the  safest  refuge  of  our  great  industrial 
combinations  and  railroad  systems  against  future  competition.  The 
powerful  grip  of  these  gentlemen  is  upon  the  throttle  that  controls 
the  wheels  of  credit  and  upon  their  signal  those  wheels  will  turn  or  stop. 

Through  their  power  and  domination  over  so  many  of  the  largest 
financial  institutions,  which,  as  buyers,  underwriters,  distributors,  or 
investors,  constitute  the  principal  first  outlets  for  security  issues, 
the  inner  group  and  its  allies  have  drawn  to  themselves  the  bulk  of  the 
business  of  marketing  the  issues  of  the  greater  railroad,  producing  and 
trading,  and  public-utility  corporations,  which,  in  consequence,  have 
no  open  market  to  which  to  appeal;  and  from  this  position  of  vantage, 
fortified  by  the  control  exerted  by  them  through  voting  trusts,  repre- 
sentation in  directorates,  stockholdings,  fiscal  agencies,  and  other 
relations,  they  have  been  able  in  turn  to  direct  the  deposits  and 
other  patronage  of  such  corporations  to  these  same  financial  institu- 
tions, thereby  strengthening  the  instruments  through  which  they 
work. 


756  INDUSTRIAL  SOCIETY 

No  railroad  system  or  industrial  corporation  for  which  either  of 
the  houses  named  has  acted  as  banker  could  shift  its  business  from  one 
to  another.  Where  one  has  made  an  issue  of  securities  for  a  corpora- 
tion the  others  will  not  bid  for  subsequent  issues  of  the  same  corpora- 
tion. Their  frequent  and  extensive  relations  in  the  joint  issue  of 
securities  have  made  such  a  modus  vivendi  inevitable. 

This  inner  group  and  allies  thus  have  no  effective  competition, 
either  from  others  or  amongst  themselves,  for  these  large  security 
issues,  and  are  accordingly  free  to  exact  their  own  terms  in  most 
cases.  Your  committee  has  no  evidence  that  this  power  is  being 
used  oppressively  and  no  means  of  ascertaining  the  facts  so  long 
as  their  profits  are  undisclosed. 

296.     CONTROL  OF  MONEY  AND  CREDIT  (A  REPLY)1 

We  venture  to  point  out  that  such  "  concentration  "  as  has  taken 
place  in  New  York  and  other  financial  centers  has  been  due,  not  to 
the  purpose  and  activities  of  men,  but  primarily  to  the  operation  of 
our  antiquated  banking  system,  which  automatically  compels  interior 
banks  to  "concentrate"  in  New  York  City  hundreds  of  millions  of 
reserve  funds,  and,  next,  to  economic  laws  which  in  every  country 
create  some  one  city  as  the  great  financial  center,  and  which  draw 
to  it,  in  enormous  volume,  investment  funds  for  the  development 
of  industrial  enterprises  throughout  the  country. 

In  the  preamble  to  the  House  Resolution  under  which  your  Com- 
mittee acts  we  find  this  statement:  "Whereas  it  has  been  further 
charged  and  is  generally  believed  that  these  same  groups  of  financiers 
are  enabled  to  regulate  the  interest  rates  for  money,  to  create,  avert, 
and  compose  panics,  etc."  The  factors  which  determine  interest 
rates  are  not  local  in  their  source,  but  are  world-wide,  being  deter- 
mined and — owing  to  the  freedom  of  international  exchange — being 
regulated  by  the  average  demand  for  credit  throughout  the  world's 
money  markets.  If  any  man  or  group  of  men  had  the  ability  and 
resources — which  they  have  not — to  withhold  credits  in  any  one 
market,  like  New  York,  the  situation  would  ordinarily  be  promptly 
relieved  by  the  automatic  inflow  of  credits  from  some  altogether 
foreign  source. 

We  regret  that  a  belief  so  incredible,  so  abhorrent,  and  so  harm- 
ful to  the  country  as  that  the  panic  of  1907  was  actually  due  to  the 

1  Adapted  from  a  letter  by  J.  P.  Morgan  &  Co.  in  response  to  the  invitation  of 
the  Pujo  Committee,  February  25,  1913,  pp.  3-26. 


CONCENTRATION  757 

machinations  of  certain  powerful  men  should  for  a  moment  have 
found  lodgment  anywhere.  Men  possessing  even  a  fraction  of  the 
influence  and  resources  attributed  to  them  always  are  the  ones  holding 
the  largest  amounts  of  fixed  investments  which,  by  disturbed  financial 
conditions,  always  suffer  most  severely. 

The  resolution  under  which  your  Committee  acts  further  states 
that  a  comparatively  small  group  of  men  "have  wielded  a  power  over 
the  business,  commerce,  credits,  and  finances  of  the  country  that  is 
despotic  and  perilous  and  is  daily  becoming  more  perilous  to  the  public 

Plfare." 
For  the  maintenance  of  such  an  impossible  economic  theory  there 
have  been  spread  before  your  Committee  elaborate  tables  of  so-called 
interlocking  directorates  from  which  exceedingly  mistaken  inferences 
have  been  publicly  drawn.  In  these  tables  it  is  shown  that  180 
bankers  and  bank  directors  serve  upon  the  boards  of  corporations 
having  resources  aggregating  twenty-five  billion  dollars,  and  it  is 
implied  that  this  vast  aggregate  of  the  country's  wealth  is  at  the  dis- 
posal of  these  180  men.  But  such  an  implication  rests  solely  upon  the 
untenable  theory  that  these  men,  living  in  different  parts  of  the 
country,  in  many  cases  personally  unacquainted  with  each  other,  and 
in  most  cases  associated  only  in  occasional  transactions,  vote  always 
for  the  same  policies  and  control  with  united  purpose  the  directorates 
of  the  132  corporations  on  which  they  serve.  The  testimony  failed  to 
establish  any  concerted  policy  or  harmony  of  action  binding  these 
180  men  together,  and  as  a  matter  of  fact  no  such  policy  exists.  The 
absurdity  of  the  assumption  of  such  control  becomes  more  apparent 
when  one  considers  that  on  the  average  these  directors  represent 
only  one-quarter  of  the  memberships  of  their  boards.  It  is  pre- 
posterous to  suppose  that  every  "interlocking"  director  has  full  con- 
trol in  every  organization  with  which  he  is  connected,  and  that  the 
majority  of  directors  who  are  not  "interlocking"  are  mere  figureheads, 
subject  to  the  will  of  a  small  minority  of  their  boards. 

The  steady  growth  in  the  size  of  banks  in  New  York  and  Chicago 
and  the  frequent  merger  of  two  or  more  banks  into  one  institution  have 
erroneously  been  designated  before  your  Committee  as  "concentra- 
tion." This  steady  growth  and  these  mergers,  however,  are  a  develop- 
ment due  simply  to  the  demand  for  larger  banking  facilities  to  care 
for  the  growth  of  the  country's  business.  As  our  cities  double  and 
treble  in  size  and  importance,  as  railroads  extend  and  industrial 
plants  expand,  not  only  is  it  natural,  but  it  is  necessary,  that  our 


758  INDUSTRIAL  SOCIETY 

banking  institutions  should  grow  in  order  to  care  for  the  increased 
demands  put  upon  them.  Perhaps  it  is  not  known  as  well  as  it 
should  be  that  in  New  York  City  the  largest  banks  are  far  inferior  in 
size  to  banks  in  the  commercial  capitals  of  other  and  much  smaller 
countries. 

It  is  also  perhaps  not  sufficiently  recognized  that,  even  as  it  is, 
American  banks  have  not  fully  kept  pace  with  the  development  of 
American  business.  Hundreds  of  the  financial  transactions  of  today 
are  so  large  that  no  single  bank  commands  sufficient  resources  to 
handle  them.  This  is  especially  true  with  respect  to  the  great  public 
utilities  which  are  essential  for  the  development  and  welfare  of  the 
community.  Even  our  largest  banks  are  seldom  able  separately  to 
extend  the  credit  which  such  undertakings  require,  no  one  national 
bank  being  permitted  by  law  to  loan  in  excess  of  10  per  cent  of  its 
capital  and  surplus  to  any  one  individual  or  concern.  When  it  is 
remembered  that  literally  hundreds  of  corporations  in  this  country 
are  now  obliged  to  borrow  annually  sums  of  a  million  dollars  and 
upward  apiece,  it  is  obvious  that  the  size  of  our  banks  must  grow  to 
keep  pace  with  this  demand. 

Many  questions  were  asked  before  your  Committee  as  to  the 
wisdom  in  having  representatives  of  private  banking  houses  sit  upon 
the  board  of  corporations  whose  securities  the  same  bankers  fre- 
quently offer  for  sale.  This  practice,  which  has  been  in  vogue 
abroad  ever  since  the  creation  of  limited  companies,  has  arisen,  not 
from  a  desire  on  the  part  of  the  banker  to  manage  the  daily  affairs 
of  the  corporation  or  to  purchase  its  securities  more  cheaply  than  he 
otherwise  could,  but  rather  because  of  his  moral  responsibility  as 
sponsor  of  the  corporation's  securities,  to  keep  an  eye  upon  its  policies 
and  to  protect  the  interests  of  investors  in  the  securities  of  that  cor- 
poration. For  a  private  banker  to  sit  upon  such  a  directorate  is  in 
most  instances  a  duty,  not  a  privilege. 

Another  line  of  your  inquiry,  certainly  pertinent  to  the  general 
subject,  was  as  to  whether  "the  marketing  of  the  securities  that 
from  time  to  time  have  been  issued  by  interstate  railroads  and  indus- 
trial corporations  has  been  by  competitive  bidding  or  otherwise."  On 
this  matter  we  are  pleased  to  submit  certain  considerations  which,  we 
are  confident,  are  borne  out  by  the  facts:  First,  in  general  and  over  a 
period  of  time  the  sale  of  such  securities  is  invariably  subject  to  the 
competition  of  market  conditions.  We  have  not  heard  of  an  instance 
where  any  corporation  failed  to  secure  the  benefit  of  a  price  for  its 


CONCENTRATION  759 


in  the  case  of  most  of  the  leading  commercial  securities,  state  public- 
service  commissions  pass  with  great  care  upon  the  prices  at  which  the 
securities  of  all  transportation  and  public  utility  corporations  are 
sold.  Third,  competitive  bidding,  in  the  sense  of  having  railroad 
and  industrial  securities  offered  practically  at  public  auction,  as  in 

(e  case  of  municipal  securities,  is  seldom  or  never  practiced. 
The  reasons  against  such  practice  are  plain.  Such  corporate 
ues  have  neither  the  security,  the  steadiness,  nor  the  general  con- 
ence  possessed  by  municipal  bonds,  and  while  in  good  times  it  is 
(ssible  that  they  might  be  subscribed  for  at  public  auction,  in  bad 
aes  there  would  be  no  one  to  bid  for  them.  It  is  practically  incon- 
vable  that  a  municipality  should  go  bankrupt  and  make  permanent 
default  of  its  obligations.  Quite  otherwise  is  the  case  with  railroad 
or  industrial  corporations.  Should  these  latter  appeal  directly  to  the 
proverbially  timid  investor,  there  can  be  little  question  that  in  times 
of  stress  support  would  be  totally  lacking.  We  should  have  the 
spectacle  of  numberless  corporations  failing  for  lack  of  strong  financial 
or  banking  support. 

Still  another  consideration  inducing  large  corporations  to  appoint 
fiscal  agents  is  that  frequently  such  corporations  are  obliged  to  under- 
take operations  of  such  magnitude  and  complexity  over  a  series  of 
years  that  they  must  invoke  uninterruptedly  the  best  financial  advice 
obtainable. 

As  the  final  point  of  this  memorandum  we  venture  to  submit  the 
consideration  that  in  a  strong  public  opinion,  such  as  exists  in  this 
country,  there  lies  the  greatest  safeguard  of  the  community.  The 
public,  that  is,  the  depositors,  are  the  ones  who  entrust  bankers  with 
such  influence  and  power  as  they  today  have  in  every  civilized  land, 
and  the  public  is  unlikely  to  entrust  that  power  to  weak  or  evil  hands. 
To  us  it  seems  as  little  likely  that  the  citizens  of  this  country  will  fill 
Congress  with  rascals  as  it  is  that  they  will  entrust  the  leadership 
of  their  business  and  financial  affairs  to  a  set  of  clever  rogues.  The 
only  genuine  power  which  an  individual,  or  a  group  of  individuals,  can 
gain  is  that  arising  from  the  confidence  reposed  in  him  or  them  by 
the  community.  These  are  axioms  which  it  seems  almost  idle  to 
repeat.  They  apply  to  all  business,  but  more  emphatically,  we 
believe,  to  banking  than  to  any  other  form  of  commerce.  To  bank- 
ing the  confidence  of  the  community  is  the  breath  from  which  it 
draws  its  Hie. 


760  INDUSTRIAL  SOCIETY 

297.  SOME  ADVANTAGES  OF  CONCENTRATION 

A1 

Those  who  advocate  the  formation  of  large  industrial  combina- 
tions claim  that  they  possess  over  the  system  of  production  on  a 
smaller  scale  by  competing  plants  the  following  advantages: 

1.  Concentration. — By  closing  individual  plants  less  favorably 
located  or  less  well  equipped  and  concentrating  production  into  the 
best  plants  most  favorably  located  a  great  saving  can  be  effected, 
both  in  the  amount  of  capital  necessary  for  the  production  of  a 
given  product  and  in  the  amount  of  labor  required. 

2.  Freights. — Where  the  product  is  bulky,  so  that  the  freight 
forms  an  essential  element  of  the  cost,  much  can  be  saved  by  an 
organization  which  has  plants  established  at  favorable  locations  in 
different  sections  of  the  country  so  that  purchasers  can  be  supplied 
from  nearest  plants,  thus  saving  the  cross  freights,  which,  of  course, 
must  be  paid  where  customers  are  supplied  from  single  competing 
plants. 

3.  Patents  and  brands. — Where  different  establishments  selling 
separate  brands  are  brought  together  into  one  combination,  the  use 
of  each  brand  being  common  to  all,  a  great  saving  is  often  effected, 
since  the  most  successful  can  be  more  efficiently  exploited. 

4.  Single  management. — The  great  completeness  and  simplicity 
of  operation  of  a  single  great  corporation  or  trust  are  also  a  source  of 
saving.  Where  each  of  the  different  establishments  had  before  a 
president,  a  complete  set  of  officers,  and  a  separate  office  force,  the 
combined  establishment  need  have  but  its  one  set  of  chief  officers, 
and  subordinates  at  lesser  salaries  may  take  the  places  of  the  heads 
of  separate  establishments.  It  is  likewise  true  that  this  same  form 
of  organization  enables  one  set  of  traveling  salesmen  to  sell  all  of 
the  brands  or  all  classes  of  goods  for  the  separate  establishments,  and 
in  that  way  much  labor  is  saved. 

5.  Skilled  management. — The  bringing  into  co-operation  of  leading 
men  from  the  separate  establishments,  each  having  different  elements 
of  skill  and  experience,  makes  it  possible  to  apply  to  the  business  the 
aggregate  ability  of  all,  a  factor  in  many  instances  doubtless  of 
great  advantage.  To  some  degree  there  may  be  a  finer  specialization 
of  business  ability,  each  man  being  placed  at  the  head  of  the  depart- 
ment for  which  he  is  specially  fitted,  thus  giving,  of  course,  the  most 

1  Adapted  from  the  Report  of  the  Industrial  Commission,  1900,  I,  32-33. 


skil 


CONCENTRATION  ^ 


skilled  management  possible  to  the  entire  industry,  whereas  before 
the  combination  was  effected  only  a  comparatively  few  of  the  leading 
establishments  would  have  managers  of  equal  skill. 

6.  Export  trade.- The  control  of  large  capital  also,  it  is  asserted, 
enables  the  export  trade  to  be  developed  to  much  better  advantage 
than  could  be  done  by  smaller  establishments  with  less  wealth  at  their 
disposal. 

B' 

The  main  advantage  is  stated  to  be  that  of  economy  in  pro- 
duction reflected  in  lower  prices  to  the  consumer.  The  fact  that 
large  economies  must  necessarily  accrue  admits  of  no  denial.  But 
are  these  followed  by  lower  prices  to  the  consumer  ?  We  find  nothing 
in  the  record  to  justify  any  such  conclusion. 

Another  advantage  which  is  said  to  flow  from  combination  is 
that  of  a  more  perfect  product.  There  is  nothing  upon  the  record 
to  justify  this  conclusion.  While  it  may  be  that  the  normal  tendency 
of  business  is  to  secure  the  largest  market,  and  with  that  end  in  view 
to  give  the  largest  satisfaction  to  the  buyer,  it  is  quite  clear  that  sub- 
stantially undisputed  control  of  both  product  and  market  enables  a 
combination   to  economize  in  quality  without  fear   of  pernicious 

Cults. 
Another  advantage  is  alleged  to  be  that  of  better  wages  and  more 
constant  employment  of  labor.  We  are  equally  unable  to  reach  this 
conclusion.  No  part  of  the  profit  arising  from  admitted  economies 
and  resulting  in  large  dividends  on  inflated  stocks,  has  reached  labor 
in  the  form  of  increased  wages,  while  the  claim  of  constancy  of  employ- 
ment is  negatived  by  the  fact  that  factories  in  operation  for  a  genera- 
tion have  been  closed,  and  that  working  men,  more  or  less  continually 
employed  for  years  in  a  factory  independently  operated,  have  been 
discharged  upon  its  absorption  by  the  combination. 

Still  another  advantage  alleged  is  that  of  stability  of  price  to  the 
consumer.  This  must  be  admitted.  But  the  question  is  whether 
the  fixing  of  a  stable  price  operates  to  his  advantage. 

See  also  196.  Regulation  of  Production  through  Combinations. 

253.  The  Economic  Advantages  of  Concentration. 

254.  Concentration  in  Marketing. 

256.  The  Limits  of  Concentration  in  Modern  Business. 
293.  Forces  Making  for  Combination. 

1  Report  and  Proceedings  of  the  Joint  Committee  of  the  Senate  and  Assembly 
ip pointed  to  Investigate  Trusts  (Albany,  1897),  pp.  15-18. 


762  INDUSTRIAL  SOCIETY 

298.    THE  GOOD  BIG-BUSINESS1 

It  is  sometimes  asserted  that  the  mere  size  of  a  corporation  should 
not  affect  its  standing  before  the  law,  or  its  rights  and  obligations. 
In  the  sense  in  which  this  assertion  is  probably  intended,  it  is  correct; 
but  if  it  is  intended  to  imply  that  a  corporation  requires  no  more  legal 
control  when  it  is  large  than  when  it  is  small,  it  is  untrue.  The  larger 
the  corporation,  the  greater  is  its  power,  either  for  good  or  for  evil, 
and  that  makes  it  especially  important  that  its  power  be  under  control. 

If  I  may  use  a  homely  illustration,  I  will  take  the  common  house 
cat,  whose  diminutive  size  makes  her  a  safe  inmate  of  our  household 
in  spite  of  her  playful  disposition  and  her  liking  for  animal  food.  If, 
without  the  slightest  change  of  character  or  disposition,  she  were 
suddenly  enlarged  to  the  dimensions  of  a  tiger,  we  should  at  least 
want  her  to  be  muzzled  and  to  have  her  claws  trimmed,  whereas  if 
she  were  to  assume  the  dimensions  of  a  mastodon,  I  doubt  if  any 
of  us  would  want  to  live  in  the  same  house  with  her.  And  it  would 
be  useless  to  argue  that  her  nature  had  not  changed,  that  she  was  just 
as  amiable  as  ever,  and  no  more  carnivorous  than  she  always  had  been. 
Nor  would  it  convince  us  to  be  told  that  her  productivity  had  greatly 
increased  and  that  she  could  now  catch  more  mice  in  a  minute  than 
she  formerly  could  in  a  week.  We  should  be  afraid  lest,  in  a  playful 
mood,  she  might  set  a  paw  upon  us,  to  the  detriment  of  our  epidermis, 
or  that  in  her  large-scale  mouse-catching  she  might  not  always  dis- 
criminate between  us  and  mice. 

299.    THE  EVILS  OF  THE  SITUATION2 

Setting  to  work  according  to  the  method  of  observation,  we  will 
first  seek  accurately  to  understand  the  evils  which  constitute  the 
problem.  If  one  were  to  jot  down  the  various  evils  retailed  in  news- 
papers, magazines,  and  reports  to  legislatures,  a  somewhat  confused 
list  similar  to  the  following  one  would  be  the  result: 

1.  Exorbitant  prices. 

2.  Bribery  of  the  employees  of  competitors. 

3.  Abuse  of  patents. 

4.  Secret  control  of  so-called  competitors. 

1  Taken  by  permission  from  T.  N.  Carver,  Essays  in  Social  Justice,  pp.  329- 
32.     (Harvard  University  Press,  1915.) 

2  Taken  by  permission  from  L.  H.  Haney,  Business  Organization  and  Com- 
bination, pp.  366-69.     (The  Macmillan  Co.,  1914.) 


CONCENTRATION  763 

5.  Price  discriminations. 

6.  Discriminations  in  granting  credit. 

7.  Preventing  purchasers  from  dealing  with  competitors. 

8.  Factors'  agreements. 

9.  Monopoly  of  natural  resources. 

10.  Retarded  progress  through  monopoly. 

11.  Poor  service. 

12.  Waste  and  extravagance. 

13.  Overcapitalization. 

14.  Buying  plants  to  shut  them  down. 

15.  Overgrown  corporations. 

16.  Fraudulent  promotion. 

17.  Excessive  promoters'  and  underwriters'  profits. 

18.  Inadequate  financial  statements. 

19.  Inadequate  reserves. 

20.  Interlocking  directorates. 

21.  Manipulation,  or  "inside"  management. 

22.  "Melon  cutting." 

23.  Abuse  of  proxies. 

24.  Abuse  of  minority  stockholders. 

25.  Abuse  of  employees. 

26.  Hostility  toward  corporations. 

27.  Uncertainty  as  to  the  meaning  of  "reasonable  restraint  of  trade." 

28.  Inability  to  co-operate. 

29.  Political  corruption. 

A  cursory  inspection  of  this  sinister  list  leads  one  to  see  that  it 
contains  some  overlapping  and  duplication,  and  to  surmise  that  a 
little  analysis  might  lead  to  a  classification  which  would  bring  out 
the  underlying  causes. 

In  the  first  place,  it  becomes  evident  that  this  long  list  of  evils  all 
centers  in  four  or  five  main  points.  Thus,  all  the  abuses  which  lead 
to  the  terrorism  or  destruction  of  competitors  by  wrongful  means 
tend  to  establish,  or  at  least  to  make  possible,  high  prices  through 
monopoly.  All  those  which  lead  to  waste  and  uneconomical  produc- 
tion tend  toward  higher  costs  and  prices,  and  toward  poorer  service. 
Those  evils,  however,  which,  like  promotion  abuses,  manipulation  by 
directors,  and  abuse  of  minority  stockholdings,  mean  a  clash  of 
interests  within  corporations  and  a  loss  to  investors,  do  not  directly 
mean  monopoly  or  higher  prices  to  consumers.  Other  evil  centers  in 
the  labor  problem,  or  in  politics.  These  last  evils  will  not  be  dis- 
cussed in  these  pages,  the  one  group  being  rather  indirectly  and 
remotely  connected  with  business  organization;    the  other  being 


764  INDUSTRIAL  SOCIETY 

non-economic.    We  can  therefore  group  all  the  evils  mentioned  under 
six  heads: 

I.  High  prices  (1-9,  10-17,  20,  28,  etc.) 

1.  Monopoly  control  (1-9,  20)  The  consuming 

2.  Uneconomical  production  (10-15,  26-28,  3,  4,  9,       public 
16,  19) 

II.  Inefficient  service  (10-15) 

III.  Abuse  of  investors  (12-24) Security-holders 

IV.  Abuse  of  employees  (25) Laborers 

V.  Uncertainty  among  business  men  (26-28) Business  men 

VI.  Political  corruption  (29) The  state 

In  the  second  place,  and  closely  related  to  the  foregoing  heads, 
several  different  classes  of  interests  are  clearly  impinged  upon  by  the 
evils  listed;  for  some  concern  the  "public"  as  consumers,  others  that 
small  part  of  the  public  which  holds  stocks  and  bonds  in  corporations, 
the  security-holders,  others  the  labor  class.  Finally,  the  political  public, 
or  government,  has  been  attacked  by  corruption  in  its  legislatures  and 
courts. 

One  can  hardly  go  this  far  in  the  analysis  of  particular  evils  with- 
out noticing  that  it  points  to  the  existence  of  two  separate  but  inter- 
related problems:  one  the  problem  of  combination  organization  and 
its  relation  to  the  public,  the  other  the  problem  of  simple  corporate 
organization  and  its  relation  to  corporation  members.  To  the  author 
it  seems  that  this  distinction  is  a  point  of  capital  importance.  In 
these  days  we  hear  too  much  of  the  "trust  problem"  and  too  little 
of  the  corporation  problem.  The  former  is  the  problem  of  monopoly, 
and  involves  broad  questions  of  economic  policy.  The  evils  which 
come  under  it  are  economic  conditions  and  can  be  remedied  only  by 
modifying  economic  forces.  It  touches  the  masses  of  consumers 
very  directly.  The  corporation  problem,  on  the  other  hand,  con- 
cerns the  form  of  business  organization,  and  is  largely  concerned  with 
legal  institutions.  Its  evils  are  attributable  to  corporations  as  such, 
regardless  of  combination  or  monopoly;  and  they  can  be  remedied 
only  by  altering  corporation  law.  They  concern  the  investing  class 
most  obviously.  But  the  corporation  problem  is  no  mere  investors' 
problem.  For  one  thing,  it  should  be  clear  that  whatever  so  affects 
investors  that  they  are  hindered  in  supplying  the  funds  that  are 
needed  adequately  to  equip  business  organization  will  also  hinder 
production  and  injure  the  general  public.  Those  directors  or  officers 
of  corporations  who  abuse  their  trusts,  manipulate  their  organizations, 


CONCENTRATION 


765 


I 


and  "hold  up"  minority  stockholders  are  helping  to  discredit  the 
corporation  as  a  form  of  business  organization,  and  to  retard  invest- 
ment. But  more  than  this:  the  corporation  problem  is  intimately 
wrapped  up  with  the  "trust  problem."  Years  ago  a  well-known 
American  economist  wrote:  "At  the  bottom  of  every  monopoly  may 
be  traced  the  insidious  influence  of  the  peculiar  privileges  which  the 
law  grants  to  corporations."  This  fact  we  are  too  prone  to  forget. 
While  the  corporation  is  not  to  be  thought  of  as  being  a  necessarily 
sinister  institution,  nor  as  being  necessarily  monopolistic,  still  it  is 
true  that  the  power  to  amass  great  capital  with  limited  liability,  and 
to  administer  it  with  inadequate  responsibility  either  to  the  stock- 
holders or  to  the  State,  which  power  the  joint-stock  business  corpora- 
tion possesses,  may  facilitate  the  formation  of  monopolies  and  the 
perpetration  of  monopoly  abuses.  The  corporation  is  the  leading 
form  of  business  organization,  and  it  is  of  the  highest  importance 
that  it  should  be  used,  not  for  the  exploitation  of  the  public  and  the 
enrichment  of  the  "insider,"  but  for  the  honest,  efficient,  and  demo- 
cratic administration  of  production.  No  small  part  of  the  "trust 
problem"  would  be  solved  if  this  were  the  case. 

E.  Remedial  Action 
300.  CONTROL  THROUGH  ETHICAL  DEVELOPMENT1 
In  industrial  relations,  in  those  things  which  people  regard  as 
matters  of  business,  the  community  relies  on  self-interest  to  take 
the  place  of  self-government.  Of  course  we  do  not  carry  this  pursuit 
of  self-interest  to  a  point  where  it  would  violate  our  code  of  personal 
morality.  We  do  not  tolerate  the  ordinary  and  commonplace  forms 
of  lying  and  cheating.  We  do  not  use  our  commercial  power  to 
oppress  individuals  whom  we  know.  We  do  not  commit  serious 
breaches  of  trust  where  the  interests  of  some  specific  person  have  been 
placed  in  our  charge.  Commercial  society  would  not  tolerate  any  of 
these  things;  and  even  if  it  did,  our  own  instincts  of  personal  morality 
would  prevent  us  from  doing  them.  But  when  the  personal  relation 
does  not  come  so  prominently  into  the  foreground;  when  the  people 
who  are  injured  by  our  conduct  are  not  certain  definite  persons  whom 
we  see,  but  an  unknown  and  indefinite  body  which  we  do  not  see; 
when  we  lay  our  plans  to  deceive,  not  some  specific  individual  or 
group  of  individuals,  but  large  sections  of  the  public;  when  the  trust 

Adapted  by  permission  from  A.  T.  Hadley,  Freedom  and  Responsibility, 
155-61.     (Charles  Scribner's  Sons,  1903.    Author's  copyright.) 


PP-  15; 


766  INDUSTRIAL  SOCIETY 

which  we  are  exercising  and  which  we  have  it  in  our  power  to  break  is 
not  in  the  name  of  some  specific  ward,  but  on  behalf  of  a  general 
body  of  stockholders  or  bondholders— then  our  standards  are  much 
less  satisfactory. 

The  commercial  public  has  seen  so  much  good  arising  from 
competition  that  it  has  come  to  rely  upon  this  as  a  means  of  checking 
the  evil  effects  of  individual  selfishness,  and  to  regard  it  as  far  more 
powerful  and  universal  than  it  really  is.  It  has  come  to  consider 
business  as  a  game,  to  be  played  by  each  man  in  his  own  interest, 
subject  to  certain  well  defined  rules  or  conventions  of  business  life, 
but  involving  no  special  obligations  outside  of  those  rules.  The 
public  has  assumed  that  if  each  man  played  this  game  fairly,  with  a 
view  to  securing  all  he  could  for  himself,  the  general  interests  of 
industry  and  commerce  would  be  well  subserved. 

We  are,  I  think,  beginning  to  be  dissatisfied  with  this  view  of 
commercial  ethics;  and  I  regard  this  growing  dissatisfaction  as  one 
of  the  most  fortunate  signs  of  the  times.  We  are  beginning  to  recog- 
nize that  it  is  not  enough  to  insist  that  the  game  of  business  should 
be  played  fairly,  or  to  modify  the  ethics  of  that  play  by  personal  senti- 
ment in  those  cases  where  we  see  the  individual  injury  done,  and  in 
those  alone.  We  are  recognizing  that  business  is  something  more 
than  a  game  which  each  man  can  play  to  win.  In  its  modern  shape 
commercial  business  for  all  its  leaders  represents  a  trust. 

Of  course  nine-tenths  of  the  schemes  proposed  for  such  better- 
ment are  impracticable,  or  worse.  The  men  who  are  most  ready  to 
suggest  panaceas  are  usually  the  ones  who  know  the  least  of  the 
difficulties  of  the  case.  But  we  have  it  in  our  power  to  carry  out  a 
slow  but  thorough  reform  of  industrial  relations  if  we  simply  keep 
this  conception  in  view:  that  the  amount  of  money  made  in  business 
does  not  represent  the  real  measure  of  a  man's  business  power  or 
business  achievement.  Our  ethical  standards  in  recent  years  have  led 
us  to  place  too  high  a  valuation  upon  success  in  money-making  as  a 
test  of  a  man's  commercial  and  industrial  efficiency.  Money,  after  all, 
is  but  a  tool  of  trade.  It  is  an  important  means  of  service  to  society; 
and  its  possession  or  control  may  be  important  evidence  that  a  man 
has  rendered  such  service.  But  if  we  regard  money  as  an  end  instead 
of  a  means,  or  confound  the  evidence  of  success  with  the  success  itself, 
we  have  made  a  most  serious  mistake  in  the  arrangement  of  our 
standards.  If  a  man  gets  money  in  ways  which  prove  injurious  to 
society  instead  of  beneficial,  this  furnishes  no  more  reason  for  giving 
him  social  consideration  than  it  does  in  the  case  of  the  burglar  or 
forger  who  has  managed  to  escape  state's  prison  by  a  technicality  of  the 


._    i 

law.    If  men  of  good  character,  business  sense,  and  clear-headed 
ethics  can  insist  upon  the  duty  of  rendering  continuous  service  to  the 
public  at  reasonable  rates,  and  by  methods  which  prevent  disastrous 
fluctuations  in  the  value  of  securities,  and  regard  wealth  which  is 
made  by  sacrifice  of  these  standards  as  prima  facie  evidence  of  moral 
weakness  rather  than  of  industrial  power,  the  problem  will  be  solved. 
"  believe  that  there  is  no  other  way  to  its  solution,  and  that  in  the 
•esent  temper  of  the  American  people  and  the  present  power  of 
lblic  opinion,  there  is  a  very  strong  hope  of  making  progress  toward 
solution  on  the  lines  here  suggested. 

301.  PROPOSED  CORPORATION  REFORM1 
1 .  Enact  a  national  corporation  law.— President  Taf  t  recommended 
ich  a  law  under  the  advice  of  his  Attorney-General.  I  have  been 
mtending  for  such  a  law  for  the  past  ten  years  and  have  never 
mbted  its  constitutionality.  Most  of  the  important  corporations 
ccept  banks  and  local  utilities  could  be  reached  by  it,  as  being  engaged 
in  foreign  or  interstate  commerce  as  now  understood.  Whether  the 
result  be  accomplished  by  direct  national  incorporation  or  through  the 
indirect  method  of  federal  license  and  control  is  immaterial  as  com- 
pared with  the  inestimable  advantages  of  either  method  over  the 
prevailing  lawless  situation  which  constitutes  a  reproach  to  our  insti- 
tutions. 

Substantial  progress  might  also  be  made  through  the  agency  of  the 
stock  exchanges  by  placing  them  under  the  supervision  of  the  federal 
government  as  is  now  the  law  of  every  European  country.  The  New 
York  Stock  Exchange  is  the  great  security  market  of  the  world.  Its 
far-reaching  power  over  the  business  and  finances  of  the  country  is  not 
understood.  It  is  essentially  a  public  agency  international  in  its  scope. 
Among  the  other  urgent  corporate  reforms  there  may  be  men- 
tioned: a  uniform  law  for  corporations  engaged  in  foreign  and  inter- 
state commerce  on  the  general  lines  of  the  "British  Companies  Acts," 
which  requires,  among  its  other  drastic  provisions,  (1)  that  the 
organizers  fully  disclose  and  deposit  at  the  public  office  designated 
for  the  purpose  all  contracts  showing  the  profits  of  bankers,  brokers, 
promoters,  underwriters,  and  middlemen  under  severe  criminal 
penalties  for  violating  these  requirements;  (2)  that  the  stock  be 
publicly  offered  and  fairly  allotted  among  the  subscribers  before  it 
can  be  listed  or  dealt  in  on  the  stock  exchange;  (3)  that  the  books  be 
audited  by  independent  public  chartered  accountants,  who  must 

1  Adapted  by  permission  from  an  address  delivered  by  Samuel  Uhtermyer  at  a 
meeting  of  the  Commercial  Law  League,  July  27,  1916,  pp.  11-26. 


768  INDUSTRIAL  SOCIETY 

prepare  and  send  to  the  stockholders  annually  in  advance  of  the 
annual  meeting  a  statement  of  the  accounts  for  the  year.  These 
accountants  must  be  elected  annually  by  the  stockholders.  They 
cannot  hold  over.  (4)  The  directors  must  make  full  disclosure  to  the 
stockholders  of  the  business  of  the  corporation  and  must  attend 
the  annual  meeting  to  answer  such  questions  as  may  be  put  to  them. 
The  compensation  payable  to  them  is  voted  by  the  shareholders,  and 
under  the  English  customs  they  cannot  gamble  in  the  securities 
of  the  company  to  which  they  hold  a  trust  relation  that  is  regarded  as 
sacred  everywhere  save  with  us. 

There  is  no  such  thing  in  England  or  on  the  Continent,  under  their 
laws,  as  a  director  making  money  out  of  his  corporation  directly  or 
indirectly,  whilst  with  us  it  is  the  rule  rather  than  the  exception  and 
nothing  is  thought  of  the  vicious  practice.  They  have  no  banking 
houses  that  name  the  directors,  control  the  policies,  buy  from  the 
companies  the  securities  thus  controlled  at  prices  fixed  by  themselves, 
sell  them  at  a  profit  to  themselves  and  act  as  fiscal  agents  by  putting 
the  funds  into  their  own  bank  accounts  on  their  own  terms  and  then 
solemnly  pass  resolutions  ratifying  all  they  have  done.  A  director 
who  did  the  things  there  that  are  tolerated  with  us  would  be  dis- 
graced and  drummed  out  of  the  community. 

2.  The  entire  procedure  affecting  insolvency  and  the  reorganization 
of  insolvent  corporations  must  be  revolutionized  and  reversed. — 

a)  A  national  incorporation  law  is  the  first  necessary  step  in  the 
process  of  simplification  of  the  procedure. 

b)  The  court  proceedings  for  the  appointment  of  receivers  should 
be  instituted  by  the  Interstate  Commerce  Commission,  somewhat 
after  the  fashion  in  which  the  Comptroller  of  the  Currency  appoints 
receivers  for  insolvent  banks.  The  inauguration  of  that  method  of 
dealing  with  national  banks  and  in  the  several  states  in  which  the 
bank  superintendent  acts  for  state  banks  and  the  superintendent  of 
insurance  for  insolvent  insurance  corporations  resulted  in  minimizing 
the  expenses  and  in  expediting  the  closing  out  of  insolvent  companies 
in  their  respective  jurisdictions. 

c)  Notice  of  the  application  for  receivers  should  be  given  by  pub- 
lication or  otherwise  to  all  securityholders,  with  the  opportunity  to 
them  to  be  heard  as  to  the  necessity  for  the  receivership  and  the 
personnel  of  the  receivers. 

d)  The  plan  of  reorganization  should  be  subject  to  the  approval 
of  the  Interstate  Commerce  Commission  and  of  the  court  in  the  case  of 
railway  companies  and  to  the  Trade  Commission  and  the  court  where 


CONCENTRATION 


769 


lustrial  corporations  are  concerned.    If  it  is  just,  it  should  be  put 

to  effect  upon  the  approval  of  three-fourths  of  each  class  of  security- 

riders.    If  it  is  oppressive,  any  securityholder  should  be  able  to 

feat  it. 

e)  The  farce  of  selling  a  property  of  this  character  should  be 

riished.     Upon  the  approval  of  the  plan  by  the  court  the  new  or 

>rganized  company  should  take  the  place  of  the  old  company. 

;ry  securityholder  would  be  bound  by  the  plan  and  the  securities  of 

new  company  would  stand  pledged  and  liable  to  sale  for  the  pay- 

;nt  of  such  assessment  as  the  court  may  deem  necessary  to  rehabili- 

te  the  property. 

/)  All  the  expenses  of  reorganization,  as  well  as  the  amount  and 
iracter  of  new  securities  to  be  issued,  should  be  subject  to  the 
approval  of  the  Commission.  The  entire  procedure  should  be  under 
its  control,  subject  to  review  by  the  courts. 

3.  Representation  and  protection  of  minority  stockholders. — It  is 
manifestly  right  that  the  majority  should  control,  but  it  is  funda- 
mentally wrong  that  the  minority  should  have  no  representation  in 
corporate  management  and  no  opportunity  to  inform  itself  of  the 
way  in  which  the  majority  is  administering  its  trust.  Compulsory 
cumulative  voting,  which  means  proportional  representation  of  the 
board  of  directors,  should  be  a  condition  of  every  corporate  charter. 
Some  of  the  states  require  cumulative  voting  by  their  constitutions. 

4.  The  existing  methods  of  electing  directors  should  be  abolished 
and  an  entirely  new  system  substituted,  by  (1)  requiring  the  board 
of  directors  to  nominate  its  candidates  before  the  election  and  to 
advise  the  stockholders  of  such  nominations;  (2)  abolishing  proxy 
voting;  (3)  permitting  stockholders  to  vote  by  mail  as  well  as  in 
person,  but  not  by  proxy;  and  (4)  prohibiting  anyone  other  than  the 
true  owner  from  voting  the  shares. 

In  great  corporations  where  the  stock  is  widely  scattered  the 
control  is  frequently  retained  for  a  decade  or  more  by  interests  that 
have  little  or  no  financial  stake  in  the  corporation  except  to  exploit  it 
for  their  own  gain,  and  it  has  been  found  well-nigh  impossible  to 
dislodge  them  in  the  face  of  their  demonstrated  unfitness.  This  is 
especially  true  with  respect  to  railroad  corporations  and  great  inter- 
state industrial  combinations.  It  is  due  partly  to  the  secrecy  that 
is  tolerated  in  corporate  affairs  and  the  difficulty  experienced  by 
stockholders  in  discovering  what  is  being  done  with  their  property. 
It  is,  however,  mainly  due  to  the  antiquated  election  machinery, 
the  absence  of  minority  representation,  and  the  vice  of  proxy  voting. 


77o 


INDUSTRIAL  SOCIETY 


302.    THE  LIMITED  VOTING  DEVICE1 

Other  countries  have  gone  far  to  keep  control  of  the  banks  out  of 
the  hands  of  large  stockholders.  Their  laws  render  it  impossible  for 
such  holders  to  dominate  the  corporation,  even  though  they  consti- 
tute the  vast  majority  in  ownership.  Their  effort  is  to  force  the  con- 
trol into  the  hands  of  the  greatest  number  of  small  scattered  holders 
as  against  the  majority  of  stock  interest  in  the  hands  of  the  smaller 
number  of  holders. 

The  following  table  on  this  point  is  illuminating: 


Name  of  Bank 


Bank  of  England 


Union  of  London  and  Smith's 
Bank  (England) 


London     and     Westminster 
Bank  (England) 


Union  Bank  of  Scotland. 


Bank  of  Scotland . 


Commercial  Bank  of  Scot- 
land   


National  Bank  of  Belgium. 

Bank  of  the  Netherlands. .. 
Russian  banking  law 


Limitation 


Each  stockholder  owning  £500  stock  or  more  has 
but  one  vote,  regardless  of  the  amount  of  his 
holding. 

No  corporation  can  hold  stock.  No  transfer  can  be 
made  except  with  consent  of  directors,  who  would 
refuse  consent  to  transfer  on  part  of  anyone  to  get 
too  large  holding.  Each  10  shares  up  to  200  has 
1  vote,  but  no  holder,  regardless  of  amount  owned, 
has  over  20  votes. 

Holder  of  10  to  49  shares  has  1  vote;   of  50  to  99 

shares,  2  votes;  of  100  to  199  shares,  3  votes;  of 

200  shares,  or  over,  4  votes. 
1  vote  for  10  shares;  2  votes  for  50  shares;  3  votes 

for  100  shares;  and  1  vote  for  every  100  shares 

over  100. 
1  vote  for  every  £250  (5  shares)  but  not  more  than 

20  votes,  regardless  of  amount  owned. 

5  shares  give  1  vote;  10  shares,  2  votes;  15  shares, 
3  votes;  20  shares,  4  votes;  25  shares,  5  votes; 
35  shares,  6  votes;  45  shares,  7  votes;  55.  shares, 
8  votes;  65  shares,  9  votes;  80  shares,  10  votes; 
95  shares,  11  votes;  no  shares,  12  votes;  130 
shares,  13  votes;  150  shares,  14  votes;  175  shares, 
15  votes;  200  shares,  16  votes,  which  is  the 
maximum  vote. 

10  shares  give  1  vote.  No  one  can  have  more  than 
5  votes  as  shareholder  and  5  votes  as  attorney 
for  others  whatever  may  be  the  number  of  his 
principals. 

1  vote  for  5  shares  and  1  vote  for  each  additional 
10  shares. 

No  shareholder  shall  have  a  voting  power  exceeding 
one-tenth  of  the  aggregate  number  of  votes  of 
members  present  at  general  stockholders'  meet- 
ings. 


1  From  the  Report  of  the  Committee  to  Investigate  the  Concentration  of  Control  of 
Money  and  Credit,  February  28,  19 13,  pp.  143-44. 


CONCENTRATION  7  7 1 

303.  CUMULATIVE  VOTING  A  CHECK  ON  CONCENTRATION* 

Under  this  method  each  share  has  as  many  votes  in  electing  direc- 
tors as  the  number  of  directors  to  be  chosen.  These  votes  may 
be  scattered  among  the  nominees  or  concentrated  in  one  or  two  of 
them  as  the  stockholder  sees  fit.  The  effect  is  to  make  it  impossible 
for  a  majority  to  elect  all  the  board;  the  minority  at  least  secures 
representation. 

To  illustrate  the  working  of  this  method,  take  a  corporation  in 
which  there  are  1,000  voting  shares  and  five  members  of  the  board  of 
directors  to  be  elected;  each  share,  then,  is  entitled  to  five  votes. 
We  will  suppose  that  there  is  an  organized  majority  of  550  shares  and 
an  organized  minority  of  450  shares.  Under  the  usual  arrangement 
a  majority  vote  would  be  cast  for  five  nominees,  all  of  whom  would 
represent  the  majority  stockholders.  Under  the  cumulative  voting 
system,  however,  each  share  having  five  votes,  the  majority  would 
cast  altogether  2,750  votes  and  the  minority  2,250.  The  majority 
could  safely  give  gi6f  votes  to  each  of  three  nominees  and  thus  elect 
a  majority  of  the  board,  leaving  the  other  two  directors  to  be  elected 
by  the  2,250  votes  of  the  minority.  But  if  the  majority  should 
attempt  to  elect  four  directors  they  could  give  only  687 J  votes  to  each 
of  the  four,  whereas  the  minority,  if  well  organized,  could  concentrate 
their  votes  on  three  directors  and  give  each  one  750  votes,  thereby 
electing  a  majority  of  the  board.  To  make  the  system  and  its  possi- 
bilities perfectly  clear,  it  would  be  well  for  each  reader  to  construct 
mentally  a  number  of  hypothetical  cases  and  to  observe  how  readily  a 
minority  under  this  system  may  secure  control  of  the  board  of  directors 
if  the  majority  stockholders  are  too  greedy. 

304.  PROPOSED  REMEDIES  FOR  THE  EVILS  OF  TRUSTS  (1900)2 

1.  Let-alone  policy. — Several  of  the  witnesses  are  of  the  opinion 
that  any  evils  connected  with  the  industrial  combinations  will  be 
remedied  in  the  ordinary  course  of  business,  and  that  any  attempt 
at  regulation  by  law  would  be  likely  to  result  in  more  harm  than 
good.  Competition,  either  active  or  potential,  is  believed  by  these 
witnesses  to  be  a  sufficient  preventive  of  monopoly  and  extortionate 
prices,  while  stockholders  and  investors  are  believed  to  be  already 

1  Taken  by  permission  from  W.  H.  Lough,  Corporation  Finance,  pp.  76-77* 

ie  Bower-Elliott  Co.,  1909.    Author's  copyright,  191 7.) 
a  Adapted  from  the  Report  of  the  Industrial  Commission,  1900, 1,  35~37. 


772  INDUSTRIAL  SOCIETY 

sufficiently  protected  by  statute  and  common  law,  especially  in  view 
of  the  fact  that  the  state  cannot  guarantee  to  these  persons  immunity 
from  carelessness  and  ignorance  on  their  own  part.  It  is  also  urged 
that,  under  the  common  law  alone,  the  courts  have  always  held  as 
illegal  any  monopoly  or  combination  distinctly  shown  to  be  in  restraint 
of  trade. 

2.  Direct  suppression  of  monopolistic  combinations. — A  few  wit- 
nesses are  inclined  to  favor  the  more  general  enactment  of  statutes 
along  the  lines  of  those  already  adopted  by  numerous  states,  directly 
prohibiting  the  transaction  of  business  by  combinations  seeking  to 
restrain  trade  or  to  control  prices. 

3.  Prohibition  of  destructive  competition. — Two  or  three  witnesses 
testifying  in  opposition  to  the  Standard  Oil  Company  advocate  legis- 
lation to  prohibit  "destructive  competition." 

4.  Publicity. — Many  of  the  witnesses,  including  even  representa- 
tives of  combinations,  are  of  the  opinion  that  a  much  greater  pub- 
licity regarding  the  affairs  of  such  combinations  than  is  now 
customary  would  tend  to  remove  many  of  the  evils.  As  regards 
the  general  public,  the  knowledge  thus  secured  would  avail  to  pre- 
vent the  maintenance  of  extortionate  prices  as  well  as  unfair 
methods  and  conditions  of  competition.  Stockholders  and  investors 
would  also  be  protected  against  abuses  by  promoters  and  officers 
of  corporations. 

How  this  publicity  should  be  brought  about  and  the  degree  to 
which  it  should  extend  is  a  matter  upon  which  no  general  agreement 
existed  among  the  witnesses. 

5.  State  legislation. — The  chief  specific  suggestions  regarding 
state  legislation  were: 

a)  The  classification  of  corporations  should  be  made  much  stricter 
than  at  present,  and  each  class  should  be  confined  closely  to  the 
exercise  of  its  specified  powers. 

b)  There  should  be  strict  inspection  of  corporations  by  state 
officials,  and  publicity  should  be  enforced  through  reports.  This,  of 
course,  applies  primarily  to  action  by  the  states  as  regards  their  own 
domestic  corporations. 

c)  Combinations,  in  whatever  form  (even  if  it  be  that  of  a  single 
corporation),  between  different  corporations,  where  monopolistic 
intent  can  be  shown,  should  be  prohibited. 

d)  Foreign  corporations  should  be  forbidden  by  each  state  to  do 
business  within  its  borders  unless  conforming  to  its  laws.    As  to  this 


CONCENTRATION  773 

suggestion,  the  powers  of  states  over  foreign  corporations,  so  far 

"ieir  interstate  business  is  concerned,  would  be  very  limited.    It 

that  the  courts  would  be  likely  to  hold  that  the  states  would 

lire  a  special  authorization  from  Congress  to  enable  them  to  act 

any  considerable  effectiveness  in  this  regard,  even  if  the  power 

Id  be  secured  in  that  way. 

6.  Federal  legislation.— -The  lines  of  federal  legislation  suggested 
"  mainly  under  the  following  heads: 

a)  Creation  of  federal  corporations  under  strict  federal  laws, 
le  would  favor  incorporation  under  federal  laws  only  in  case  of 

very  large  corporations,  while  from  the  legal  standpoint  some  others 
would  fix  the  distinction  between  state  and  federal  corporations 
along  the  line  of  commerce  within  the  states  as  distinguished  from 
interstate  commerce. 

b)  In  connection  with  federal  incorporation,  or  apart  from  it,  cer- 
tain witnesses  favor  a  considerable  degree  of  regulation  of  corporations 
on  the  part  of  the  federal  government.  In  this  connection,  publicity, 
through  reports  and  inspection,  is  advocated.  A  Bureau  of  Industry 
is  suggested  by  one  witness,  having  powers  somewhat  similar  to  those 
of  the  Interstate  Commerce  Commission. 

c)  Strengthen  Interstate  Commerce  Commission. — Some  of  the  wit- 
nesses complain  of  the  inefficiency  of  the  Interstate  Commerce  Commis- 
sion. Others  urge  that  it  be  given  greater  power,  even  judicial  power, 
and  that  pooling  among  railroads  be  permitted  under  its  supervision. 

d)  Two  witnesses  are  inclined  to  the  opinion  that  unless  Congress 
in  some  way  assumes  full  control  of  corporations  the  United  States 
government  should  remove,  by  specific  act  of  Congress,  the  limitations 
which  now  are  likely  to  be  laid  by  the  courts,  on  the  basis  of  the 
iederal  Constitution,  upon  the  powers  of  the  states  over  monopolistic 
:ombinations,  so  far  as  their  interstate  business  is  concerned.  It  was 
:hought,  on  the  whole,  that  such  an  act  of  Congress  would  probably 
De  upheld  as  constitutional  by  the  courts. 

e)  Removal  or  lowering  of  tariff. — Several  of  the  witnesses,  though 
lot  objecting  in  the  main  to  the  principle  of  a  protective  tariff,  were 
)f  the  opinion  that  in  some  cases  the  tariff  encouraged,  or,  even, 
is  one  said,  was  the  chief  cause  of  the  trust.  In  such  cases  they 
;hought  it  should  be  lowered  or  abolished. 

/)  Powers  of  Congress. — Much  discussion  was  presented  before 
he  Commission  as  to  the  constitutional  powers  of  Congress  to  enact 
egislation  along  any  of  the  lines  above  suggested. 


774  INDUSTRIAL  SOCIETY 

305.    THE  SEVEN  SISTERS  OF  NEW  JERSEY  (1913)1 

["The  Seven  Sisters  of  New  Jersey"  is  the  name  popularly 
applied  to  seven  acts  passed  by  the  legislature  of  that  state  in  19 13, 
dealing  with  various  aspects  of  the  trust  problem.] 


1.  A  trust  is  a  combination  or  agreement  between  corporations, 
firms,  or  persons,  any  two  or  more  of  them,  for  the  following  purposes, 
and  such  trust  is  hereby  declared  to  be  illegal  and  indictable: 

(1)  To  create  or  carry  out  restrictions  in  trade  or  to  acquire  a 
monopoly,  either  in  intrastate  or  interstate  business  or  commerce. 

(2)  To  limit  or  reduce  the  production  or  increase  the  price  of 
merchandise  or  of  any  commodity. 

(3)  To  prevent  competition  in  manufacturing,  making,  trans- 
porting, selling,  and  purchasing  of  merchandise,  produce,  or  any 
commodity. 

(4)  To  fix  at  any  standard  or  figure,  whereby  its  price  to  the 
public  or  consumer  shall  in  any  manner  be  controlled,  any  article  or 
commodity  of  merchandise,  produce,  or  commerce  intended  for  sale, 
use,  or  consumption  in  this  state  or  elsewhere. 

(5)  To  make  any  agreement  by  which  they  directly  or  indirectly 
preclude  a  free  and  unrestricted  competition  among  themselves,  or 
any  purchasers  or  consumers,  in  the  sale  or  transportation  of  any 
article  or  commodity,  either  by  pooling,  withholding  from  the  market, 
or  selling  at  a  fixed  price,  or  in  any  other  manner  by  which  the  price 
might  be  affected. 

(6)  To  make  any  secret  oral  agreement  or  arrive  at  any  under- 
standing without  express  agreement  by  which  they  directly  or 
indirectly  preclude  a  free  and  unrestricted  competition  among  them- 
selves, or  any  purchasers  or  consumers,  in  the  sale  or  transportation 
of  any  article  or  commodity,  either  by  pooling,  withholding  from  the 
market,  or  selling  at  a  fixed  price,  or  in  any  other  manner  by  which 
the  price  might  be  affected. 

2.  Whenever  an  incorporated  company  shall  be  guilty  of  the 
violation  of  any  of  the  provisions  of  this  act,  the  offense  shall  be 
deemed  to  be  also  that  of  the  individual  directors  of  such  corporation, 
ordering  or  doing  any  of  the  prohibited  acts,  and  on  conviction  thereof 
they  shall  be  punished  accordingly. 

1  Adapted  from  the  Acts  of  the  137th  Legislature  of  the  State  of  New  Jersey,  1913, 
pp.  25-34. 


CONCENTRATION  775 

3.  In  addition  to  the  punishment  which  may  be  imposed  for  the 
lemeanor  the  charter  of  the  offending  corporation  may  be  revoked 
ippropriate  proceedings  by  the  Attorney- General  of  this  State. 

II 

It  shall  be  unlawful  for  any  person,  firm,  corporation  or  associa- 
tion, engaged  in  the  production,  manufacture,  distribution,  or  sale 
of  any  commodity  of  general  use,  or  rendering  any  service  to  the 
public,  to  discriminate  between  different  persons,  firms,  associations, 
or  corporations  or  different  sections,  communities,  or  cities  of  the 
State,  by  selling  such  commodity  or  rendering  such  service  at  a 
lower  rate  in  one  section,  community,  or  city  than  another,  or  at  a 
different  rate  or  price  at  a  point  away  from  that  of  production  or 
manufacture  as  at  the  place  of  production  or  manufacture,  after 
making  due  allowance  for  the  difference,  if  any,  in  the  grade,  quality, 
or  quantity,  and  in  the  actual  cost  of  transportation  from  the  point 
of  production  or  manufacture,  if  the  effect  or  intent  thereof  is  to 
establish  or  maintain  a  virtual  monopoly,  hindering  competition,  or 
restriction  of  trade. 

Ill 

Any  corporation  formed  under  this  act  may  purchase  property, 
real  and  personal,  and  the  stock  of  any  corporation,  necessary  for 
its  business,  and  issue  stock  to  the  amount  of  the  value  thereof  in 
payment  therefor,  subject  to  the  provisions  hereinafter  set  forth 
and  the  stock  so  issued  shall  be  full  paid  stock,  and  not  liable  to  any 
further  call;  and  said  corporation  may  also  issue  stock  for  the  amount 
it  actually  pays  for  labor  performed. 

Provided,  that  when  property  is  purchased  the  purchasing  corpora- 
tion must  receive  in  property  or  stock  what  the  same  is  reasonably 
worth  in  money  at  a  fair,  bona  fide  valuation;  and  provided  further , 
that  no  fictitious  stock  shall  be  issued;  that  no  stock  shall  be  issued 
for  profits  not  yet  earned,  but  only  anticipated;  and  provided  further, 
that  when  stock  is  issued  on  the  basis  of  the  stock  of  any  other  corpora- 
tion it  may  purchase,  no  stock  shall  be  issued  thereon  for  an  amount 
greater  than  the  sum  it  actually  pays  for  such  stock  in  cash  or  its 
equivalent;  and  provided  further,  that  the  property  purchased  or  the 
property  owned  by  the  corporation  whose  stock  is  purchased  shall 
be  cognate  in  character  and  use  to  the  property  used  or  contemplated 
to  be  used  by  the  purchasing  corporation  in  the  direct  conduct  of  its 


776  INDUSTRIAL  SOCIETY 


own  proper  business:  and  in  all  cases  where  stock  is  to  be  issued  for 
property  purchased,  or  for  the  stock  of  other  corporations  purchased, 
a  statement  in  writing,  signed  by  the  directors  of  the  purchasing 
company  or  by  a  majority  of  them,  shall  be  filed  in  the  office  of  the 
Secretary  of  State,  showing  what  property  has  been  purchased,  and 
what  stock  of  any  other  corporation  has  been  purchased,  and  the 
amount  actually  paid  therefor. 

IV 

Any  person  or  persons,  who  shall  organize  or  incorporate,  or  pro- 
cure to  be  organized,  or  incorporated,  any  corporation  or  body  politic, 
under  the  laws  of  this  State,  with  intent  thereby  to  further,  promote, 
or  conduct  any  object  which  is  fraudulent  or  unlawful  under  the  laws 
of  this  State,  or  which  is  intended  to  be  used  in  restraint  of  trade  or 
in  acquiring  a  monopoly,  when  such  corporation  or  body  politic 
engages  in  interstate  or  intrastate  commerce,  shall  be  guilty  of  a 
misdemeanor.  [The  same  provisions  were  made  applicable  to  officers, 
directors,  managers,  or  employees  of  corporations.] 


When  two  or  more  corporations  are  merged  or  consolidated  the 
consolidated  corporation  shall  have  power  or  authority  to  issue 
bonds  or  other  obligations,  negotiable  or  otherwise,  and  with  or 
without  coupons  or  interest  certificates  thereto  attached,  to  an 
amount  sufficient  with  its  capital  stock  to  provide  for  all  the  pay- 
ments it  will  be  required  to  make  or  obligations  it  will  be  required  to 
assume,  in  order  to  effect  such  merger  or  consolidation;  to  secure 
the  payment  of  which  bonds  or  obligations  it  shall  be  lawful  to  mort- 
gage its  corporate  franchises,  rights,  privileges,  and  property,  real, 
personal,  and  mixed;  provided,  such  bonds  shall  not  bear  a  greater 
rate  of  interest  than  six  per  centum  per  annum;  the  consolidated 
corporation  may  issue  capital  stock,  either  common  or  preferred, 
or  both,  to  such  an  amount  as  may  be  necessary,  to  the  stockholders 
of  such  merging  or  consolidating  corporations  in  exchange  or  pay- 
ment for  their  original  shares,  in  the  manner  and  on  the  terms  specified 
in  the  agreement  of  merger  or  consolidation,  which  may  fix  the  amount 
and  provide  for  the  issue  of  preferred  stock  based  on  the  property  or 
stock  of  the  merging  or  consolidating  corporations  conveyed  to  the 
consolidated  corporations,  as  well  as  upon  money  capital  paid  in. 


CONCENTRATION  777 

VI 

No  corporation  heretofore  organized  or  hereafter  to  be  organized 
shall  hereafter  purchase,  hold,  sell,  assign,  transfer,  mortgage,  pledge, 
or  otherwise  dispose  of  the  shares  of  the  corporate  stock  of  any  other 
corporation  or  corporations  of  this  or  any  other  State,  or  of  any  bonds, 
securities,  or  other  evidence  of  indebtedness  created  by  any  other 
corporation  or  corporations  of  this  or  any  other  State,  nor  as  owner 
of  such  stock  exercise  any  of  the  rights,  privileges,  and  powers  of 
ownership,  including  the  right  to  vote  thereon.  Provided,  that 
nothing  herein  contained  shall  operate  to  prevent  any  corporation  or 
corporations  from  acquiring  the  bonds,  securities,  or  other  evidences  of 
indebtedness  created  by  any  non-competing  corporation  in  payment 
of  any  debt  or  debts  due  from  any  such  non-competing  corporation; 
nor  to  prevent  any  corporation  or  corporations  created  under  the  laws 
of  this  State  from  purchasing  as  a  temporary  investment  out  of  its 
surplus  earnings,  reserved  under  the  provisions  of  this  act  as  a  work- 
ing capital,  bonds,  securities,  or  evidences  of  indebtedness  created 
by  any  non-competing  corporation  or  corporations  of  this  or  any 
other  State,  or  from  investing  in  like  securities  any  funds  held 
by  it  for  the  benefit  of  its  employees  or  any  funds  held  for  insurance, 
rebuilding,  or  depreciation  purposes;  nor  to  prevent  any  corporation 
or  corporations  created  under  the  laws  of  this  State  from  purchasing 
the  bonds,  securities,  or  other  evidences  of  indebtedness  created  by 
any  corporation  the  s,tock  of  which  may  lawfully  be  purchased  under 
the  authority  given  by  section  forty-nine  of  the  act  entitled  "An 
act  concerning  corporations  (Revision  of  1896)";  provided  also,  that 
nothing  herein  contained  shall  be  held  to  affect  or  impair  any  right 
heretofore  acquired  in  pursuance  of  the  section  hereby  amended, 
by  any  corporation  created  under  the  laws  of  this  State. 

VII 

Before  any  merger  of  corporations  can  be  made,  the  approval 
thereof  in  writing  by  the  Board  of  Public  Utility  Commissioners  of 
;his  State  shall  be  obtained  by  said  corporations  and  filed  in  the  office 
)f  the  Secretary  of  State,  with  the  names  of  the  directors  of  each  of 
;aid  corporations  which  assent  to  the  merger. 

306.    THE  SHERMAN  ANTI-TRUST  ACT  (1890)1 
1.  Every  contract,  combination  in  the  form  of  trust  or  otherwise, 
>r  conspiracy,  in  restraint  of  trade  or  commerce  among  the  several 
1  From  26  U.S.  Statutes  209. 


778  INDUSTRIAL  SOCIETY 

states,  or  with  foreign  nations  [includes  territories  and  District  of 
Columbia. — Ed.],  is  hereby  declared  to  be  illegal.  Every  person  who 
shall  make  any  such  contract,  or  engage  in  any  such  combination  or 
conspiracy,  shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  con- 
viction thereof,  shall  be  punished  by  fine  not  exceeding  five  thousand 
dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by  both  said 
punishments,  in  the  discretion  of  the  court. 

2.  Every  person  who  shall  monopolize,  or  attempt  to  monopolize, 
or  combine  or  conspire  with  any  other  person  or  persons  to  monopolize, 
any  part  of  the  trade  or  commerce  among  the  several  states,  or  with 
foreign  nations,  shall  be  deemed  guilty  of  a  misdemeanor,  and,  on 
conviction  thereof,  shall  be  punished  by  fine  not  exceeding  five  thou- 
sand dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by  both 
said  punishments,  in  the  discretion  of  the  court. 

8.  That  the  word  "person"  or  "persons,"  wherever  used  in  this 
act,  shall  be  deemed  to  include  corporations  and  associations  existing 
under  or  authorized  by  the  laws  of  either  the  United  States,  the 
laws  of  any  of  the  territories,  the  laws  of  any  state,  or  the  laws  of  any 
foreign  country. 

307.    PROVISIONS    OF   THE    FEDERAL    TRADE    COMMISSION 

ACT  (1914)1 

This  act  creates  a  Federal  Trade  Commission  of  five  members, 
appointed  by  the  President  with  the  consent  of  the  Senate.  The 
members  serve  for  a  term  of  seven  years  with  an  annual  salary  of 
$10,000.  The  Commission  succeeds  to  the  work  of  the  Bureau  of 
Corporations. 

Unfair  methods  of  competition  in  commerce  (what  constitutes 
"unfair  methods  of  competition,"  not  being  defined  in  the  act,  is  left 
for  the  Commission  to  determine)  are  declared  unlawful  and  the 
Commission  is  to  prevent  persons,  partnerships,  or  corporations 
(except  banks  and  common  carriers,  which  are  otherwise  controlled) 
from  using  such  methods.  Where  such  methods  are  in  use  and  the 
Commission  deems  it  to  the  interest  of  the  public  to  have  them 
stopped,  the  Commission  must  hold  a  hearing,  and  if  it  then  considers 
the  methods  employed  illegal  under  this  act  it  shall  order  the  practice 
stopped.  The  party  subject  to  the  order  may  appeal  from  it  to  the 
United  States  Circuit  Court  of  Appeals,  and  the  Commission,  in  case 

1  Taken  by  permission  from  a  statement  prepared  by  C.  W.  Wright. 


CONCENTRATION  779 

its  order  is  not  obeyed,  may  appeal  to  the  court  to  enforce  its  order. 
The  findings  of  the  Commission,  if  supported  by  testimony,  are  con- 
clusive in  the  court.  The  court  may  affirm,  modify,  or  set  aside  the 
order  of  the  Commission. 

The  Commission  has  the  power:  (a)  to  gather  information  about, 
and  investigate  the  business  of,  those  subject  to  this  act;  (b)  to 
require  special  and  annual  reports  of  such  corporations;  (c)  to  investi- 
gate, and  on  request  of  the  Attorney- General  they  must  investigate, 
the  way  in  which  court  decrees  against  the  violation  of  the  federal 
anti- trust  laws  are  being  carried  out;  (d)  on  the  direction  of  the 
President  or  either  House  of  Congress  to  investigate  and  report  the 
facts  as  to  any  alleged  violation  of  the  anti- trust  laws;  (e)  on  applica- 
tion of  the  Attorney-General  to  investigate  and  recommend  readjust- 
ments in  the  business  of  any  corporation  alleged  to  be  violating  those 
laws;  (/)  to  make  public  such  information,  except  trade  secrets  and 
names  of  customers,  as  it  may  deem  expedient  in  the  public  interest, 
and  to  submit  reports  and  recommendations  for  legislation  to  Con- 
gress; (g)  to  classify  corporations  and  make  rules  to  carry  out  this 
act;  (h)  to  investigate  trade  conditions  in  and  with  foreign  countries 
where  combinations,  practices,  or  other  conditions  may  affect  our 
foreign  trade,  and  to  report  thereon  to  Congress  with  any  recom- 
mendation. 

Power  is  given  the  Commission  to  summon  witnesses  to  testify, 
secure  records,  etc. 

308.    PROVISIONS  OF  THE  CLAYTON  ANTI-TRUST  ACT  (1914)1 

The  term  "omnibus  bill,"  frequently  applied  to  the  Clayton  act, 
well  indicates  its  character  as  covering  a  wide  range  of  more  or  less 
related  topics.  For  the  sake  of  greater  clearness  concerning  its 
significant  features,  only  the  chief  provisions  are  stated  here,  though 
nothing  but  a  detailed  study  of  the  phraseology  of  the  act  itself  can 
give  an  accurate  conception  of  its  provisions. 

In  the  main  the  act  attempts  to  deal  with  two  things:  (1)  it  seeks 
to  check  certain  undesirable  practices  found  among  industrial  com- 
binations, railroads,  and  banking  institutions;  (2)  it  seeks  to  give 
labor  organizations  greater  freedom  from  prosecution  under  the  anti- 
trust laws  and  in  proceedings  connected  with  injunctions. 

In  connection  with  the  first  purpose  the  law  forbids:  (a)  dis- 
criminations in  prices  between  purchasers  where  the  effect  may  be 

1  Taken  by  permission  from  a  statement  prepared  by  C.  W.  Wright. 


780  INDUSTRIAL  SOCIETY 

substantially  to  lessen  competition  or  create  monopoly,  though 
differences  in  price  due  to  variations  in  quantity,  quality,  cost  of 
selling,  or  transportation,  etc.,  are  permitted;  (b)  " tying  clauses" 
where  commodities,  patented  or  unpatented,  are  leased  or  sold,  or  a 
price  is  fixed  or  discount  or  rebate  given,  on  condition  that  the  lessee 
or  purchaser  shall  not  use  or  deal  in  the  goods  of  a  competitor  and 
where  the  effect  of  such  an  understanding  is  substantially  to  lessen 
competition  or  tend  to  create  a  monopoly  in  any  line  of  commerce; 
(c)  the  holding  of  the  stock  of  one  corporation  by  another  where  the 
effect  may  be  substantially  to  lessen  competition  or  tend  to  create 
a  monopoly  (but  this  does  not  apply  to  the  cases  of  certain  subsidiaries, 
or  to  branch  lines  or  extensions  of  railroads,  or  to  stock  purchases  solely 
as  an  investment  where  there  is  no  such  tendency,  or  to  such  rights 
heretofore  legally  acquired) ;  (d)  after  two  years,  any  person  serving 
as  a  director,  officer,  or  employee  of  more  than  one  bank  where  one 
of  them  is  organized  under  the  laws  of  the  United  States  and  either 
has  deposits,  capital,  surplus,  and  undivided  profits  of  over  $5,000,000; 
or  any  person  serving  as  an  officer,  director,  or  employee  of  more  than 
one  bank  in  any  place  of  over  200,000  inhabitants  where  either  bank 
is  organized  under  the  laws  of  the  United  States;  or  serving  as  a 
director  in  more  than  one  concern  engaged  in  commerce  (other  than 
banking  institutions  and  common  carriers)  any  one  of  which  has  capi- 
tal, surplus,  and  undivided  profits  over  $1,000,000  if  such  concerns  are 
or  have  been  competitors  so  that  an  elimination  of  their  competition 
would  constitute  a  violation  of  the  anti-trust  laws. 

In  the  case  of  railroads,  contracts  or  purchases  of  goods  to  the 
amount  of  over  $50,000  in  any  one  year  from  other  concerns,  when 
the  president,  manager,  purchasing  officer,  or  agent  of  the  railroad  is 
in  any  way  interested  in  such  concern,  shall  not  be  made  except 
through  free  competitive  bids  under  rules  determined  by  the  Inter- 
state Commerce  Commission. 

Any  person  injured  in  his  business  by  anything  forbidden  in  the 
anti-trust  laws  can  sue  in  the  federal  courts  and  recover  treble  dam- 
ages. A  violation  of  any  of  the  penal  provisions  of  the  anti-trust 
laws  by  a  corporation  shall  also  be  deemed  a  violation  by  the  officers 
authorizing  the  act  and  deemed  a  misdemeanor  subject  to  fine  or 
imprisonment. 

The  prohibitions  enumerated  above  are  to  be  enforced,  where 
applicable  to  common  carriers,  by  the  Interstate  Commerce  Com- 
mission;   where  applicable  to  banking  institutions,  by  the  Federal 


CONCENTRATION  781 

Leserve  Board;  where  applicable  to  concerns  otherwise  engaged  in 
)mmerce,  by  the  Federal  Trade  Commission.  Whenever  there  is 
ison  to  believe  that  any  of  these  prohibitions  are  being  violated 
le  respective  board  or  commission  shall  serve  a  complaint  on  the 
fending  person  or  concern  and  hold  a  hearing,  and  if  it  shall  then 
>pear  that  the  law  is  being  violated  an  order  shall  be  issued,  or,  in 
ise  the  order  is  not  obeyed,  the  respective  board  or  commission  may 
>peal  to  the  United  States  Circuit  Court  of  Appeals,  which,  upon  a 
iring,  may  affirm,  modify,  or  set  aside  the  order. 
In  the  second  group  of  provisions,  which  included  those  dealing 
with  labor  organizations  and  their  practices,  the  law  first  declares 
that  the  labor  of  a  human  being  is  not  a  commodity  or  an  article 
of  commerce  and  that  nothing  in  the  anti-trust  laws  shall  be  con- 
strued to  forbid  the  existence  and  operation  of  labor,  agricultural,  or 
horticultural  organizations,  or  to  restrain  them  from  lawfully  carrying 
out  their  objects,  nor  shall  such  organizations  be  construed  to  be 
illegal  combinations  under  the  anti-trust  laws. 

The  law  somewhat  modifies  the  issue,  and  the  method  of  issuing 
and  enforcing  injunctions  in  labor  disputes,  prohibiting  their  use 
unless  necessary  to  prevent  irreparable  injury  to  property  rights 
for  which  there  is  no  adequate  remedy  at  law.  Also  injunctions  shall 
not  be  issued  against  striking  and  peaceful  picketing  or  boycotting 
by  peaceful  and  lawful  means,  and  such  acts  shall  not  be  held  to  be  a 
violation  of  any  law  of  the  United  States.  In  cases  of  contempt  of 
court  arising  under  this  act  the  accused  may  demand  a  trial  by  jury, 
except  in  suits  prosecuted  by  the  United  States  or  in  cases  of  con- 
tempt in  or  near  the  presence  of  the  court. 


See  also    59.  Fair  Dealing  and  Fair  Price. 

60.  Control  by  Public  Authorities. 

174.  Simple  vs.  Complex  Industry. 

175.  Complex  Industry  Is  Difficult  to  Regulate. 


CHAPTER  XI 

IMPERSONAL  RELATIONS 
A.     Problems  at  Issue 

Of  the  many  changes  brought  about  by  the  Industrial  Revolution 
and  the  forces,  both  intellectual  and  economic,  connected  with  it,  few 
have  been  more  striking  in  their  consequences  than  the  spread  of 
impersonal  relations. 

"  It  was  easy  for  the  individual  to  adapt  his  life  to  the  simple  per- 
sonal environment  of  the  Middle  Ages.  His  judgment  could  be 
depended  upon  to  make  the  decisions  necessary  to  his  own  welfare 
and  to  that  of  those  dependent  upon  him.  There  was  no  complicated 
scheme  of  prices  to  cloud  and  bewilder  his  choice.  The  industrial  rela- 
tions of  the  laborer  and  master  were  dictated  by  custom,  and  required 
no  conscious  choice.  As  a  consequence  laborers  did  not  live  a  transi- 
tory life,  here  today  and  there  tomorrow.  They  belonged  to  perma- 
nent communities  and  enjoyed  a  high  degree  of  neighborhood  life. 
Through  this  the  perplexities  which  were  still  left  in  the  simple  envi- 
ronment were  minimized  by  a  set  of  conventions,  religious,  industrial, 
political,  and  social,  which  prescribed  quite  rigidly  the  life  which  the 
individual  should  live.  They  were  in  reality  a  group  of  conventional 
formulas,  revealing  the  experience  of  generations  of  persons  as  to  how 
things  should  be  done.  They  were  quite  sufficient  for  such  ordinary 
matters  as  fixing  the  standard  of  living,  giving  moral  instruction  to  the 
young,  inculcating  in  them  habits  of  industry,  and  giving  them  tech- 
nical training  for  the  occupations  into  which  they  were  to  enter.  With 
such  community  standards  to  guide  his  life  the  individual  was  not 
likely  to  go  seriously  astray  in  adapting  his  life  and  activities  to 
his  community  environment.  The  permanent  association  with  the 
people  making  up  the  community,  with  place,  and  with  group,  gave 
a  further  help  in  sense  of  the  values  of  the  community's  past  and  of 
their  future  prospects  and  prevented  actions  from  being  based  upon 
purely  immediate  considerations,  as  is  so  likely  to  be  the  case  in  an 
impersonal  and  pecuniary  society.  If  these  standards  place  a  dis- 
count upon  individual  initiative  and  upon  novelty,  they  at  least  per- 

782 


IMPERSONAL  RELATIONS 


783 


:ted  persons  to  rationalize  their  activities  in  terms  of  a  system  of 
sonal  relationships  of  which  each  was  an  inseparable  part. 
"In  contrast  to  this  simple  agricultural  system  our  impersonal 
mization  of  economic  relations  (if  not  of  society)  can  best  be 
:ribed  by  the  three  adjectives, .  industrial,  pecuniary,  and  urban, 
tough  the  characteristics  described  by  these  three  words  are  quite 
sparable,  and  each  implies  the  existence  of  the  other  two,  they 
lote  somewhat  different  aspects  of  a  common  system." " 
We  have  already  surveyed  some  of  the  many  phases  of  our 
"industrial,  pecuniary,  and  urban  economic  system."  The  survey  of 
each  phase  revealed  directly  or  indirectly  manifestations  of  imper- 
sonality. Impersonal  relations  go  hand  in  hand  with  our  pecuniary 
organization  of  society;  they  are  inherent  in  our  market  organization; 
they  lurk  in  our  specialization  and  interdependence;  the  new  tech- 
nology is  impersonality  itself;  even  the  administration  of  human 
beings  in  modern  industrialism  has  strong  tendencies  toward  an  imper- 
sonal basis;  over  and  above  all  the  magnitude  of  the  operations  of 
modern  society  has  made  for  impersonality. 

Oddly  enough,  this  development  of  impersonal  relations  has  not 
received  the  attention  it  deserves  in  our  formal  writings  upon  social 
and  economic  matters.  Because  of  this  fact,  it  is  not  attempted  in 
this  chapter  to  give  a  balanced  treatment  of  the  proportion  between 
the  part  played  by  personal  relations  and  the  part  played  by  imper- 
sonal relations  in  our  society.  The  discussion  of  personal  relations 
has  been  almost  entirely  omitted.  This  omission  should  not,  however, 
leave  any  false  impression  concerning  the  importance  of  personal 
relations.  Notwithstanding  the  great  development  of  impersonal 
relations,  there  has  been  a  steady  growth  in  our  estimate  of  the 
importance  of  individual  human  personality  and  a  steady  development 
of  agencies  designed  to  develop  that  personality.  Personal  relations 
have  not  passed  and  are  not  passing  out  of  existence.  They  are  merely 
functioning  in  a  different  environment. 

It  is  to  be  hoped  that  our  discussion  of  impersonal  relations  will 
leave  in  no  one's  mind  a  feeling  that  these  impersonal  relations  are 
necessarily  undesirable.  Their  desirability  or  undesirability  depends 
upon  the  circumstances  of  the  particular  situation,  upon  the  character- 
istics of  the  particular  problem  at  issue.  Even  where  their  conse- 
quences show  a  tendency  toward  being  undesirable,  the  case  is  not 
:losed.  The  situation  may  be  met  by  a  development  of  new  social 
1  From  an  unpublished  manuscript  by  W.  H.  Hamilton. 


7  84  INDUSTRIAL  SOCIETY 

agencies.  Among  the  many  illustrations  of  this  statement,  perhaps 
none  is  more  striking  than  the  development  of  group  morality  to  meet 
the  collective  and  impersonal  situation  in  which  we  find  ourselves. 

QUESTIONS 

i.  "Where  the  modern  spirit  of  business  enterprise  thrives,  relations  tend 
more  and  more  to  be  expressed  in  pecuniary  terms."  Why?  What 
of  it? 

2.  "We  have  a  habit  of  using  the  dollar  as  the  measure  of  all  worth  and 
all  attainment."  Granted  that  we  have  this  habit,  how  does  it  con- 
tribute to  impersonal  relations  ? 

3.  "The  price-system  is  an  impersonal  device  for  securing  necessary 
adjustments  in  modern  society."  Can  you  name  some  adjustments  so 
secured?     Could  "personal"  devices  do  the  work  in  these  cases? 

4.  "The  price-system  imposes  impersonal  restraint  both  upon  producer 
and  consumer."     Explain,  giving  illustrations. 

5.  Make  a  list  of  the  ways  in  which  the  corporation  has  contributed  to  the 
development  of  impersonality.  In  what  regions  or  fields  of  our  indus- 
trial activity  has  it  so  contributed  ? 

6.  What  is  meant  by  saying  that  the  arts  of  calculation  have  contributed 
to  impersonality  ? 

7.  "Dun's  and  Bradstreet's  are  agents  of  impersonality."  What  does 
this  mean  ? 

8.  "Economic  activit'es  are  ruled  by  cold  reason — by  thought."  Do  you 
think  that  this  is  true  ?  What  bearing,  if  any,  has  the  quotation  on 
impersonality  ? 

9.  "We  use  the  indirect  method  of  satisfying  wants,  and  this  is  an  imper- 
sonal method."    Explain. 

10.  It  is  sometimes  said  that  the  railroad,  the  telegraph,  the  telephone,  the 
ocean  cable,  widen  the  distance  between  the  producer  and  the  consumer 
and  thus  promote  impersonality.  How  can  this  statement  be  recon- 
ciled to  a  statement  that  these  agencies  have  annihilated  distance  ? 

1 1 .  Could  impersonal  relations  have  grown  up  under  a  regime  of  barter  ? 
Would  it  be  fair  to  say  that  modern  impersonality  can  be  ascribed  to 
monetary  exchange  ? 

12.  Someone  has  called  advertising  an  impersonal  way  of  getting  trade. 
What  does  this  mean  ?  Can  you  mention  any  personal  way  of  getting 
trade  ? 

13.  "Human'ty  is  at  best  only  a  by-product  of  commerce.  The  purpose 
of  men  in  the  market  is  not  to  cultivate  friendship."  Does  this  seem 
to  you  a  fair  judgment  ? 

14.  "If  we  ask  whose  taste  and  judgment  are  expressed  in  most  of  the 
things  we  use  and  wear,  our  reply  must  be  that  to  a  large  extent  they 


IMPERSONAL  RELATIONS 


78S 


express  nobody's  taste  and  nobody's  judgment."    How  can  this  be 
true? 

15.  What  is  the  relation  of  specialization  to  impersonal  relations  in  the 
modern  industrial  society  ? 

16.  "Modern  industrial  communities  show  an  unprecedented  uniformity." 
Cite  as  many  illustrations  as  you  can.  Are  there  forces  working  in  the 
opposite  direction  ?  What  is  the  relation  of  standardization  to  imper- 
sonality ? 

17.  What  is  meant  by  "anonymous  production"?  What  agencies  or 
devices  are  growing  up  in  our  society  to  meet  difficulties  connected 
with  anonymous  production  ? 

.  "The  laborer  of  mediaeval  times  lived  in  a  regime  of  personal  relations; 
the  laborer  of  today  lives  in  a  regime  of  impersonal  relations."  Give 
as  many  illustrations  as  you  can  of  each  proposition. 

19.  Assume,  for  the  sake  of  the  argument,  that  industrial  relationships  could 
all  become  impersonal.  What  elements  of  efficiency  would  have  been 
lost  ?    Do  you  ttiink  that  they  can  all  become  impersonal  ? 

20.  It  is  sometimes  said  that  scientific  management  brings  in  a  more  imper- 
sonal administration  of  workers.  Do  you  think  that  this  is  true? 
Bear  in  mind  that  scientific  management  proposes  to  locate  individual 
responsibility  and  to  reward  in  accord  with  performance. 

21.  "The  corporation  is  an  added  reason  for  having  labor  organizations." 
Explain.  In  what  way  can  it  be  said  that  the  trade  union  is  an  imper- 
sonal device  ? 

22.  What  is  meant  by  referring  to  collective  bargaining  as  an  impersonal 
device  ?    What  is  meant  by  calling  welfare  work  impersonal  ? 

23.  How  does  labor  legislation  take  the  place  of  personal  relations  between 
employer  and  men  ? 

24.  We  hear  much  of  impersonal  relations  between  employer  and  employee. 
Cite  as  many  illustrations  as  you  can  where  the  employer  is  attempting 
to  develop  personal  relations. 

25.  What  is  meant  by  saying  that  immigration  has  assisted  in  the  develop- 
ment of  impersonal  relations  in  this  country  ? 

26.  Suppose  that  we  had  the  socialistic  co-operative  commonwealth. 
Would  it  be  a  society  of  impersonal  relations  ? 

27.  "By  psychological  testing,  salesmen  may  be  selected  on  an  impersonal 
basis."  Granted  that  this  is  true,  is  it  a  good  or  bad  thing  for  society  ? 
for  salesmen  ? 

28.  What  is  meant  by  the  impersonality  of  the  laws  of  nature  ?  What  is 
meant  by  the  impersonality  of  the  laws  of  economics  ? 

29.  Can  professional  or  personal  service  be  conducted  on  an  impersonal 
basis  ?  Is  the  modern  medical  specialist  personal  or  impersonal  in  his 
attitude  toward  his  patients  ? 


786  INDUSTRIAL  SOCIETY 

30.  "The  technique  of  production  has  changed  from  an  individual  to  collec- 
tive method."  What  does  this  mean?  If  true,  what  consequences 
follow  ? 

31.  What  are  the  elements  of  impersonality  in  the  machine  process? 

32.  How  can  you  explain  the  willingness  of  certain  factory  owners  to  leave 
dangerous  machinery  without  safeguards?  to  put  harmful  preserva- 
tives in  the  goods  they  are  canning  ?  to  put  iron  instead  of  cork  in 
life  preservers  ? 

$^.  "Our  morality,  built  up  in  the  days  of  personal  relations,  is  adapting 
itself  very  slowly  to  taking  care  of  impersonal  situations."  Give  illus- 
trations. Are  we  developing  group  morality  ?  Are  we  to  understand 
that  personal  ethics  has  lost  in  positive  value  ? 

34.  "Anyone  who  thinks  that  individual  responsibility  is  becoming  less 
because  collective  responsibility  is  becoming  greater,  is  making  a  great 
mistake."    Just  how  ? 

35.  "Economic  regulation  of  business  activities  is  increasing."  Can  you 
cite  cases  where  such  regulation  means  the  bringing  home  to  individuals 
responsibilities  which  were  not  formerly  seen  in  our  impersonal  society  ? 

36.  "The  economics  of  control  is  at  war  with  the  economics  of  irresponsi- 
bility."   What  does  this  mean  ? 

37.  "If  only  all  citizens  could  be  led  to  understand  the  structure  and  func- 
tioning of  modern  industrial  society,  a  greatly  increased  sense  of 
responsibility  would  follow."  Do  you  agree?  Can  you  cite  illus- 
trations ? 

38.  "The  only  business  obligations  worth  mentioning  are  those  enforced 
by  law  and  settled  custom."     Show  that  the  statement  is  incorrect. 

39.  What  advantages  can  you  list  arising  out  of  impersonal  relations  ? 

40.  "The  growth  of  impersonal  relations  makes  greater  room  for  individual 
liberty."    Why  or  why  not  ? 

B.  Some  Manifestations  of  Impersonality 
309.    IMPERSONALITY  IN  MODERN  LIFE1 

Anyone  who  moves  from  a  country  town  to  the  city  is  impressed 
by  many  contrasts,  but  perhaps  notices  more  than  any  other  the  fact 
that  in  the  city  he  lives  his  daily  life  surrounded  by  people  whom  he 
does  not  know,  many  of  whom  he  sees  but  once  and  then  never  again. 
In  his  home  village  he  knows  and  calls  by  name  every  man,  woman, 
child,  and  dog  he  meets,  and  he  meets  the  same  people  in  every  phase 
of  the  village  life,  at  church,  in  the  store,  at  social  gatherings,  and  at 

1  Adapted  from  L.  M.  Powell,  "Impersonality  of  Modern  Life,"  Lessons  in 
Community  and  National  Life.  Community  Leaflet  No.  8,  pp.  25-32.  (Govern- 
ment Printing  Office,  191 7.) 


IMPERSONAL  RELATIONS 


787 


town  elections.  Every  event  of  the  lives  of  the  other  villagers  is  of 
interest  if  not  of  real  concern  to  him.  Now  let  us  follow  him  to  his 
city  home  and  look  at  his  city  life  through  his  village-wonted  eyes. 
Strangers  live  in  the  flat  building  where  he  has  his  home;  strangers 
jostle  him  in  the  cars  and  in  the  stores  where  he  goes  to  trade. 
Strangers  manage  the  plant  from  which  his  water  supply  comes  and 
)ther  strangers  keep  the  electric  light  plant  running.  Strangers  gov- 
ern his  city,  strangers  whom  he  may  know  by  name  but  not  often  by 
sight.  He  trusts  the  teaching  of  his  children  to  strangers;  he  depends 
on  strangers  to  take  care  of  him  at  the  hospital  if  he  is  ill.  He  is 
dependent  in  a  hundred  ways  upon  people  whom  he  never  knows,  or 
perhaps  meets  but  once.  He  works  in  a  big  store  or  factory  where  if 
he  stays  for  years  he  will  never  know  a  dozen  of  the' hundreds  of  other 
workers  well  enough  to  meet  them  in  any  way  outside  the  place  of 
work.  If  he  goes  to  church  he  finds  there  a  group  of  people  whom 
he  sees  no  place  else.  At  his  lodge  he  meets  men  who  do  not  work 
with  him  or  go  to  church  with  him  or  vote  at  the  same  poll  with  him. 
He  comes  in  time  to  know  a  hundred  times  as  many  people  as  he  knew 
in  his  village  life  but  never  to  know  any  of  them  in  the  complete  way 
in  which  he  knew  his  village  friends.  He  meets  these  city  people  for 
one  brief  incident  only— the  clerk  who  waits  on  him  in  a  big  store,  the 
nurses  who  take  care  of  him  in  the  hospital — or  else  in  only  one  phase 
of  their  lives — business  or  social  or  religious  or  athletic  or  artistic — 
rarely  in  all  the  phases. 

It  is  clear  enough  that  the  size  of  a  city  and  the  continual  change 
that  is  going  on  everywhere  within  it  give  very  different  conditions 
from  those  of  the  tiny  placid  pool  of  village  life.  But  in  this  matter 
of  the  extent  to  which  our  lives  are  touched  by  those  of  unknown 
people  there  is  a  striking  contrast  between  the  modern  village,  how- 
ever rural  and  behind  the  times  it  may  be,  and  the  village  of  pioneer 
days.  What  article  of  dress  or  food  or  household  furnishing  now  used 
by  village  people  can  be  connected  by  them  with  the  person  or  persons 
who  made  it  ?  Perhaps  a  few  of  the  housewives  are  getting  country 
butter,  brought  to  their  doors  by  the  farmer's  wife  who  churned  and 
shaped  it.  Perhaps  the  village  carpenter  comes  in  and  puts  up  a 
shelf  which  he  has  stained  and  varnished.  But  the  brackets  on  which 
the  shelf  rests  come  from  nobody  knows  where,  and  were  taken  through 
all  the  processes  from  mining  the  metal  to  their  final  shaping  by  people 
whom  the  villager  has  never  heard  of  and  will  never  know.  So  it  is 
with  almost  everything  he  uses.     His  flour  comes  from  an  unknown 


788  INDUSTRIAL  SOCIETY 

miller's  hands,  his  shoes  were  made  in  a  distant  factory  by  unknown 
workers;  whether  his  rugs  have  come  from  Persia  or  Grand  Rapids, 
Michigan,  the  workers  who  made  them  are  equally  unknown  to  him. 
Very  different  were  such  matters  with  the  pioneer.  He  could  tell  you 
from  what  neighbor's  farm  he  had  his  wood  or  flax  or  lumber  or  leather, 
and  he  knew  everyone  who  worked  on  the  processes  of  making  these 
materials  into  usable  products.  His  friend  the  carpenter  helped  him 
make  his  furniture,  even  the  wooden  pump  for  the  well;  his  neighbor 
the  stone  mason  hewed  out  stone  sinks  and  troughs  for  use  indoors 
and  out;  his  wife  and  family  made  the  cloth  for  his  suits;  and  the 
travelling  tailor  who  came  regularly  to  make  up  the  cloth  was  a  well- 
known  and  welcome  visitor  in  the  household. 

What  is  true  in  this  respect  of  the  modern  village  is  of  course  true 
of  the  city.  Indeed  the  modern  system  of  production  is  neither  for 
country  nor  for  city  but  for  a  "market"  wherever  that  market  can 
be  found.  Methods  of  transportation  and  communication  and  the 
use  of  money  have  widened  indefinitely  the  distance  between  producer 
and  consumer.  Our  system  is  "a  great  circle  of  exchange  into  which 
at  some  point  each  one  of  us  puts  his  powers  and  possessions"  and  out 
of  which  at  some  other  point  he  draws  the  powers  and  possessions  of 
others  who  are  unknown  to  him.  Nor  do  we  in  these  days  produce 
to  meet  the  needs  of  people,  for  we  know  neither  the  people  nor  their 
needs.  We  make  what  will  sell  for  the  best  price,  and  if  we  think  at 
all  of  human  needs  it  is  to  reflect  that  people  must  need  this  thing  we 
are  making  or  the  price  would  not  be  paid.  We  are  working  under  a 
system  of  "anonymous  production" — production  by  unknown  per- 
sons for  unknown  persons. 

We  produce  not  only  for  an  unknown  market  but  for  as  large  a 
market  as  we  can  get.  Where  the  travelling  tailor  of  early  days 
trusted  to  get  a  few  new  patrons  through  the  friendly  recommenda- 
tions of  those  he  already  had,  we  write  a  description  of  what  we  can 
do  or  what  we  are  making  and  print  it  in  newspapers  or  magazines, 
and  hope  that  everyone  who  reads  it  will  want  to  buy  our  goods.  And 
so  we  have  big  factories,  big  warehouses,  big  stores — we  do  things  on 
a  large  scale.  Thus  other  kinds  of  human  relationships  give  place 
to  impersonal  substitutes.  It  takes  a  great  deal  of  money  for  a  big 
business,  and  to  get  this  money  there  has  developed  a  device  which 
we  call  a  corporation,  into  which  a  great  many  people  by  buying  shares 
of  stock  can  put  as  much  or  little  money  as  each  one  may  choose.  So 
that  instead  of  one  owner  who  feels  that  his  business  is  a  part  of  his 


IMPERSONAL  RELATIONS  789 

personality  and  takes  a  close  interest  in  his  workmen,  his  processes, 
and  the  quality  of  his  product,  we  have  a  thousand  or  more  owners 
scattered  over  one  or  several  different  countries,  who  know  little  or 
nothing  about  the  business  and  care  about  nothing  but  the  dividends 
they  get. 

Such  is  the  effect  of  size,  however,  that  even  where  we  have  an 
individual  owner  of  a  large  concern  he  cannot  maintain  the  relations 
with  his  workmen  possible  in  a  small  business.  A  whole  system  of 
organization— managers,  heads  of  departments,  foremen,  sub-foremen 
—has  come  between  the  " employer"  and  the  "men."  When  John 
Goffe  of  Cornwall,  England,  was  apprenticed  to  John  Gibbs  in  1459 
to  learn  the  " craft  of  fishing"  it  was  part  of  the  written  contract  that 
"  John  Gibbs  and  Agnes  his  wife  should  teach,  train  and  inform  him 
in  the  best  way  they  know,  chastising  him  duly  and  finding  for  him 
food,  clothing,  linen  and  woolen,  and  shoes,  sufficiently  as  befits  such 
an  apprentice  to  be  found."  The  wage  system  itself  as  compared  with 
this  is  impersonal,  for  it  means  that  the  employer  need  know  nothing 
of  his  workmen  outside  the  work  place.  But  in  the  big  business  there 
are  no  personal  contacts  either  in  the  work  place  or  outside  it  between 
the  employer  and  the  rapidly  shifting  crowds  of  employees.  If  the 
employer  takes  an  interest  in  his  workers  it  must  be  by  groups,  and 
so  we  have  "  welfare  work,"  which  provides  rest-rooms  for  the  women 
or  baseball  fields  for  the  men.  To  the  employer  of  ten  thousand 
workers  what  can  the  workers  be  but  pegs  placed  here  and  there  in 
a  great  scheme  of  organization  ? 

Systematic  organization  and  carefully  worked  out  standards  are 
necessary  in  modern  large  scale  production  not  only  because  of  its 
size  but  also  because  of  its  use  of  machines.  The  machines  must  be 
set  running  at  a  certain  time  and  at  a  given  speed  and  the  workers 
must  adapt  themselves  to  these  conditions.  What  is  more  impersonal 
than  a  machine  ?  It  is  impersonal  not  so  much  by  force  of  being  a 
piece  of  senseless  metal  but  rather  in  that  it  has  assumed  the  motions 
and  the  duties  of  a  human  being  and  is  doing  the  work  that  human 
beings  once  did.  Moreover  it  works  in  as  impersonal  a  way  as  the 
physical  laws  in  accordance  with  which  it  is  constructed.  The  law  of 
gravitation  and  a  steam  shovel  at  work  are  no  respecters  of  persons. 
Those  who  work  with  machines  must  understand  this  fact,  for  upon 
such  understanding  rests  not  only  their  efficiency  as  workers  but  also 
their  safety  in  life  and  limb.  Good  character  will  not  save  a  man's 
hand  if  he  puts  it  under  a  die  press;  and  though  he  be  in  high  favor 


79o  INDUSTRIAL  SOCIETY 

with  "the  boss"  the  engine  will  not  get  off  its  track  to  spare  him  if 
he  is  caught  in  its  way.  So  the  men  who  work  with  machines  learn 
to  think  in  terms  of  cause  and  effect;  that  is  they  learn  to  think 
logically,  and  logic  is  as  impersonal  as  the  machine. 

It  is  not  hard  to  see  that  certain  phases  of  the  impersonality  of 
modern  life  have  brought  with  them  serious  problems.  In  pioneer 
days  when  a  family  prepared  food  and  clothing  for  itself,  it  had  no 
motive  to  make  them  of  any  but  the  best  possible  quality.  When 
they  began  to  make  things  for  their  neighbors  the  situation  was  still 
much  the  same.  The  cobbler  who  made  an  ill-fitting,  ugly  pair  of 
shoes  for  a  neighbor  would  hear  about  it  every  day  until  the  shoes 
were  worn  out.  The  village  butcher  who  sold  spoiled  meat  would  feel 
himself  a  murderer  when  his  neighbors  were  poisoned  by  it  and  died. 
But  nowadays  we  do  not  look  farther  than  the  price  for  which  we  can 
sell  our  products  because  we  are  thinking  not  of  definite  known  human 
beings  who  will  use  these  products,  but  of  that  vague  and  impersonal 
thing,  a  market  for  our  goods. 

Modern  society  is  trying  to  meet  such  problems  as  these,  and  since 
in  the  nature  of  the  case  anyone  may  be  affected  by  them  and  yet  no 
private  person  can  deal  with  the  situation,  many  of  them  must  be 
met  by  governmental  devices.  So  that  nowadays  we  put  our  trust 
not  in  the  virtue  of  the  meat  packers  but  in  the  government  inspectors 
of  meat;  not  in  the  piety  of  the  man  who  runs  a  cannery  but  in  our 
pure  food  laws.  The  government  has  stepped  also  into  the  gap 
caused  by  lack  of  personal  relations  between  employer  and  worker 
and  tries  by  labor  laws  and  factory  inspectors  to  keep  working  con- 
ditions safe  and  decent.  The  impersonality  of  machine  industry 
which  brings  accidents  "alike  to  the  just  and  the  unjust"  is  met  by 
safety  regulations  and  devices  and  by  systems  of  workmen's  com- 
pensation. The  workers  have  also  developed  a  device  by  which  they 
may  protect  their  interests  and  trade  unionism  takes  care  of  many 
of  these  problems  for  workers  who  are  so  organized.  The  impersonal 
situation  is  met  by  an  impersonal  device — collective  bargaining,  the 
basic  feature  of  trade  unionism,  substitutes  a  group  bargain  for  the 
old  personal  bargain  between  master  and  man.  The  employer,  on 
his  side,  notes  that  the  impersonal  situation  has  taken  away  certain 
motives  to  good  and  careful  work,  and  devises  various  systems  of 
inspection  and  reward  to  replace  those  motives.  "Scientific  manage- 
ment" is  an  open  recognition  of  the  impersonality  of  our  system  and 
an  attempt  to  use  it  to  advantage. 


IMPERSONAL  RELATIONS  79i 

We  must  recognize,  however,  that  there  are  still  many  unsolved 
problems  growing  in  part  at  least  out  of  our  impersonality.     Produc- 
tion for  unknown  consumers  leads  to  much  social  waste  through  the 
use  of  our  resources  to  make  such  things  as  shoddy  clothing  and 
buildings  so  cheaply  constructed  as  to  be  unsafe.     The  pressure  of 
stockholders  for  their  dividends  falls  heavily  upon  the  labor  employed 
1  the  concern.     Our  codes  of  behavior  take  care  that  we  do  not 
)b  or  murder,  but  are  only  beginning  to  frown  upon  the  "high 
inance"  that  robs  and  ruins  those  who  are  distant  and  unknown. 
The  slowest  of  us  would  run  to  the  rescue  of  a  drowning  child,  but  it 
3  a  long,  discouraging  struggle  to  secure  laws  that  will  protect  mil- 
ions  of  unknown  children  from  the  early  toil  that  stunts  all  their  pos- 
sibilities of  future  development.     Our  morality  built  up  in  the  days 
)f  personal  relations  is  adapting  itself  very  slowly  to  taking  care  of 
npersonal  situations.     But  that  it  must  eventually  make  that  adap- 
tion we  are  sure. 

310.    IMPERSONALITY  UNDER  THE  PECUNIARY  RfiGIME 


Money  is  able  to  form  the  most  impersonal  relations  between 
men.  The  objective  bond  grows,  but  personal  liberty  remains. 
Object  and  subject  are  separated  from  each  other.  The  bonds  that 
money  creates  between  men  are  infinitely  numerous;  nearly  all  rela- 

(ons  between  men  have  some  connection  with  money,  may  it  be  ever 
>  insignificant,  as,  for  instance,  the  rent  a  society  has  to  pay  for  a 
>om.  But  only  the  objective  purport  connects  men;  personally  they 
remain  free,  even  if  the  number  of  people  upon  whom  they  are  depend- 
ent grows  more  and  more.  Just  because  there  is  the' possibility  of 
the  most  impersonal  relations,  there  is  room  for  individual  liberty. 
Money  transforms  property.  While  the  possession  of  goods 
affects  the  individual  because  the  peculiarities  of  different  objects 
require  different  ambitions,  the  infinite  number  of  possibilities  that 
money  combines  leaves  us  free.  Money  is,  so  to  speak,  condensed 
property,  the  possession  of  which  contains  the  possession  of  every- 
thing we  can  buy  for  money.  The  significance  of  the  possession  of 
money  does  not  lie  in  the  object,  but  in  its  relation  to  the  subject, 
the  possessor  who  can  use  it  according  to  his  wishes.    The  greater  and 

1  Adapted  by  permission  from  S.  P.  Altman,  "Simmel's  Philosophy  of  Money," 
American  Journal  of  Sociology,  IX  (1903-4),  48-67. 


792  INDUSTRIAL  SOCIETY 

higher  the  part  that  money  plays  in  economics,  the  lesser  become 
the  bonds  between  people,  because  money  is  the  absolute  means. 

Also  with  regard  to  space,  money  loosens  the  bond  between  us 
and  property.  Only  by  money  the  shareholder,  the  public  creditor, 
the  landed  proprietor  who  has  let  his  farm,  are  enabled  to  live  at  a 
distance  from  their  property,  as  this  can  be  secured  by  money. 

Note  also  the  connection  between  the  growing  importance  of 
money  and  individualism.  Money  widens  the  circles,  because  the 
individual  enters  into  every  relation  with  part  of  its  ego  only;  it 
leaves  room  for  a  greater  individualization.  Closer  bonds  presume 
equality;  they  check  the  process  of  individualization. 

The  greater  the  division  of  labor,  the  more  complicated  becomes 
the  relation  for  the  subject.  Goods  are  more  and  more  separated 
from  their  producer;  factory  goods  replace  goods  made  to  order. 
Because  labor  is  subservient  to  an  objective  purpose,  it  stands  in  a 
more  objective  relation  even  to  the  worker.  Thus  we  get  the  purely 
objective  relation  that  everybody  works  for  everybody  else;  the 
upper  for  the  lower  classes,  and  vice  versa,  the  celebrated  chemist  in  his 
laboratory  for  the  peasant's  wife  who  buys  the  colored  neckerchief, 
and  the  workingman  for  everybody  who  is  a  consumer  of  the  goods  he 
produces.  Our  style  of  life  through  money  becomes  more  and  more 
anti-individual. 

B1 

A  convention  favorable  to  the  dominance  of  immediate  pecuniary 
values  is  our  habit  of  using  the  dollar  as  the  measure  of  all  worth  and 
all  attainment.  In  more  stable  communities  the  institutions  which 
represent  the  various  aspects  of  life  group  themselves  in  a  varied  and 
rich  social  organization.  There  the  individual  is  appraised  in  terms 
of  such  standards  as  birth,  religious  belief,  education,  intelligence, 
political  opinion,  and  personal  morality,  and  the  answers  obtained  are 
all  used  in  giving  him  his  place  in  the  community.  If  he  does  not  care 
to  be  an  outcast  he  must  conform  to  the  dictates  of  these  standards. 
But  under  industrialism  it  has  been  impossible  to  use  at  all  adequately 
these  rich  standards  of  social  rating.  Throughout  the  greater  part 
of  America  two  generations  have  witnessed  the  transition  from  an 
agricultural  to  an  industrial  system,  and  the  newer  life  has  been  ade- 
quately organized  only  in  its  immediately  industrial  aspects.  The 
transition  has  everywhere  been  accompanied  with  a  high  degree  of 

1  Adapted  by  permission  from  W.  H.  Hamilton,  "The  Price-System  and  Social 
Policy,"  Journal  of  Political  Economy,  XXVI  (1918),  52-53. 


IMPERSONAL  RELATIONS  793 

flux.  In  small  villages  the  names  of  firms  still  change  with  kaleido- 
scopic quickness.  On  the  investment  market  securities  change  hands 
even  more  rapidly.  In  the  city  propinquity  is  no  breeder  of  neighbor- 
liness,  and  the  roof  of  an  apartment  house  does  not  make  of  its  numer- 
ous occupants  a  community.  Labor  is  "on  the  move,"  ever  ready  to 
take  "the  main  chance."  Amid  the  rapid  whirl  of  industrialism  one 
gets  into  the  habit  of  considering  relations  but  for  the  day.  Here 
today,  there  tomorrow,  the  identification  of  individual  with  industrial 
establishment,  with  community,  and  with  peculiar  schemes  of  thinking 
and  living  has  nothing  in  common  save  the  blue  sky  above  and  the 
pecuniary  income  ahead.  In  view  of  the  necessity  of  forming  judg- 
ments within  this  chaotic  society,  it  is  inevitable  that  the  dollar  should 
become  the  arbiter  of  values.  It  serves  well  this  function  because, 
to  those  who  use  it,  it  is  far  more  than  mere  income. 


The  corporation  in  its  idea  is  democratic.  For  it  provides  for  the 
union  of  a  number  of  owners,  some  of  them  it  may  be  small  owners, 
under  an  elected  management.  It  would  seem  to  be  an  admirable 
device  for  maintaining  concentration  of  power  with  distribution  of 
ownership.     But  the  very  size  of  modern  enterprises  and  unions  pre- 

■  vents  direct  control  by  stockholders  or  members.  They  may  dislike 
a  given  policy,  but  they  are  individually  helpless.  If  they  attempt 
to  control,  it  is  almost  impossible,  except  in  an  extraordinary  crisis, 
to  unite  a  majority  for  common  action.  The  directors  can  carry  on 
a  policy  and  at  the  same  time  claim  to  be  only  agents  of  the  stock- 
holders, and  therefore  not  ultimately  responsible.  What  influence 
can  the  small  shareholders  in  a  railway  company,  or  a  great  industrial 
corporation,  or  labor  union  have?  They  unite  with  ease  upon  one 
point  only:  they  want  dividends  or  results.  When  an  illegal  policy 
is  to  be  pursued,  or  a  legislature  or  jury  is  to  be  bribed,  or  a  non-union 
man  is  to  be  "dealt  with,"  the  head  officials  likewise  seek  only 
"results."  They  turn  over  the  responsibility  to  the  operating  or 
"legal"  department,  or  to  the  "educational  committee,"  and  know 
nothing  further.  These  departments  are  "agents"  for  the  stock- 
holders or  union,  and  therefore  feel  quite  at  ease.  The  stockholders 
are  sure  they  never  authorized  anything  wrong.  Some  corporations 
are  managed  for  the  interest  of  a  large  number  of  owners;  some,  on 

1  Adapted  by  permission  from  John  Dewey  and  J.  H.  Tufts,  Ethics,  pp.  497- 
503.     (Henry  Holt  &  Co.,  1910.) 


794  INDUSTRIAL  SOCIETY 

the  other  hand,  by  ingenious  contracts  with  side  corporations  formed 
from  an  inner  circle,  are  managed  for  the  benefit  of  this  inner  circle. 
The  tendency,  moreover,  in  the  great  corporations  is  toward  a  situa- 
tion in  which  boards  of  directors  of  the  great  railroad,  banking,  insur- 
ance, and  industrial  concerns  are  made  up  of  the  same  limited  group 
of  men.  This  aggregate  property  may  then  be  wielded  as  absolutely 
as  though  owned  by  these  individuals. 

The  same  impersonal  relation  often  prevails  between  employer 
and  employed.  The  ultimate  employer  is  the  stockholder,  but  he 
delegates  power  to  the  director,  and  he  to  the  president,  and  he  to 
the  foreman.  Each  is  expected  to  get  results.  The  employed  may 
complain  about  conditions  to  the  president,  and  be  told  that  he  can- 
not interfere  with  the  foreman,  and  to  the-foreman  and  be  told  that 
such  is  the  policy  of  the  company. 

The  relations  of  corporations  to  the  public,  and  of  the  public  to 
corporations,  are  similarly  impersonal  and  non-moral.  A  convenient 
way  of  approach  to  this  situation  is  offered  by  the  ethical,  or  rather 
non-ethical,  status  of  the  various  mechanical  devices  which  have  come 
into  use  in  recent  years  for  performing  many  economic  services.  The 
weighing  machines,  candy  machines,  telephones,  are  supposed  to  give 
a  certain  service  for  a  penny  or  a  nickel.  But  if  the  machine  is  out 
of  order,  the  victim  has  no  recourse.  His  own  attitude  is  correspond- 
ingly mechanical.  He  regards  himself  as  dealing,  not  with  a  person, 
but  with  a  thing.  If  he  can  exploit  it  or  "  beat "  it,  so  much  the  better. 
Now  a  corporation,  in  the  attitude  which  it  takes  and  evokes,  is 
about  half-way  between  the  pure  mechanism  of  a  machine  and  the 
completely  personal  attitude  of  a  moral  individual.  A  man  is  over- 
charged, or  has  some  other  difficulty  with  an  official  of  a  railroad  com- 
pany. It  is  as  hopeless  to  look  for  immediate  relief  as  it  is  in  the  case 
of  a  slot  machine.  The  conductor  is  just  as  much  limited  by  his 
orders  as  the  machine  by  its  mechanism.  The  man  may  later  corre- 
spond with  some  higher  official,  and  if  patience  and  life  both  persist 
long  enough,  he  will  probably  recover.  But  to  prevent  fraud,  the 
company  is  obliged  to  be  more  rigorous  than  a  person  would  be  who 
was  dealing  with  the  case  in  a  personal  fashion.  Hence  the  individual 
with  a  just  grievance  is  likely  to  entertain  toward  the  corporation  the 
feeling  that  he  is  dealing  with  a  machine,  not  with  an  ethical  being, 
even  as  the  company's  servants  are  not  permitted  to  exercise  any 
moral  consideration  in  dealing  with  the  public.  They  merely  obey 
orders.     Public  sentiment,  which  would  hold  an  individual  teamster 


IMPERSONAL  RELATIONS  795 

responsible  for  running  over  a  child,  or  an  individual  stage  owner 
responsible  for  reckless  or  careless  conduct  in  carrying  his  passengers, 
feels  only  a  blind  rage  in  the  case  of  a  railroad  accident.  It  cannot 
fix  moral  responsibility  definitely  upon  either  stockholder,  or  manage- 
ment, or  employee,  and  conversely  neither  stockholder  nor  manager 
nor  employee  feels  the  moral  restraint  which  the  individual  would 
feel.  He  is  not  wholly  responsible,  and  his  share  in  the  collective 
responsibility  is  so  small  as  often  to  seem  entirely  negligible. 

See  also  113.  A  Pecuniary  Society. 

116.  The  Role  of  Money  in  Economic  Organization. 

117.  Money  and  Capital  Accumulation. 
136.  Types  of  Business  Organization. 

139.  Faulty  Direction  of  Economic  Activity. 

140.  Production  for  Profit. 
370.  Property  at  Its  Zenith. 


311.    THE  IMPERSONALITY  OF  THE  MARKET 
A1 

We  may  talk  of  our  duty  to  all  mankind,  but  we  all  seem  to  recog- 
nize a  greater  extent  of  obligation  toward  our  friends  than  toward 
more  distant  acquaintances,  and  a  greater  obligation  to  an  acquaint- 
ance than  to  a  total  stranger.  Even  the  good  Samaritan  must  have 
felt  a  more  compelling  obligation  had  the  man  who  fell  among  thieves 
been  a  fellow  Samaritan.  But  if  we  ask  what  makes  one  obligation 
more  compelling  than  another,  I  think  we  are  bound  to  come  to  this: 
that  the  extent  of  obligation  is  a  question  of  the  extent  of  personal 
understanding;  in  other  words,  it  is  a  question  of  the  number  of  points 
of  contact.  With  the  stranger  whom  I  pass  on  the  road  I  have,  so  to 
speak,  but  one  point  of  contact.  With  my  intimate  friends  I  have 
not  only  many  points  of  contact,  but  each  is  related  to  all  the  others 
in  what  the  lawyers  call  a  "meeting  of  minids"  or  of  personal  points 
of  view. 

Now  the  economic  relation,  in  spite  of  all  its  complexities,  is  very 
similar  to  the  relation  of  two  men  who  merely  meet  on  the  road.  It 
is  a  relation  in  which  men  are  strangers  to  one  another  at  every  point 

1  Adapted  by  permission  from  Warner  Fite,  "Moral  Valuations  and  Economic 
Laws,"  Journal  of  Philosophy,  Psychology  and  Scientific  Methods,  XIV  (1917))  10-16. 


796  INDUSTRIAL  SOCIETY 

but  one:  what  each  knows  of  the  other  is  simply  what  he  will  give 
in  terms  of  money  or  what  he  will  take  in  terms  of  a  specified  com- 
modity. In  a  word,  it  is  a  relation  of  mutual  ignorance  rather  than 
of  mutual  knowledge.  To  make  my  meaning  clear  I  will  ask  you  to 
picture  to  yourself  a  typically  economic  situation  such  as  that  pre- 
sented by  a  great  commercial  city  like  New  York.  During  a  few 
hours  of  the  day  you  will  find  some  hundreds  of  thousands  gathered 
in  the  downtown  district  and  engaged  in  the  business  of  exchange; 
during  the  night  they  are  scattered  in  their  homes  uptown  or  outside 
of  the  city,  in  New  York,  New  Jersey,  or  Connecticut.  If  you  ask 
what  they  are  exchanging,  your  first  answer  may  be  useful  commodities 
for  personal  consumption.  But  in  every  act  of  exchange  the  com- 
modities offered  on  one  side  are  simply  dollars  and  those  on  the  other 
side  are  offered  only  in  exchange  for  dollars.  And  the  nearer  we  come 
to  a  completely  organized  market,  such  as  we  find  on  the  stock 
exchange,  or  the  grain  or  cotton  exchange,  the  less  interest  we  seem 
to  find  in  useful  commodities — grain,  cotton,  or  railways — as  such, 
and  the  more  it  seems  to  be  a  matter  of  exchanging  certificates  or 
receipts,  for  anything  you  please,  provided  only  they  are  readily  con- 
vertible into  dollars.  What  we  find,  then,  is  a  vast  concourse  of 
supplies  and  demands,  all  expressed  in  terms  of  a  single  abstract, 
quantitative  standard.  And  in  the  business  district  this  is,  generally 
speaking,  all  any  man  knows  of  his  neighbor,  namely,  what  he  will 
give  or  what  he  will  take. 

Strangely  enough,  one  of  the  results  of  improved  means  of  com- 
munication is  to  hold  apart  those  who,  we  should  say,  would  be  most 
concerned  to  meet.  It  is  true  that,  in  the  sense  that  the  products 
of  one  land  are  consumed  in  distant  lands,  modern  commerce  brings 
more  distant  persons  into  some  sort  of  economic  relation,  and  thus 
creates  larger  economic  wholes;  but  in  doing  this  modern  commerce 
also  separates  the  ultimate  producer  and  the  ultimate  consumer,  the 
ultimate  borrower  and  the  ultimate  lender,  and  even  the  ultimate 
employer  and  the  ultimate  laborer,  by  the  interposition  of  an  indefi- 
nite number  of  middlemen.  Thus  it  results  from  the  very  magnitude 
of  the  situation  that  the  personal  needs  which  constitute  the  ultimate 
forces  of  the  market  are  kept  largely  in  ignorance  of  one  another. 
Each  person  entering  the  market  becomes  blankly  a  term  in  a  scien- 
tific system  of  exchange,  and  each  is  confronted,  not  by  other  persons, 
who  as  persons  may  be  open  to  negotiation,  but  by  the  blank  facts 
of  the  system. 


IMPERSONAL  RELATIONS  797 

If  we  ask  whose  taste  and  judgment  are  expressed  in  most  of  the 
lings  that  we  use  and  wear,  our  reply  must  be  that  to  a  large  extent 
ley  express  nobody's  taste  and  nobody's  judgment.    An  economist 
dght  tell  us  that  the  selection  of  what  is  to  be  bought  and  sold  upon 
le  market  is  determined  by  economic  law.     But  this  means  only  that 
le  maker  and  the  user  are  more  or  less  out  of  communication;  and 
the  absence  of  communication  the  selection  is  determined  by  physi- 
1  fact.     When  I  buy  a  pair  of  shoes,  for  example,  I  take  not  what  I 
fant  but  the  best  that  I  can  get  in  view  of  a  given  supply;   under 
lodern  conditions  it  seems  futile  to  specify  what  I  should  prefer, 
lut  the  supply  of  shoes  is  determined,  on  the  side  of  the  maker,  by 
statistical  record  of  what  I  and  the  other  purchasers  actually  take. 
Cach  of  the  two  parties  deals,  then,  with  a  bare  physical  fact— the 
fact  that  certain  goods  are  taken,  or  that  certain  goods  are  found  in 
he  supply.    The  economic  process  of  selection,  so  called,  is  hardly 
lore  of  a  mental  process  than  the  processes  of  an  adding  machine 
a  cash  register. 

B1 

To  draw  an  instance  from  the  field  of  business,  we  may  take  the 
everyday  experience  of  investment  banking  in  our  provincial  towns. 
Two  well-defined  types  of  security  dealers  exist  in  almost  every 
interior  city.  The  first  is  that  of  the  local  private  banker,  generally 
a  leading  citizen,  who  with  sons  and  partners  and  partners'  sons  deals 
directly  with  neighbors  and  friends.  Such  people  carefully  weigh 
their  words  in  giving  advice  to  their  clients;  they  are  proud  of  the 
place  they  hold  in  the  community,  and  their  self-respect  will  not 
permit  them  to  do  anything  to  imperil  it.  They  would  prefer  to  sac- 
rifice business  rather  than  do  anything  underhanded  or  say  anything 
untruthful  to  obtain  it.  If  through  an  error  of  theirs  or  through  their 
bad  judgment  they  have  persuaded  a  client  to  invest  in  an  unsound 
security,  they  would  prefer  to  buy  it  back  rather  than  be  the  means 
by  which  he  had  lost  his  capital.  It  is  against  the  higher  impulses  of 
such  a  firm  to  encourage  speculative  gambling,  for  they  know  that 
those  who  indulge  in  it  always  lose  in  the  long  run. 

The  other  type  is  that  of  the  local  branch  office  of  a  New  York 
stock  broker  in  charge  of  a  manager  sent  out  by  the  parent  house. 
Educated  in  the  most  impersonal  school  of  trading  in  the  world,  where 


" 


1  Adapted  by  permission  from  E.  D.  Page,  Trade  Morals,  Their  Origin,  Growth 
Province,  pp.  128-30.     (Yale  University  Press,  1914.) 


798  INDUSTRIAL  SOCIETY 

the  quick  succession  of  multitudinous  transactions  leaves  time  neither 
for  reflection  nor  for  consideration,  he  is  sent  abroad  by  his  employers 
to  get  them  business  in  the  smaller  city.  His  success  depends  upon 
the  amount  of  new  business  he  can  bring  in,  and  the  quicker  he  does 
it  the  better;  he  comes  today,  he  may  go  tomorrow;  he  has  no  estab- 
lished local  reputation,  and  his  chief  concern  is  to  promote  purchases 
and  so  to  increase  commissions.  Providing  he  gets  business  he  need 
have  no  pride  in  his  job;  to  his  employer  his  clients  are  only  names 
written  in  a  book  and  rated  by  Dun  or  Bradstreet.  So  long  as  they 
keep  their  margins  good  they  are  welcome  to  speculate  whether  they 
have  the  means  to  do  it  or  not.  The  lifeblood  of  their  business  is  to 
buy  and  sell;  this  makes  commissions;  the  principal  cares  little  how 
the  agent  gets  the  business.  He  cannot  be  paid  with  a  share  of  the 
earnings,  and  so  have  a  stake  in  the  continuity  of  his  business,  for 
that  is  against  the  rules  of  the  exchange;  but  he  may  lawfully  be 
given  a  liberal  allowance  of  wines,  liquors,  and  cigars  as  a  part  of  the 
necessary  expense  of  attracting  trade.  The  growth  of  pride  and 
self-respect  as  reinforcements  to  the  humanistics  of  business  is 
stifled  here.  

See  also         85.  The  Great  Co-operation. 

86.  The  Indirect  Method  of  Satisfying  Wants. 
148-50.  An  Estimate  of  the  Value  and  Limits  of  Spe- 
cialization. 
151-56    on    Interdependence,    Its   Forms   and    Conse- 
quences. 

312.    STANDARDIZATION1 

These  progressive  changes  toward  more  widespread  knowledge 
of  business  have  wrought  havoc  with  the  rate  of  profit.  To  meet  this 
emergency  the  pace  of  trade  had  to  be  vastly  accelerated.  Business 
organizations  have  been  more  constantly  employed  in  out-of-season 
work,  and  the  number  of  transactions  accomplished  by  them  has  been 
proportionately  increased  so  as  to  meet  the  fall  of  net  profits  from  an 
average  of  20  or  25  per  cent  on  the  amount  of  the  sale  to  one  of  from 
1  to  4  per  cent  on  the  same.  Quick  trading  involving  the  minimum 
of  time  to  each  transaction  has  become  a  commercial  necessity;  in  it 

1  Adapted  by  permission  from  E.  D.  Page,  Trade  Morals,  Their  Origin,  Growth 
and  Province,  pp.  197-99,  228-29.     (Yale  University  Press,  1914.) 


IMPERSONAL  RELATIONS  799 

lies  all  the  hope  of  gain  and  the  possibility  of  survival;  this  has 
involved  changes  in  every  productive  industry  and  in  the  operations 
of  every  trading  group. 

The  economization  of  time  and  effort  demanded  by  the  modern 
methods  of  business  leaves  little  room  for  higgling  or  trading.  Quali- 
ties are  standardized,  quantities  are  standardized,  prices  and  terms  of 
credit  are  standardized,  so  as  to  permit  the  largest  number  of  possible 
transactions  to  be  consummated  in  the  shortest  measure  of  time.  It 
is  clearly  perceived  that  this  is  the  nub  of  business  efficiency,  and  upon 
the  totality  of  efficiency  in  any  business  depends  its  welfare;  that  is, 
its  adjustment  to  its  environment,  and  its  ability  to  survive.  Alex- 
ander T.  Stewart  discovered  the  efficiency  of  standardized  prices  in 
the  early  forties.  Previous  to  that  time  it  was  a  folkway  in  the  United 
States,  as  it  is  today  in  Italy  or  Spain,  to  ask  one  price  of  the  buyer 
with  the  idea  of  taking  another  in  the  end,  and  of  settling  the  final 
question  of  what  was  to  be  paid  by  the  process  of  bargaining — the 
chaffering  of  the  market.  Stewart  saw  the  opportunity  of  creating 
a  widespread  confidence  in  his  business  methods  by  introducing  a 
custom  that  all  who  bought  from  him  should  be  treated  exactly  alike. 
His  experiment  was  received  with  derision  by  his  competitors.  Half 
the  pleasure  of  buying  would  be  lost  to  the  public,  they  said,  if  the 
opportunity  for  the  interchange  of  wits  involved  in  higgling  and 
trading  were  denied.  It  was  confidently  asserted  that  customers 
would  be  driven  away  from  the  shop  where  the  delights  of  bargaining 
were  done  away  with.  But  Stewart's  hopes  were  more  than  realized, 
and  on  the  foundation  of  the  principle  of  fixed  prices  he  built  the  most 
enormous  business  success  of  his  generation;  many  of  his  competitors, 
driven  out  of  business  by  their  incapacity  to  forecast  the  trend  of 
folk-custom,  were  glad  to  hire  their  services  to  aid  the  great  merchant 
in  the  very  policy  that  had  led  to  their  own  downfall. 

The  vast  majority  of  attributes  of  all  staple  merchandise  are  now 
so  standardized  that  the  main  question  in  selling  is  not  so  much  per- 
suasion as  in  getting  the  standards  fairly  represented  before  the  pros- 
pective buyer's  mind.  If  the  offering  fits  his  economic  needs  his  last 
doubt  is  the  ethical  one— i.e.,  is  the  representation  a  fair  one?— and 
he  acts  in  accordance  with  his  answer  to  this  question;  if  the  answer 
be  "yes"  the  trade  succeeds.  Therefore  the  standardization  of  con- 
duct is  equally  important  with  the  other  kinds  of  standardization  to 
the  success  of  any  business  which  is  conducted  in  conformity  with  the 
modern  idea  of  large  sales  and  small  profits;  and  thus  it  is  that  in 


800  INDUSTRIAL  SOCIETY 

business  conduct  well-established  and  widely  known  principles  pro- 
mote success.  

See  also  165.  Standardization  and  the  Machine  Process. 

166.  The  Transfer  of  Thought,  Skill,  and  Intelligence. 

167.  Impersonality  and  the  Machine  Process. 
177.  The  Brute. 

313.    IMPERSONALITY  AND  THE  WORKER1 

Considering  the  whole  field  of  American  industry,  there  are  almost 
infinite  variations  of  relationship  between  employers  and  employees, 
ranging  from  the  individual  worker,  hired  by  a  single  employer,  as  in 
domestic  service  and  agriculture,  to  the  huge  corporation  with  a  hun- 
dred thousand  stockholders  and  a  quarter  of  a  million  employees. 
Relationship  varies  from  that  of  direct  contact  to  a  situation  where 
the  employee,  together  with  thousands  of  his  fellow-workers,  is  sepa- 
rated by  hundreds  of  miles  from  the  individuals  who  finally  control 
his  employment  and  of  whose  existence  he  is  usually  entirely  ignorant. 

A  thorough  discussion  of  the  relationships  which  exist  under  these 
various  forms  of  industrial  organization  would  be  not  only  tedious  but 
useless  for  all  practical  purposes.  The  typical  form  of  industrial 
organization  is  the  corporation.  In  transportation  approximately  100 
per  cent  of  the  wage-earners  are  employed  by  corporations ;  in  min- 
ing, 90  per  cent,  and  in  manufacturing,  75  per  cent.  Moreover,  it  is 
under  this  form  that  the  great  problems  of  industrial  relations  have 
developed. 

The  control  of  the  property,  as  far  as  operation  is  concerned,  rests 
finally  with  the  stockholders  or  with  some  particular  class  of  stock- 
holders whose  shares  entitle  them  to  vote.  The  stockholders,  how- 
ever, act  through  the  board  of  directors,  who  are  usually  elected  in 
such  a  way  that  they  represent  only  the  dominant  interest.  As  far  as 
the  organization  of  the  corporation  is  concerned,  the  principal  func- 
tion of  the  board  of  directors  is  to  select  the  executive  officials.  These 
executive  officials,  either  directly  or  indirectly,  select  the  numerous 
superintendents,  foremen,  and  petty  bosses  by  whom  the  direct  opera- 
tion of  the  enterprise  is  managed  and  through  whom  all  the  workers 
are  hired,  discharged,  and  disciplined. 

Adapted  from  "Existing  Relations  between  Employers  and  Employees," 
Final  Report  of  the  Commission  on  Industrial  Relations,  pp.  16-21.  (Government 
Printing  Office,  1915.) 


IMPERSONAL  RELATIONS  801 

Theoretically  and  legally,  the  final  control  and  responsibility  rests 
with  the  stockholders,  but  in  actual  practice  a  very  different  situation 
found.  The  relationship  of  stockholders  to  a  corporation  is  any- 
thing but  permanent;  in  a  busy  week  on  Wall  Street  the  number  of 
shares  bought  and  sold  in  one  of  the  great  corporations  will  greatly 
jxceed  the  total  number  of  shares  that  are  in  existence.  The  stock- 
lolders  as  a  class,  therefore,  have  no  guiding  interest  in  the  permanent 
efficiency  of  the  corporation  as  regards  either  the  preservation  of  its 
)hysical  property  or  the  maintenance  of  an  efficient  productive 
>rganization. 

Boards  of  directors  in  theory  are  responsible  for  and  would 
naturally  be  expected  to  maintain  supervision  over  every  phase  of 
"le  corporation's  management,  but,  as  a  matter  of  fact,  we  know  that 
such  supervision  is  maintained  only  over  the  financial  phase  of  the 
msiness,  controlling  the  acquisition  of  money  to  operate  the  business 
md  distributing  the  profits.  Upon  the  testimony  of  financiers  rep- 
jsenting,  as  directors,  hundreds  of  corporations,  the  typical  director 
)f  large  corporations  is  not  only  totally  ignorant  of  the  actual  opera- 
tions of  such  corporations,  whose  properties  he  seldom,  if  ever,  visits, 
but  feels  and  exercises  no  responsibility  for  anything  beyond  the  finan- 
:ial  condition  and  the  selection  of  executive  officials.  Upon  their 
)wn  statements  these  directors  know  nothing  and  care  nothing  about 
le  quality  of  the  product,  the  condition  and  treatment  of  the  workers 
from  whose  labor  they  derive  their  income,  or  the  general  management 
)f  the  business. 

As  far  as  operation  and  actual  management  are  concerned,  the 
executive  officials  are  practically  supreme.  Upon  their  orders  pro- 
duction is  increased  or  decreased,  plants  are  operated  or  shut  down, 
and  upon  their  recommendations  wages  are  raised  or  lowered.  But 
even  they  have  little  direct  contact  with  the  actual  establishment  of 
working  conditions,  and  no  relation  at  all  with  the  rank  and  file  of  the 
workers.  They  act  upon  the  recommendations  of  superintendents, 
whose  information  comes  from  their  assistants  and  foremen  and  from 
the  elaborate  statistics  of  modern  business,  which  account  for  every 
piece  of  material  and  product,  show  the  disposition  of  every  penny 
that  comes  and  goes,  but  ignore,  as  though  they  did  not  exist,  the 
men  and  women  whose  labor  drives  the  whole  mechanism  of  business. 
Here,  then,  is  the  field  of  industrial  relations:  Masses  of  workers 
on  the  one  side  dealing  in  some  manner  with  foremen  and  superin- 
tendents on  the  other,  behind  whom  is  an  organization  of  executive 


802  INDUSTRIAL  SOCIETY 

officials,  representing  in  turn  the  board  of  directors,  who  are  the 
chosen  representatives  of  the  stockholders. 


See  also    20.  The  Villain  and  the  Freeman. 

23.  Manorial  Methods  of  Cultivation. 
203.  Economic  Insecurity  of  the  Workers. 
243.  The  Trade  Union  Program. 
274.  Suggested  Cures  for  Poverty. 

314.    IMPERSONAL  DEVICES  TO  MEET  IMPERSONAL 
CONDITIONS1 

By  the  impersonalization  of  industry  are  meant  two  closely 
related  things.  Not  only  are  impersonal  relations  substituted  for 
personal  relations,  but  the  whole  personality  no  longer  functions  in 
industry.  The  worker  takes  a  place  in  an  impersonal  system,  the 
entrepreneur  follows  out  an  impersonal  policy.  In  both  manufactur- 
ing and  agriculture  the  evolution  of  the  new  system  centered  about 
the  control  of  capital. 

The  process  of  impersonalization  is  not  confined  to  production; 
it  makes  its  way  into  all  parts  of  economic  and  social  life.  Sombart 
indicates  the  extent  to  which  capitalism  changed  personal  ties  into 
impersonal  relations.  "An  'impersonalization'  (Versachlichung) 
always  occurs  where  the  efficiency  of  a  system  of  man-made  arrange- 
ments displaces  direct  individual  or  co-operative  human  effort. 
We  observe  a  parallel  phenomenon  in  technique  where  the  imper- 
sonalization consists  in  the  transfer  from  vital  human  labor  to  a  sys- 
tem of  lifeless  bodies,  i.e.,  mechanical  or  chemical  action.  Military 
leadership  becomes  impersonal  when  the  battle  is  no  longer  decided 
by  the  initiative  of  the  general,  but  by  the  intelligent  observance  of 
all  the  accumulated  experience  of  the  past  and  by  the  utilization  of 
scientific  methods  of  strategy  and  tactics,  of  artillery  and  commissariat 
and  so  forth.  A  retail  store  becomes  impersonal  when  the  single  head 
of  the  firm,  who  is  in  personal  relations  with  the  clerks  and  the  cus- 
tomers, is  supplanted  by  a  board  of  directors  who  control  thousands 
of  employees.  This  latter  is  accomplished  by  means  of  a  system  of 
organization  to  which  every  individual  is  subordinated.  In  such  a 
store  the  concrete  business  transaction  is  no  longer  a  personal  under- 

1  Adapted  by  permission  from  E.  W.  Burgess,  The  Function  of  Socializa- 
tion in  Social  Evolution,  pp.  137-74.     (The  University  of  Chicago  Press,  1916.) 


IMPERSONAL  RELATIONS  803 

standing  between  buyer  and  seller,  but  rather  an  automatic  process 
operating  according  to  certain  definite  standards.    The  collective 

labor  contract  makes  the  wage  relation  impersonal  and  so  on 

[The]  impersonalization  of  credit  is  the  characteristic  mark  of  modern 
national  economy." 

The  tendencies  to  impersonalization  are  not  merely  economic, 
not  national  alone,  but  social  and  world-wide.  Economic  value  is 
no  longer  determined  immediately  in  any  particular  case  by  the  clash 
or  concord  of  the  interests  of  two  persons,  or  by  custom,  but  is  settled 
in  a  quite  impersonal  way  by  a  quotation  from  the  board  of  trade. 
Life  in  the  city  illustrates  in  scores  of  ways  the  growth  of  impersonal 
relations.  The  enormous  aggregations  of  population,  the  minute 
subdivision  of  labor,  the  many  transient  relations  of  persons,  make 
impossible  the  effective  functioning  of  personal  ties.  It  is  not  to  the 
character  of  the  milk-dealer  that  you  look,  but  to  the  impersonal 
certificate  of  inspection;  not  the  morals  of  the  packing  magnates  that 
you  scrutinize,  but  the  government  inspector's  stamp.  The  growing 
use  of  money  and  credit  as  a.  medium  of  exchange  brings  into  the 
power  of  the  individual  a  whole  sum  of  services  whose  impersonal 
nature  scarcely  gives  a  hint  of  their  genetic  connection  with  the  give- 
and-take  of  the  old  personal  industrial  and  social  order.  The  growth 
and  specialization  of  the  professions  and  of  expert  knowledge  in 
specific  departments  of  thought  and  action  have  created  the  great 
impersonal  function  of  an  "authority."  The  rise  of  the  newspaper 
with  its  anonymous  editorial  "we"  and  its  detached  statement  of  the 
news  is  but  another  force  making  for  the  impersonal  character  of  this 
age.  The  modern  social  group,  the  public,  is  held  together  chiefly 
by  ties  of  impersonal  interest,  although  the  influence  of  a  striking 
personality  is  not  entirely  eliminated.  The  phenomena  of  fashions 
and  fads  indicate  at  once  their  impersonal  role  and  the  futility  of 
individual  protest  and  resistance.  Public  opinion,  pervasive,  in- 
tangible, quite  impersonal,  a  part  of  the  spiritual  breath  of  each  of  us, 
yet  hardly  more  our  own  than  the  atmosphere  which  we  inhale  and 
exhale  again,  is  a  phenomenon  of  modern  times.  And  even  our 
great  national  elections  where  the  individual  adds  but  one  vote  to 
six  or  seven  million  votes  cannot  but  give  the  reflective  person  a  feel- 
ing of  the  utter  impotence  of  personal  participation  and  the  imper- 
(nality  of  democracy. 
The  transition  from  the  personal  relations  of  the  guild  and  the 
anor  to  the  impersonal  relations  of  the  factory  and  the  estate  was 


804  INDUSTRIAL  SOCIETY 

at  first  gradual  and  then  abrupt.  In  manufacturing,  the  domestic 
system  was  the  transitional  industrial  form  between  the  guild  and  the 
modern  factory  system.  In  domestic  industry  are  found  in  germ 
practically  all  the  elements  of  the  factory  system  except  machinery. 
We  observe  large  aggregations  of  workmen,  the  beginnings  of  the 
subdivision  of  labor,  the  growing  importance  of  capital,  the  tendency 
toward  large-scale  production,  manufacture,  not  alone  for  the  local, 
but  also  for  the  national  market,  and  finally  the  domination  of  the 
master-manufacturer  over  all  the  processes  of  production  and  distri- 
bution. Yet  even  under  the  domestic  arrangement,  as  in  the  modified 
guild  system  of  the  towns,  the  personal  relations  of  master  and  men 
still  survived.  In  a  similar  way,  upon  the  breakdown  of  the  manorial 
system,  the  personal  relations  of  the  squire  and  his  tenants  were  but 
substituted  for  those  of  lord  and  serf,  even  retaining  a  vestige  of  their 
old  force  after  they  were,  in  fact,  actually  superseded  by  the  imper- 
sonal relations  of  land  owner  and  hired  laborers. 

The  introduction  of  the  machine  and  of  system  not  only  changed 
the  relations  of  man  to  man  but  revolutionized  the  relation  of  the  man 
to  his  work.  The  restriction  of  human  labor  to  a  monotonous  me- 
chanical process  involving  the  repetition  of  a  few  muscular  movements 
signified  the  divorce  of  personality  from  labor.  The  sense  of  control 
over  work,  so  marked  in  the  guild  arrangement,  was  superseded 
by  the  dominance  of  the  machine^  over  labor.  The  machine  and 
system  set  the  pace;  the  slow  worker  was  speeded  up  to  the  time-rate 
of  the  faster;  more  work  was  got  out  of  the  individual  than  under 
the  spur  of  the  personal  relations  of  the  manor  and  the  guild.  The 
bent  of  the  individual  was  not  utilized;  the  slight  necessary  skill  was 
too  easily  acquired  to  become  of  value  as  a  personal  asset;  the 
flagging  attention  was  sustained'  by  no  personal  interest  in  the  product 
fashioned  by  the  machine. 

The  first  efforts  of  the  workman  [in  reply]  were  along  the  course 
of  direct  action.  The  mental  attitude  of  the  laborer  is  to  be  explained 
according  to  the  principles  of  mob  psychology.  In  the  remorseless, 
impersonal  fight  waged  by  the  machine  against  human  flesh  and  blood, 
the  wage-earner  found  himself  defeated,  and,  enraged,  struck  blindly 
at  the  instruments  of  his  downfall.  The  Luddite  riots  in  1812  and 
18 16,  the  Lancashire  outbursts  of  1826,  indicate  the  intensity  of  the 
indignation  which  vented  its  force  upon  the  machine:  so  blinded 
were  the  weaver  and  the  artisan  by  the  sensational  aspect  of  the 
transition    that  they  struck   recklessly   at   the   visual   manifests- 


IMPERSONAL  RELATIONS  805 

ion  of  the  change  which  had  taken  away  their  occupation  and 
relihood. 
With  the  failure  of  direct  action  and  of  political  agitation,  the 
iuence  of  Robert  Owen  and  of  the  middle  class  tended  to  turn  the 

I  efforts  of  the  wage-earners  to  co-operation  and  organized  self-help. 
The  co-operative  movement  affords  us  most  interesting  evidence 
of  this  change  of  heart  and  mind.  In  establishing  consumers'  and 
producers'  societies,  the  working  class  attempted  to  utilize  the 
weapons  of  capitalism  to  its  own  advantage.  The  restriction  of  the 
full  benefits  of  these  societies  to  the  members  showed  the  essentially 
individualistic  character  of  the  organization. 

The  organization  of  the  trade  union  is  to  be  distinguished  from 
that  of  the  guild  system.  Each  individual,  upon  joining  the  union, 
surrenders  his  "natural"  right  of  competing  with  his  fellows,  and  of 
making  individual  terms  of  employment  with  his  employer.  Thus 
it  is  that  the  trade  union,  despite  its  obvious  use  of  personal  and  local 
relations,  is  organized,  fundamentally,  upon  an  impersonal  basis. 
The  psychic  force  that  gives  the  labor  union  its  vitality  is  the  eco- 
nomic incentive,  the  most  impersonal  save  the  aesthetic  of  all  human 
interests.  The  maintenance  of  the  standard  of  living  and  the  ques- 
tion of  higher  wages  become  an  object  to  be  achieved  only  by  the 
subordination  of  the  individual  to  the  group.  Collective  bargaining 
denotes  the  standardization  of  remuneration  and  the  rejection,  in  some 
degree  at  least,  of  the  principle  of  the  apportionment  of  reward  to  the 
worth  of  individual  service.  While  the  member  of  the  union  has  a 
vote  in  the  referendum  for  a  strike,  his  relinquishment  of  the  ulti- 
mate control  of  his  conduct  to  an  organization  often  involves  the  sur- 
render of  his  personal  preferences.  In  mediaeval  times,  the  control 
of  life  was  in  the  hands  of  the  guild  master  and  his  personality  func- 
tioned in  his  work;  in  modern  times,  the  personality  of  the  wage- 
earner  does  not  function  in  production,  and  the  control  of  his  life  in  its 
economic  aspect  has  passed  into  the  keeping  of  an  organization  into 
which  his  personality  is  merged. 

The  impersonal  character  of  the  Socialist  movement  is  as  evident 
as  that  of  the  labor  union.  The  interests  of  all  the  members  of  society 
are  to  be  conserved  without  regard  to  class  or  adventitious  circum- 
stances. The  special  economic  privileges  that  private  property 
presents  for  the  personal  control  of  the  destinies  of  other  men  are  to 
be  abolished.  The  ownership  of  all  the  instruments  of  production 
to  be  vested  in  the  state,  the  impersonal  representative  of  all  of  us. 


806  INDUSTRIAL  SOCIETY 

Above  all  else,  the  Socialist  philosophy  of  life  tends  to  turn  the  atten- 
tion of  the  individual  from  the  personal  to  the  impersonal  explanation 
of  the  causes  of  social  misery.  According  to  the  new  interpretation, 
not  human  nature,  but  the  social  order  is  responsible  for  human  waste 
and  wreckage;  not  the  "boss,"  but  the  "soulless"  corporation  is  to 
blame;  not  the  capitalist,  philanthropist  that  he  often  is,  but  the 
system  is  at  fault. 

Thus  the  circle  of  impersonalization  is  complete.  Capitalism 
introduced  an  impersonal  economic  order  with  impersonal  ramifica- 
tions which  extend  throughout  the  entire  social  order.  Labor  unions 
have  built  up  an  impersonal  organization  to  measure  strength  with 
capitalism  in  the  industrial  arena.  The  Social  Movement,  and 
especially  social  science  as  its  highest  rational  integration,  has  im- 
planted in  the  minds  of  men  an  objective  and  detached  method  of 
analyzing  and  interpreting  social  facts. 

The  question  may  be  raised  whether  the  impersonal  stage  of 
socialization  is  the  final  or  highest  goal  of  the  process.  The  study 
of  social  development  in  England  in  the  last  fifty  years  suggests  that 
a  new  stage,  which  we  may  call  the  social,  is  being  attained.  The 
social  tendencies  are  multiplying,  which  denote  that  the  impersonal 
way  of  looking  at  things  will  become  permeated  by  the  social  outlook 
and  spirit;  that  the  perfected  outward  co-operation  of  our  present 
industrial  order  will  become  motivated  by  a  perfected  inner  co- 
operation; that  out  of  the  moral  ferment  and  psychic  seething  of  the 
thronging  thousands  in  our  cities,  united  in  spite  of  themselves  by  the 
closest  and  most  complex  external  interdependencies,  will  be  evolved 
a  group-consciousness  necessary  for  the  solution  of  our  problems  and 
for  the  control  of  conditions  in  the  common  interest.  Such  a  change 
in  the  mental  and  social  organization  presupposes  and  requires  a 
change  in  the  habits  of  mind  of  the  individual.  The  requisite  trans- 
formation can  occur  only  through  the  socialization  of  the  individual 
by  means  of  his  freest  personal  participation  in  the  community  of 
thinking,  feeling,  and  action  of  the  group.  The  process  of  perfecting 
the  social  order  makes  possible  and  requires  the  all-round  development 
of  personality. 

315-    MIGRATION  AND  IMPERSONALITY1 
What  we  want  to  discover  most  of  all  is  the  particular  reason  why 
a  sojourn  in  a  new  land  should  tend  to  broaden  and  intensify  the  capi- 
talist spirit. 

1  Adapted  by  permission  from  Werner  Sombart,  The  Quintessence  of  Capitalism, 
pp.  302-7.     (E.  P.  Dutton  &  Co.,  1915.) 


IMPERSONAL  RELATIONS  807 

If  we  are  content  to  find  it  in  a  single  cause  it  would  be  the  breach 
with  all  old  ways  of  life  and  all  old  social  relationships.  Indeed,  the 
psychology  of  the  stranger  in  a  new  land  may  easily  be  explained  by 
reference  to  this  one  supreme  fact.  His  clan,  his  country,  his  people, 
his  state,  no  matter  how  deeply  he  was  rooted  in  them,  have  now 
ceased  to  be  realities  for  him.  His  first  aim  is  to  make  profit.  How 
could  it  be  otherwise?  There  is  nothing  else  open  to  him.  In  the 
old  country  he  was  excluded  from  playing  his  part  in  public  life;  in 
the  colony  of  his  choice  there  is  no  public  life  to  speak  of.  Neither 
can  he  devote  himself  to  a  life  of  comfortable,  slothful  ease;  the  new 
lands  have  little  comfort.  Nor  is  the  newcomer  moved  by  sentiment. 
His  environment  means  nothing  to  him.  At  best  he  regards  it  as  a 
means  to  an  end— to  make  a  living.  All  this  must  surely  be  of  great 
consequence  for  the  rise  of  a  mental  outlook  that  cares  only  for  gain; 
and  who  will  deny  that  colonial  activity  generates  it  ? 

Nor  has  the  immigrant  or  colonial  settler  a  sense  of  the  present 
or  the  past.  He  has  only  a  future.  Before  long  the  possession  of 
money  becomes  his  one  aim  and  ambition,  for  it  is  clear  to  him  that 
by  its  means  alone  will  he  be  able  to  shape  that  future.  But  how  can 
he  amass  money  ?  Surely  by  enterprise.  A  characteristic  of  the  new- 
comer everywhere  is  that  there  are  no  bounds  to  his  enterprise.  He 
is  not  held  in  check  by  personal  considerations;  in  all  his  dealings  he 
comes  into  contact  only  with  strangers  like  himself.  Nor  is  the 
stranger  held  in  check  by  considerations  other  than  personal  ones. 
He  has  no  traditions  to  respect;  he  is  not  bound  by  the  policy  of  an 
old  business.  He  begins  with  a  clean  slate;  he  has  no  local  connec- 
tions that  bind  him  to  any  one  spot.  Is  not  every  locality  in  a  new 
country  as  good  as  every  other  ? 

One  characteristic  of  the  stranger's  activity,  be  he  a  settler  in  a 
new  or  an  old  land,  follows  of  necessity.  I  refer  to  the  determination 
to  apply  the  utmost  rational  effort  in  the  field  of  economic  and  tech- 
nical activity.  The  stranger  must  carry  through  plans  with  success 
because  of  necessity,  or  because  he  cannot  withstand  the  desire  to 
secure  his  future.  On  the  other  hand,  he  is  able  to  do  it  more  easily 
than  other  folk  because  he  is  not  hampered  by  tradition.  This  explains 
clearly  enough  why  alien  immigrants,  as  we  have  seen,  furthered  com- 
mercial and  industrial  progress  wherever  they  came.  Similarly  we 
may  thus  account  for  the  well-known  fact  that  nowhere  are  technical 
inventions  so  plentiful  as  in  America,  that  railway  construction  and 
the  making  of  machinery  proceed  much  more  rapidly  there  than  any- 
where else  in  the  world.     It  all  comes  from  the  peculiar  conditions  of 


808  INDUSTRIAL  SOCIETY 

the  problem,  conditions  that  have  been  termed  colonial — great  dis- 
tances, dear  labour,  and  the  will  to  progress.  The  state  of  mind  that 
will  have,  nay  must  have,  progress  is  that  of  the  stranger,  untram- 
melled by  the  past  and  gazing  toward  the  future. 

316.    IMPERSONAL  LAWS  OF  MANAGEMENT1 

In  its  original  conception  the  Taylor  system  of  scientific  manage- 
ment seems  to  have  been  literally  a  system  of  shop  management 
concerned  primarily  with  the  problem  of  efficient  manufacture  or  pro- 
ductive efficiency  in  the  shop.  As  time  passed,  however,  the  charac- 
ter, scope,  and  significance  of  scientific  management  seem  to  have 
steadily  enlarged  in  the  minds  of  Mr.  Taylor,  his  immediate  followers, 
and  his  imitators,  so  that  when  the  term  "scientific  management" 
was  definitely  adopted  by  adherents  of  Mr.  Taylor  as  descriptive  of 
his  system,  the  intent,  apparently,  was  to  emphasize  claims  for  it 
much  broader  and  more  fundamental  than  those  originally  made — 
claims  which  seem  to  warrant  the  following  summarization: 

1.  Efficiency,  not  only  in  the  mechanical  aspects  and  as  it  depends 
on  organic  arrangements  and  human  effort  in  the  shop,  but  with 
respect  to  the  functions  of  a  going  industrial  establishment,  is  gov- 
erned by  fundamental  natural  laws,  not  made  by  man,  and  unalter- 
able by  man. 

2.  Scientific  management  has  discovered  the  means  by  which  the 
facts  underlying  these  natural  laws,  which  govern  production  in  the 
larger  sense — productive  welfare  and  distribution — can  be  determined 
and  established  as  objective,  matter-of-fact  data,  quite  apart  and 
divorced  from  human  judgment,  opinion,  or  will;  i.e.,  the  means  by 
which  all  productive  arrangements  and  processes  and  all  the  relations 
between  managers  or  employers  and  workmen  can  be  reduced  to  an 
exact  scientific  basis  of  objective  fact  and  law. 

"Scientific  management,"  declared  Mr.  Taylor,  "attempts  to  sub- 
stitute in  the  relations  between  employers  and  workers  the  govern- 
ment of  fact  and  law  for  the  rule  of  force  and  opinion.  It  substitutes 
exact  knowledge  for  guesswork  and  seeks  to  establish  a  code  of  natural 
law  equally  binding  upon  employers  and  workmen."  In  time  and 
motion  study  it  has  discovered  and  developed  an  "accurate  scientific 
method  by  which  the  great  mass  of  laws  governing  the  easiest  and 
most  productive  movements  of  men  are  investigated.  These  laws 
constitute  a  great  code  which,  for  the  first  time  in  industry,  com- 

1  Adapted  from  R.  F.  Hoxie,  "Scientific  Management  and  Labor  Welfare," 
Journal  of  Political  Economy,  XXIV  (1916),  833-44. 


IMPERSONAL  RELATIONS  809 

pletely  controls  the  acts  of  the  management  as  well  as  those  of  the 
workmen." 

There  seem  to  be  at  least  two  very  diverse  conceptions  of  time 
and  motion  study.  In  its  narrower  conception  and  as  understood  by 
labor  generally,  time  and  motion  study  is  looked  upon  simply  and 
solely  as  an  instrument  for  task-setting  and  efficiency-rating,  used  thus, 
in  the  main,  to  determine  how  much  can  be  done  by  a  workman 
engaged  in  a  given  operation  within  a  given  time,  and,  therefore,  to 
set  the  maximum  task  accomplishable  by  him  and  the  group  of 
laborers  to  which  he  belongs. 

This  view  of  time  and  motion  study,  however,  accords  ill  with  the 
later  and  enlarged  conception  held,  apparently,  by  Mr.  Taylor  and 
by  many,  if  not  all,  of  the  present  members  of  the  scientific  manage- 
ment group.  Judged  by  this  standard,  it  is  erroneous  in  two  very 
essential  respects. 

In  the  first  place,  time  and  motion  study,  according  to  this  later 
conception,  when  used  for  task-setting  purposes,  is  not  designed  to 
discover  and  set  the  minimum  time  or  the  maximum  task,  but  the 
scientific  time  or  task,  i.e.,  the  reasonable  or  just  task,  considering 
the  technical  conditions,  the  character  and  training  of  the  workmen, 
the  element  of  fatigue,  etc. 

In  the  second  place,  time  and  motion  study,  in  its  larger  concep- 
tion, is  not  merely  or  perhaps  mainly  a  method  used  for  task-setting 
and  efficiency-rating.  On  the  contrary,  in  the  light  of  the  recent 
claims  based  upon  its  use,  made  by  Mr.  Taylor,  and  of  the  problems 
to  the  solution  of  which  it  is  apparently  being  applied  by  progressive 
scientific  managers,  time  and  motion  must  be  conceived  as  little  less  than 
a  universal  method  of  attempted  accurate  industrial  analysis,  usable,  with 
or  without  the  stop  watch,  to  discover,  at  almost  every  step  of  the 
productive  and  distributive  process,  not  only  the  most  effective 
material,  organic,  and  human  arrangements,  adaptations,  and  com- 
binations, but  the  reasonable  demands  which  can  be  made  upon  the 
intelligence  and  energy  of  the  management  as  well  as  the  men,  and 
the  just  apportionment  of  the  product  to  all  the  factors  and  individuals 
concerned. 

According  to  statements  made  by  scientific  managers,  this  process 
of  analysis  or  time  and  motion  study,  in  the  larger  sense,  should,  where 
possible,  begin  with  the  determination  of  a  site  for  manufacture.  The 
really  scientific  manager,  starting  out  de  novo,  will  consider  all  avail- 
able sites  with  reference  to  the  time  and  motion  expenditure,  deter- 
mined by  actual  experiment,  necessary  in  securing  an  adequate  supply 


810  INDUSTRIAL  SOCIETY 

of  proper  materials,  in  the  going  to  and  from  the  shop  of  the  numbers 
of  the  different  classes  of  workmen  needed  or  likely  to  be  needed,  in 
the  shipment  and  marketing  of  the  product,  etc.  Having  in  mind  the 
character  of  the  productive  process  and  the  most  efficient  productive 
arrangements  possible,  he  will  then,  with  regard  to  the  greatest  possible 
saving  of  waste  time  and  motion,  work  out,  with  the  utmost  care,  and 
with  reference  to  future  expansion,  the  plans  for  the  construction  of 
his  plant.  This  will  involve  a  most  careful  study  of  all  the  general 
internal  arrangements  and  processes,  the  most  efficient  methods  of 
planning  the  work  to  be  done  and  of  routing  it  through  the  shop  so 
that  there  may  be  no  delay  in  transmitting  orders,  no  waste  carriage 
of  materials  and  partly  finished  products,  no  lost  time  in  the  assembly 
room  waiting  for  delayed  parts.  With  the  same  ends  in  view,  and 
in  the  same  manner,  he  will  also  determine  the  most  effective  place- 
ment of  machinery,  the  storage  of  tools  and  materials,  and  the  loca- 
tion of  the  various  elements  of  the  office  force. 

The  shop  constructed  and  the  machinery  installed,  he  will  apply 
time  and  motion  study  in  an  endless  series  of  experimental  tests  to 
determine  what  possible  improvements  can  be  made  in  machinery  and 
its  operation,  and  in  the  tools,  fixtures,  materials,  and  specific  pro- 
cesses of  work.  The  best  feed  and  speed  for  each  machine,  with 
reference  to  the  different  grades  of  materials,  will  then  be  established. 
The  different  jobs  or  processes  will  be  analyzed  and  re-analyzed,  and 
their  elements  experimentally  combined  and  recombined,  the  tools 
and  fixtures  changed  and  rearranged,  and  all  these  variations  timed 
and  retimed  in  an  effort  to  discover  the  most  efficient  productive  com- 
binations and  methods. 

This  time  and  motion  study  analysis  will  extend,  it  is  thus  claimed, 
to  every  feature  and  all  organic  relationships  of  the  mechanical  process 
of  production.  But  it  will  not  stop  there.  It  will  be  extended  to 
cover  the  managerial  functions  and  the  office  work.  The  duties  of 
the  managers,  superintendents,  and  especially  of  the  shop  foremen,  will 
be  analytically  studied  and  reorganized.  As  a  result,  the  work  of  the 
old  managerial  functionaries  will  be  split  up,  and  new  departments 
with  new  department  heads  established.  In  place  of  the  single  old- 
line  foreman,  for  example,  charged  with  hiring,  discipline,  discharge, 
apportionment  of  work,  the  setting-up  of  jobs,  the  determination  of 
speed  and  feed  of  machinery,  repair  of  machinery  and  belting,  inspec- 
tion of  the  product,  etc.,  there  will  be  a  separate  head  charged  with 
the  selection,  hiring,  adaptation,  and  discharge  of  workmen,  and  a 


IMPERSONAL  RELATIONS  8  r  T 


series  of  functional  foremen,  each  responsible  for  a  particular  duty, 
e.g.,  a  gang  boss,  a  speed  boss,  a  repair  boss,  an  inspector  of  work' 
an  instructor,  a  route  clerk,  a  time  and  cost  clerk,  a  disciplinarian! 
The  methods  of  storage  and  delivery  of  tools  and  materials,  the  dis- 
patching of  orders  from  the  office  to  the  shop,  the  purchasing  of 
materials,  the  marketing  of  products,,  and  all  the  methods  of  account- 
ing will  likewise  be  subjected  to  time  and  motion  study  in  this  larger 
sense,  with  a  view  to  discovering  the  most  efficient  means  and 
methods.  All  this  and  much  more  is  time  and  motion  study  in  the 
larger  conception  of  the  term,  which  seems  to  be  sanctioned  by  pro- 
gressive scientific  managers.  And  not  until,  through  this  broader 
time  and  motion  study,  a  larger  degree  of  improvement  and  stand- 
ardization of  the  general  productive  process  has  been  well  advanced 
should  the  scientific  manager,  according  to  these  experts,  enter  upon 
time  and  motion  study  in  the  narrower  sense,  i.e.,  putting  the  time- 
study  men,  with  stop  watches,  over  the  workmen  engaged  in  a  par- 
ticular job  for  the  express  purpose  of  setting  tasks  and  rates  of  wage 
payment. 

Nor,  under  the  direction  of  this  really  scientific  manager,  we  are 
told,  will  this  part  of  the  time  and  motion  study  correspond  to  the  con- 
ception of  it  held  by  labor.  On  the  contrary,  it  will  be  done  in  the 
same  spirit  and  with  the  same  care  that  we  have  noted  above.  It 
will  endeavor  to  discover  by  repeated  analysis  and  experimental  tim- 
ing the  best  character,  combination,  and  arrangement  of  tools, 
materials,  machinery,  and  workmen,  the  most  efficient  and  conven- 
ient lighting,  heating,  and  seating  arrangements  for  the  workmen, 
the  proper  period  for  continuous  operation  by  them,  considering  the 
element  of  fatigue,  the  rest  periods  needed,  their  most  efficient  char- 
acter, combination,  and  sequence  of  motions,  etc.  Moreover,  these 
particular  job  experiments  will  not  be  confined  to  one  man,  or  to  a 
few  of  those  who  are  to  accomplish  the  task.  Many  men  will  be 
timed  with  the  idea  of  discovering,  not  the  fastest  speed  of  the  fastest 
man,  but  the  normal  speed  which  the  group  can  continuously  maintain. 
If  necessary,  hundreds  and  perhaps  thousands  of  time  and  motion 
studies  will  be  made  to  determine  this,  before  the  task  is  set  and  the 
rate  established.  And  whenever  a  new  or  better  method  or  combina- 
tion has  been  discovered  by  the  time  and  motion  analysis,  which  is  sup- 
posed to  continue  even  after  the  task  is  set,  the  whole  process  of  careful 
and  extended  timing  for  task-setting  will  be  repeated,  and  new  tasks 
and  rates  established  reasonably  conformable  to  the  new  condition. 


812  INDUSTRIAL  SOCIETY 

Finally,  as  an  integral  part  of  this  broader  time  and  motion  study, 
all  the  results  secured  by  it  will  be  continuously  and  systematically 
filed  as  permanent  assets  and  guides  to  future  action. 

Thus  conceived,  time  and  motion  study  appears  to  be  considered 
a  method  of  analysis  applicable  to  practically  every  feature  of  the 
productive  and  distributive  process,  considered  apart  from  its  purely 
financial  aspects,  a  process  of  analysis  applied  continuously  through- 
out the  life  of  the  establishment.  And  the  scientific  management 
based  upon  it  is  conceived  to  be  a  perpetual  attempt  to  discover  and 
put  into  operation  the  new  and  continuously  developing  technical, 
organic,  and  human  arrangements,  methods,  and  relationships  con- 
stantly revealed  by  it  to  be  more  efficient  and  more  equitable. 

In  considering  this  question  of  time  and  motion  study  we  must 
carefully  distinguish  between  two  factors  or  elements  which  enter  into 
the  industrial  process,  the  mechanical  or  material,  and  the  human. 

With  respect  to  the  first  of  these  elements,  the  claim  of  scientific 
management  seems  to  be  fairly  justified.  Through  time  and  motion 
study  in  its  broader  conception,  it  appears  to  be  possible  to  discover 
and  to  establish  in  practice  the  objective  facts  and  laws  which  underlie 
the  most  efficient  mechanical  arrangements,  processes,  and  methods 
of  production  in  the  shop. 

The  moment,  however,  that  the  conception  is  broadened  and  the 
human  factor  enters  into  the  situation,  and  the  problem  becomes  one 
of  setting  each  man  to  the  work  for  which  he  is  best  fitted,  determin- 
ing how  much  work  any  man  ought  to  do,  the  claims  of  scientific 
management  with  respect  to  time  and  motion  study,  and,  therefore, 
with  respect  to  the  character  and  effects  of  scientific  management, 
do  not  seem  capable  of  practical  realization. 


See  also   66.  Calculation  and  Capitalism. 

328.  Is  the  Entrepreneur  Active  or  Passive? 
332_35  on  Science  in  Management. 

317.    IMPERSONALITY,  BUSINESS  PRINCIPLES,  AND 
MIDDLE-CLASS  VIRTUES1 

Business  principles  likewise  have  undergone  a  change.  That  was 
only  to  be  expected  when  the  goal  of  enterprise  has  become  different. 
Today,  it  may  be  said,  five  main  rules  regulate  economic  activities. 

1  Adapted  by  permission  from  Werner  Sombart,  The  Quintessence  of  Capitalism, 
pp.  182-89.     (E.  P.  Dutton  &  Co.,  1915.) 


IMPERSONAL  RELATIONS  813 

a)  Absolute  rationalism  is  the  first.     Economic  activities  are  ruled 
>y  cold  reason,  by  thought.     That  has  always  been  the  case;  it  shows 

itself  in  the  making  of  plans,  in  considering  whether  any  policy  was 
likely  to  be  successful  or  no,  and  in  calculation  generally.  The  last 
trace  of  traditionalism  has  vanished.  The  man  of  today  (and  the 
American  undertaker  may  stand  as  the  most  perfect  type)  is  filled 
with  the  will  to  apply  cold  reason  to  economic  activities;  moreover, 
he  possesses  the  determination  to  make  the  will  effective.  Accord- 
ingly, he  is  ever  ready  to  adopt  a  newer  method  if  it  is  more  rational, 
whether  in  the  sphere  of  organization,  of  production,  or  of  calculation. 

b)  Production  for  exchange  (as  opposed  to  production  for  use)  is 
the  motto  of  economic  activities.    As  much  profit  as  possible  is  their 

^ ideal;  consequently  what  matters  is  not  the  goodness  or  the  kind  of 
ommodities  produced,  but  their  salability^  How  they  are  sold  is 
econdary,  so  long  as  they  are  sold.  Consequently  the  undertaker 
is  wholly  indifferent  to  the  quality  of  his  wares;  he  will  make  shoddy 
goods  or  cheap  substitutes,  if  only  it  pays.  If  cheap  and  nasty  boots 
yield  more  profit  than  good  ones,  it  would  be  a  deadly  sin  against  the 
holy  spirit  of  capitalism  to  manufacture  good  ones.  It  is  no  argument 
against  the  truth  of  this  to  point  to  a  movement  in  certain  industries 
(the  chemical  industry  is  one),  the  object  of  which  is  to  improve 
quality.  They  are  cases  where  there  is  more  profit  from  high-class 
goods  than  from  inferior  articles. 

What  follows  from  this  is  plain.  Since  it  is  inherent  in  acquisi- 
tiveness to  enlarge  incomings  to  the  uttermost;  and  since,  again,  the 
greater  the  sale  the  larger  the  profits,  it  is  only  to  be  expected  that 
the  undertaker  will  try  all  he  can  to  increase  his  sales.  Apart  from 
the  greater  gain,  more  extended  sales  will  give  him  certain  advantages 
over  competitors.  Hence  it  is  by  no  means  remarkable  that  the 
desire  for  greater  sales,  for  new  markets,  for  more  customers,  is  one 
of  the  mightiest  motive  powers  in  modern  capitalism.  It  is  directly 
responsible  for  a  number  of  business  principles,  all  of  which  have  one 
end  in  view — to  make  the  public  buy.  The  more  important  of  these 
principles  deserve  to  be  mentioned. 

c)  The  first  (and  the  third  in  the  general  scheme)  may  be  enun- 
ciated as  follows :  Search  out  the  customer  and  attack  him.  That  is 
today  as  self-evident  a  maxim  in  all  branches  of  business  as  it  was 
strange  and  wrong  in  the  age  of  early  capitalism.  In  practice  it 
means  that  you  set  out  to  attract  the  customer's  attention  and  to 

tir  up  within  him  the  desire  to  purchase. 


814  INDUSTRIAL  SOCIETY 

d)  Secondly,  sell  as  cheaply  as  you  can;  reduce  price  to  the  lowest 
possible  figure  so  as  to  attract  the  public. 

e)  Elbow  room  is  demanded  in  order  to  arrive  at  the  wished-for 
goal.  Which  means  that  you  require  freedom  of  action,  liberty  to 
enter  upon  or  to  abstain  from  any  course,  as  seems  best  to  you.  It 
means  emancipation  from  the  trammels  of  law  or  morality;  it  means 
that  you  should  be  allowed  to  poach  on  your  neighbour's  preserves 
just  as  he  may  be  allowed  to  poach  on  yours;  it  means  that  you  should 
be  allowed  to  oust  him  if  you  can;  it  means  that  you  object  to  inter- 
ference either  from  the  state  or  from  workingmen's  organizations  in 
making  your  contracts.  You  want  none  of  the  restraints  of  an  earlier 
age.  The  free  exercise  of  your  powers  shall  alone  determine  economic 
success  or  failure. 

The  middle-class  virtues — industry,  frugality,  and  honesty — are 
they  of  any  consequence  for  the  modern  capitalist  undertaker  ?  It  is 
as  difficult  to  reply  to  the  question  in  the  affirmative  as  in  the  negative. 
The  place  of  these  virtues  in  modern  economic  life  is  so  very  different 
from  what  they  occupied  in  the  early  capitalist  system.  As  a  matter 
of  fact,  they  have  ceased  to  be  necessary  to  the  undertaker.  Never- 
theless, they  still  play  their  part  in  undertaking.  Before,  these  virtues 
were  still  in  the  sphere  wherein  personal  will-power  was  exercised; 
now  they  have  become  part  of  the  mechanism  of  business.  Before, 
they  were  characteristic  of  living  beings;  now  they  have  turned  into 
objective  principles  of  business  methods. 

In  the  olden  days  when  industry  was  preached  as  a  prime  virtue 
in  the  tradesman  it  was  necessary  to  implant  a  solid  foundation  of 
duties  in  the  inner  consciousness  of  men.  Everybody  had  to  be  urged 
to  exercise  his  will-power  in  a  certain  direction,  and  when  the  habit 
was  once  formed  the  industrious  tradesman  went  through  his  day's 
work  in  conscious  self-mastery.  Today  all  this  is  changed.  The 
business  man  works  at  high  pressure  because  the  stress  of  economic 
activities  carries  him  along  in  spite  of  himself.  He  is  no  longer  exer- 
cising a  virtue;  necessity  drives  him  to  this  particular  course.  The 
general  business  pace  determines  what  his  own  business  pace  shall  be. 
He  can  no  more  be  idle  than  a  man  at  a  machine;  whereas  a  crafts- 
man with  his  tools  can  be  idle  or  industrious  as  he  chooses. 

The  objectiveness  of  frugality  is  even  more  marked,  for  the  private 
and  the  business  "housekeeping"  of  the  undertaker  are  now  separate. 
In  the  latter  frugality  is  needful  more  than  ever.  "There  are  great 
undertakings  whose  existence  depends  on  whether  all  the  sand  is 


IMPERSONAL  RELATIONS 


8i5 


removed  from  the  carts  or  whether  one  shovelful  is  left  behind." 
Recall  the  careful,  almost  miserly,  economy  of  Rockefeller  in  his 
management  of  the  Standard  Oil  Company;  recall  how  not  a  drop 
of  oil  was  wasted;  the  wooden  boxes  in  which  tin  was  brought  from 
Europe  were  sold  to  florists  or  were  used  as  firewood.  But  in  the 
private  housekeeping  of  the  undertaker  you  will  find  none  of  this 
fanatical  thrift.  Neither  Rathenau's  nor  Rockefeller's  castle  is  a 
centre  of  that  frugality  so  much  beloved  of  Benjamin  Franklin;  and 
the  festive  boards  of  our  rich  undertakers  know  nothing  of  sufficiency 
and  moderation.  And  if  the  head  of  the  family  is  content  to  go  on 
in  the  old-fashioned  bourgeois  style  of  his  youth,  his  wife,  his  sons, 
and  his  daughters  will  all  see  to  it  that  luxury  and  superfluity  and 
pomp  become  part  and  parcel  of  the  new  bourgeois  spirit. 

Commercial  honesty  comes  last.  Can  anyone  doubt  that  honesty 
is  today— today  perhaps  more  than  ever— a  factor  in  business  life  ? 
In  business  life  only,  however.  .  For  the  conduct  of  the  undertaker 
as  a  man  may  differ  widely  from  his  conduct  as  a  tradesman.  Com- 
mercial honesty  is  a  complexity  of  principles  that  are  intended  to 
apply  to  business  but  not  to  the  personal  conduct  of  the  business 
subject.  An  honest  tradesman  today  may  certainly  be  unmoral  in 
his  private  life.  When  you  say  he  is  "good,"  you  mean  that  he  is 
reliable  in  his  business;  that  he  will  pay;  that  his  firm  has  a  good 
name.  You  pass  no  judgment  on  his  personal  conduct,  which  is 
governed  by  other  principles.  Indeed,  the  firm  may  not  have  an 
individual  head  at  all.  It  may  be  an  impersonal  limited  company, 
the  directors  of  which  change  from  time  to  time.  Their  personal 
morality  stands  in  no  relationship  to  the  business.  The  "name"  of 
the  business  is  all  that  matters.  Thus  here,  too,  what  before  was  a 
personal  quality  has  now  become  a  matter  of  business  routine.  You 
can  see  it  best  by  considering  modern  credit.  A  bank  in  olden  days 
was  relied  upon  because  it  could  point  to  an  ancient  and  honored 
name;  it  was  "good"  for  personal  reasons.  Today  a  bank  inspires 
confidence  by  the  size  of  its  invested  capital  and  its  reserves.  Today 
you  assume  that  business  is  carried  on  honestly — anyhow  until  some 
swindle  comes  to  light  to  prove  the  contrary.  In  this  virtue  then,  as 
in  the  others,  what  before  was  organic  has  now  become  mechanical. 

All  this  applies  to  the  large  undertakings.  In  the  small  and 
middle-sized  enterprises,  however,  you  may  still  find  the  principles 
prevalent  in  the  early  days  of  capitalism.  The  middle-class  virtues 
are  still  cultivated,  and  the  undertaker's  personal  characteristics 


816  INDUSTRIAL  SOCIETY 

determine  his  economic  progress.  It  is  in  the  large  undertakings  and 
their  directors  and  managers  that  we  find  the  spirit  of  capitalism  fully 
developed  in  all  its  shining  purity. 


See  also  170.  Technical  Inventions  and  the  Capitalistic  Spirit. 

318.    NEW  VARIETIES  OF  SIN1 

Modern  sin  takes  its  character  from  the  mutualism  of  our  time. 
Under  our  present  manner  of  living  how  many  of  my  vital  interests 
I  must  intrust  to  others !  Nowadays  the  water  main  is  my  well,  the 
trolley  car  my  carriage,  the  banker's  safe  my  old  stocking,  the  police- 
man's billy  my  fist.  My  own  eyes  and  nose  and  judgment  defer  to 
the  inspector  of  food,  or  drugs,  or  gas,  or  factories,  or  tenements,  or 
insurance  companies.  I  rely  upon  others  to  look  after  my  drains, 
invest  my  savings,  nurse  my  sick,  and  teach  my  children.  I  let  the 
meat  trust  butcher  my  pig,  the  oil  trust  mould  my  candles,  the  sugar 
trust  boil  my  sorghum,  the  coal  trust  chop  my  wood,  the  barb-wire 
company  split  my  rails. 

But  this  spread-out  manner  of  life  lays  snares  for  the  weak  and 
opens  doors  for  the  wicked.  Interdependence  puts  us,  as  it  were,  at 
one  another's  mercy,  and  so  ushers  in  a  multitude  of  new  forms  of 
wrongdoing. 

The  sinister  opportunities  presented  in  this  webbed  social  life 
have  been  seized  unhesitatingly,  because  such  treasons  have  not  yet 
become  infamous.  The  man  who  picks  pockets  with  a  railway 
rebate,  murders  with  an  adulterant  instead  of  a  bludgeon,  burglarizes 
with  a  "  rake-off  "instead  of  a  jimmy,  cheats  with  a  company  pros- 
pectus instead  of  a  deck  of  cards,  or  scuttles  his  town  instead  of  his 
ship,  does  not  feel  on  his  brow  the  brand  of  a  malefactor.  The  shedder 
of  blood,  the  oppressor  of  the  widow  and  the  fatherless,  long  ago 
became  odious,  but  latter-day  treacheries  fly  no  skull-and-crossbones 
flag  at  the  masthead.  The  qualities  which  differentiate  them  from 
primitive  sin  and  procure  them  such  indulgence  may  be  clearly 
defined. 

1.  Modern  sin  is  not  superficially  repulsive.  Today  the  sacrifice 
of  life  incidental  to  quick  success  rarely  calls  for  the  actual  spilling  of 
blood.  How  decent  are  the  pale  slayings  of  the  quack,  the  adulterator, 
and  the  purveyor  of  polluted  water  compared  with  the  red  slayings 

1  Adapted  by  permission  from  E.  A.  Ross,  Sin  and  Society,  pp.  3-30.  (Hough- 
ton Mifflin  Co.,  1907.)  , 


IMPERSONAL  RELATIONS 


817 


>f  the  vulgar  bandit  or  assassin!  Even  if  there  is  blood-letting 
the  long-range  tentacular  nature  of  modern  homicide  eliminates 
ill  personal  collision.  What  an  abyss  between  the  knife-play  of 
)rawlers  and  the  law-defying  neglect  to  fence  dangerous  machinery  in 

mill  or  to  furnish  cars  with  safety  couplers!    The  providing  of 

isuspecting  passengers  with  "cork"  life-preservers  secretly  loaded 

dth  bars  of  iron  to  make  up  for  their  deficiency  in  weight  of  cork  is 
spiritually  akin  to  the  treachery  of  Joab,  who,  taking  Amasa  by  the 
beard  "to  kiss  him,"  smote  Amasa  "in  the  fifth  rib";  but  it  wears  a 
rery  different  aspect.    The  current  methods  of  annexing  the  property 
)f  others  are  characterized  by  a  pleasing  indirectness  and  refinement, 
'he  furtive,  apprehensive  manner  of  the  till-tapper  or  the  porch- 
:limber  would  jar  disagreeably  upon  the  tax-dodger  "swearing  off" 
lis  property  or  the  city  official  concealing  a  "rake-off"  in  his  specifica- 
tions for  a  public  building.    The  work  of  the  card-sharp  and  the 
"limblerigger  shocks  a  type  of  man  that  will  not  stick  at  the  massive 
"artistic  swindling"  of  the  contemporary  promoter.    A  taint  of 
mworthiness,  indeed,  always  attaches   to  transactions  that  force  the 
>erson  into  humiliating  postures.    Your  petty  parasite  or  your  minor 
delinquent  inspires  the  contempt  that  used  to  be  felt  for  the  retailer. 
The  confidence  man  is  to  the  promoter  what  the  small  shopkeeper 

is  to  the  merchant  prince. 

2.  Modern  sin  lacks  the  familiar  tokens  of  guilt.    The  stealings 

ind  slayings  that  lurk  in  the  complexities  of  our  social  relations  are 

tot  deeds  of  the  dive,  the  dark  alley,  the  lonely  road,  and  the  mid- 

light  hour.    They  require  no  nocturnal  prowling  with  muffled  step 

id  bated  breath,  no  weapon  or  offer  of  violence.  Unlike  the  old-time 
illain,  the  latter-day  malefactor  does  not  wear  a  slouch  hat  and  a 
comforter,  breathe  forth  curses  and  an  odor  of  gin,  go  about  his 
lefarious  work  with  clenched  teeth  and  an  evil  scowl.  In  the  supreme 
loment  his  lineaments  are  not  distorted  with  rage,  or  lust,  or  malevo- 
;nce.  One  misses  the  dramatic  setting,  the  time-honored  insignia 
)f  turpitude.  Fagin  and  Bill  Sykes  and  Simon  Legree  are  vanishing 
is.  Gamester,  murderer,  body-snatcher,  and  kidnapper  may 
ippeal  to  a  Hogarth,  but  what  challenge  finds  his  pencil  in  the  counte- 

ince  of  the  boodler,  the  savings-bank  wrecker,  or  the  ballot-box 

stuff er?    Among  our  criminals  of  greed  one   begins   to  meet  the 

"grand  style"  of  the  great  criminals  of  ambition,  Macbeth  or  Richard 

The  modern  high-power  dealer  of  woe  wears  immaculate  linen, 

irries  a  silk  hat  and  a  lighted  cigar,  sins  with  a  calm  countenance  and 

serene  soul  leagues  or  months  from  the  evil  he  causes.    Upon  his 


818  INDUSTRIAL  SOCIETY 

gentlemanly  presence  the  eventual  blood  and  tears  do  not  obtrude 
themselves. 

3.  Modern  sins  are  impersonal.  The  covenant  breaker,  the  sub- 
orned witness,  the  corrupt  judge,  the  oppressor  of  the  fatherless — 
the  old-fashioned  sinner,  in  short — knows  his  victim,  must  hearken, 
perhaps,  to  bitter  upbraidings.  But  the  tropical  belt  of  sin  we  are 
sweeping  into  is  largely  impersonal.  Our  iniquity  is  wireless,  and  we 
know  not  whose  withers  are  wrung  by  it.  The  hurt  passes  into  that 
vague  mass,  the  "public,"  and  is  there  lost  to  view.  Hence  it  does 
not  take  a  Borgia  to  knead  "chalk  and  alum  and  plaster"  into  the 
loaf,  seeing  one  cannot  know  just  who  will  eat  that  loaf  or  what 
gripe  it  will  give  him.  The  purveyor  of  spurious  life-preservers  need 
not  be  a  Cain.  The  owner  of  a  rotten  tenement  house,  whose  "pull" 
enables  him  to  ignore  the  orders  of  the  health  department,  foredooms 
babies,  it  is  true,  but  for  all  that  he  is  no  Herod. 

Often  there  are  no  victims.  If  the  crazy  hulk  sent  out  for  "just 
one  more  trip"  meets  with  fair  weather,  all  is  well.  If  no  fire  breaks 
out  in  the  theater,  the  sham  "emergency  exits"  are  blameless.  The 
corrupt  inspector  who  O.K's  low-grade  kerosene  is  chancing  it,  that 
is  all.  Many  sins,  in  fact,  simply  augment  risk.  Evil  does  not  dog 
their  footsteps  with  relentless  and  heart-shaking  certainty.  When  the 
catastrophe  does  come,  the  sinner  salves  his  conscience  by  blas- 
phemously calling  it  an  "accident"  or  an  "act  of  God." 

Still  more  impersonal  is  sin  when  the  immediate  harm  touches 
beneficent  institutions  rather  than  individuals,  when,  following  his 
vein  of  private  profit,  the  sinner  drives  a  gallery  under  some  pillar 
upholding  our  civilization.  The  blackguarding  editor  is  really  under- 
mining the  freedom  of  the  press.  The  policy  kings  and  saloon  keepers 
who  get  out  to  the  polls  the  last  vote  of  the  vicious  and  criminal  classes 
are  sapping  manhood  suffrage.  Striking  engineers  who  spitefully 
desert  passenger  trains  in  mid-career  are  jeopardizing  the  right  of  a 
man  to  work  only  when  he  pleases.  The  real  victim  of  a  lynching  mob 
is  not  the  malefactor,  but  the  law-abiding  spirit.  School-board  grafters 
who  blackmail  applicants  for  a  teacher's  position  are  stabbing  the  free 
public  school.  The  corrupt  bosses  and  "combines"  are  murdering 
representative  government.  The  perpetrators  of  election  frauds 
unwittingly  assail  the  institution  of  the  ballot.  Rarely,  however,  are 
such  transgressions  abominated  as  are  offenses  against  persons. 

The  grading  of  sinners  according  to  badness  of  character  goes  on 
the  assumption  that  the  wickedest  man  is  the  most  dangerous.  This 
would  be  true  if  men  were  abreast  in  their  opportunities  to  do  harm. 


IMPERSONAL  RELATIONS  819 

that  case  the  blackest  villain  would  be  the  worst  scourge  of  society. 
Jut  the  fact  is  that  the  patent  ruffian  is  confined  to  the  social  base- 
lent,  and  enjoys  few  opportunities.  He  can  assault  or  molest,  to  be 
ire;  but  he  cannot  betray.  Nobody  depends  on  him,  so  he  cannot 
>mmit  breach  of  trust— that  arch  sin  of  our  time.  He  does  not  hold 
l  his  hand  the  safety  or  welfare  or  money  of  the  public.  He  is  the 
linker,  not  the  live  coal;  vermin,  not  beast  of  prey.  Today  the 
illain  most  in  need  of  curbing  is  the  respectable,  exemplary,  trusted 
personage  who,  strategically  placed  at  the  focus  of  a  spider-web  of 
iduciary  relations,  is  able  from  his  office-chair  to  pick  a  thousand 
sockets,  poison  a  thousand  sick,  pollute  a  thousand  minds,  or  imperil 
thousand  lives.  It  is  the  great-scale,  high-voltage  sinner  that  needs 
ie  shackle.  To  strike  harder  at  the  petty  pickpocket  than  at  the 
rominent  and  unabashed  person  who  in  a  large,  impressive  way  sells 
)ut  his  constituents,  his  followers,  his  depositors,  his  stockholders,  his 
Dlicy-holders,  his  subscribers,  or  his  customers,  is  to  "strain  at  a 
iat  and  swallow  a  camel." 
No  paradox  is  it,  but  demonstrable  fact,  that  in  a  highly  articulate 
society  the  gravest  harms  are  inflicted,  not  by  the  worst  men,  but  by 
those  with  virtues  enough  to  boost  them  into  some  coign  of  vantage. 
The  boss  who  sells  out  the  town  and  delivers  the  poor  over  to  filth, 
disease,  and  the  powers  that  prey  owes  his  chance  to  his  engaging 
good-fellowship  and  big-hear tedness.  Some  of  the  most  dazzling 
careers  of  fraud  have  behind  them  long  and  reassuring  records  of 
probity,  which  have  served  to  bait  the  trap  of  villainy. 

319.    PERSONAL  AND  SOCIAL  RESPONSIBILITY 
A1 

The  morality  which  appeals  to  men  with  the  sanction  of  the  ages 
is  chiefly  concerned  with  the  relations  of  persons  who  know  one 
another  as  individuals  or  who  recognize  at  least  the  claim  of  some 
mutual  bond,  whether  of  kindred  or  of  mere  propinquity.  Thus  the 
swimmer  who  refuses  to  spring  into  the  water  to  the  rescue  of  a  drown- 
ing child  earns  the  contempt  of  his  fellows,  and  on  reflection  probably 
concurs  in  the  condemnation  of  his  cowardice.  But  the  most  numer- 
ous and  important  relations  in  modern  industrial  society  are  not 
between  persons  who  can  in  the  most  shadowy  sense  be  said  to  know 
one  another.  Even  when  it  is  possible  to  discern  any  personal  issue 
at  all,  the  parties  to  the  bargain  are  absolute  strangers. 

1  Taken  by  permission  from  B.  K.  Gray,  "The  Ethical  Problem  in  an  Industrial 
Community,"  International  Journal  of  Ethics,  XVII,  218-19. 


82o  INDUSTRIAL  SOCIETY 

Let  a  vote  of  money  be  proposed  for  surveying  and  charting  the 
shore  and  ocean,  or  for  erecting  lighthouses,  buoying  channels,  and 
fixing  warning  bells  on  submerged  rocks.  Something  of  the  simpler 
personal  appeal  may  be  found  lurking  in  such  practical  work  as  this. 
But  before  such  a  task  can  be  begun  it  is  necessary  first  to  proceed  to  a 
distance  more  remote  from  the  risks  of  the  fisherman  in  his  storm- 
driven  cobble.  The  power  to  prepare  a  chart  depends  on  previous 
scientific  equipment,  and  the  distinction  in  emotional  interest  between 
the  child  struggling  in  the  water  and  the  maintenance  of  the  hydro- 
graphical  department  of  the  admiralty  is  sufficiently  obvious. 

The  first  belongs  to  the  sphere  of  personal  morality,  and  is  indeed 
as  simple  an  instance  as  we  could  select.  The  summons  was  clear, 
the  claim  of  weakness  on  strength,  from  individual  to  individual.  It 
may  be  regarded  as  typical  of  all  those  cases  in  which  it  is  possible, 
if  not  immediately,  yet  by  a  not  too  recondite  reflection,  to  discover 
the  person  to  whom  service  is  due.  The  antithetical  case  (hydro- 
graphical  department),  while  far  from  being  an  extreme  one,  is  per- 
haps sufficiently  lacking  in  elements  of  personal  interest  to  be  typical 
of  those  impersonal  problems  to  which  the  progress  of  society  has  given 
pre-eminent  value. 

The  changed  character  of  this  typical  reaction  gives  rise  to  an 
ethical  inquiry  which  is  also  perplexingly  fresh.  Whereas  a  man's 
influence  on  and  duty  toward  strangers  has  been,  comparatively 
speaking,  slight  and  intermittent,  it  has  become  continuous  and 
dominant.  The  range  of  response  to  the  unknown  is  often  dismissed 
with  such  proverbial  wisdom  as  "put  them  in  mind  to  be  subject  to 
principalities  and  powers."  This  attitude,  never  very  promising, 
is  now  impossible.  In  the  industrial  world  a  man's  largest  claims  and 
duties  are  to  strangers  whom  he  does  not  know,  has  never  seen,  and 
cannot  love.  It  is  useless  to  call  such  people  neighbors,  and  no  exten- 
sion of  neighbor  morality  touches  the  difficulty.  What  is  needed  is 
to  gain  a  sanction  not  only  for  right  behavior,  which  legislation  might 
compel,  but  for  a  right  emotional  attitude  toward  the  anonymous 
crowd.  This  must  be  as  tough  and  flexible  as  the  sanctions  which  a 
good  man  respects  within  the  little  world  of  home  and  acquaintance. 
The  assumption  that  our  dealings  are  chiefly  with  a  few  familiar 
figures  and  only  incidentally  with  a  world-mass  of  population  is  no 
longer  a  true  one.  There  is  no  thread  in  the  stuff  of  daily  life  which 
is  not  spun  in  the  mill  of  the  anonymous.  Personal  ethics  has 
certainly  not  lost  in  positive  value;  on  the  contrary,  its  applications 
become  more  various  and  difficult  as  they  are  less  easily  reduced  to  the 


IMPERSONAL  RELATIONS  821 

simplicity  of  a  "  drowning-child "  type.    But  relatively  they  yield 
position  to  problems  of  the  "  hydrographical-department "  type. 

It  is  not  strictly  correct  to  speak  of  this  latter  class  of  relations 
as  impersonal,  because,  of  course,  in  the  last  resort  there  must  be 
people  on  both  sides.  But  the  individuals  are  too  aloof  for  the  old 
persuasions  to  have  much  power. 

B1 

We  have  gone  through  a  revolution  of  late  in  many  realms  of 
thought  and  policy.  We  have  swung  far  away  from  narrow  indi- 
vidualism toward  a  sense  of  solidarity  and  social-mindedness.  In 
religion  the  dominant  ideal  is  no  longer  a  narrowly  personal  salvation 
granted  from  above  as  a  reward  of  personal  faith,  but  rather  an  atti- 
tude of  love  and  service  to  one's  fellows  which  are  in  themselves 
salvation.  The  old  idea  of  free  will  is  giving  way  to  determinism, 
individualism  to  public  control,  personal  responsibility  to  social 
responsibility. 

This  changed  attitude  shows  itself  in  economic  matters  in  a  hun- 
dred ways.  The  common  law  treated  industrial  accidents  as  matters 
of  personal  responsibility  and  attempted  to  fix  a  personal  blame.  The 
results  were  intolerable.  Contrast  the  attitude  of  a  system  of  com- 
pulsory compensation  which  blames  nobody,  and  seems  almost  to 
take  away  all  responsibility,  distributing  it  between  the  state  and  the 
employer  and  treating  the  employer  impersonally,  as  the  representa- 
tive of  the  industry.    This  policy  expresses  a  new  idea  of  responsibility. 

Not  long  ago  we  were  almost  morbidly  afraid  to  do  anything  to 
relieve  distress,  for  fear  of  undermining  people's  independence  and 
perpetuating  the  disease  we  aimed  to  cure.  Anything  looking  toward 
permanent  assistance  was  a  confession  of  failure  in  the  present  and  an 
omen  of  evil  to  come.  Meanwhile  poverty  continued  to  breed. pov- 
erty. Now  free  meals  for  school  children  are  becoming  more  and 
more  common,  the  minimum  wage  in  a  mild  form  is  being  seriously 
tried  out,  and  we  seem  to  be  on  the  threshold  of  similar  experiments 
with  old-age  pensions,  mothers'  pensions,  and  insurance  against 
unemployment. 

The  old-time  lumber-gang  boss  or  division  superintendent  pro- 
moted men  or  discharged  them  at  will.  He  was  responsible  to  his 
superior  officer  for  getting  results,  and  to  his  conscience,  if  he  had 
one,  for  the  rights  and  wrongs  of  his  actions.    Often  he  adopted  a 

»  Adapted  by  permission  from  J.  M.  Clark,  "The  Changing  Basis  of  Economic 
Responsibility,"  Journal  of  Political  Economy,  XXIV  (1916),  210-29. 


g22  INDUSTRIAL  SOCIETY 

policy  of  rewards  or  punishments  that  were  sudden,  unexpected,  and 
intentionally  arbitrary,  his  object  being  to  keep  the  men  in  proper 
awe  of  what  might  happen.  But  today  the  consequences  are  too 
serious  to  be  treated  thus  cavalierly.  Compare  the  situation  of  the 
modern  official  dealing  with  a  strong  union.  He  cannot  discharge 
men  without  the  possibility  of  having  to  face  a  committee  of  their 
fellow-laborers  who  will  make  him  give  an  account  of  his  actions.  A 
group  has  assumed  responsibility  for  its  members  and  a  new  respon- 
sibility of  an  individual  toward  the  group  is  being  enforced.  How 
shall  the  group,  the  union,  have  brought  home  to  it  its  own  respon- 
sibility to  the  larger  group  of  which  it  is  a  part  ?  That  is  the  next 
chapter  of  the  story,  and  the  end  is  not  yet  written. 

Unemployment  used  to  be  considered  largely  a  matter  of  personal 
fitness  and  willingness  to  work;  now  it  is  spoken  of  as  a  disease  of 
our  economic  system.  Criminals  and  prostitutes  used  to  be  regarded 
quite  simply  as  wicked  people.  Now  they  are  quite  as  often  looked 
upon  as  victims  of  the  social  order.  In  fact  this  explanation  is  so 
much  in  the  air  that  it  has  become  a  habit,  an  unthinking  reaction 
to  anything  and  everything  that  goes  wrong,  and  anyone  and  every- 
one who  goes  to  pieces.  It  is  all  a  most  disquieting  phase  of  the 
spread  of  deterministic  ideas  among  people  ready  to  absorb  them 
one-sidedly. 

But  it  is  all  part  of  a  movement  we  cannot  escape,  with  its  suc- 
cesses and  its  failures,  its  inspiration  for  the  man  big  enough  to  catch 
it,  and  its  enervating  effect  on  those  without  the  vision.  It  is  the 
product  of  many  things.  The  bottom  facts  are,  first,  that  we  are 
becoming  interdependent  in  new  and  unforeseen  ways,  and,  second, 
that  we  are  finding  out  more  about  the  remote  causes  of  things  which 
we  used  to  take  for  granted. 

Anyone  who  thinks  that  individual  responsibility  is  becoming  less 
because  collective  responsibility  is  becoming  greater  is  making  a  mis- 
take somewhat  like  that  of  the  dog  in  the  fable  who  dropped  his  piece 
of  meat  to  catch  the  other  which  he  saw  reflected  in  the  water.  For 
what  is  collective  responsibility  but  personal  responsibilities  reflected 
in  the  social  mirror  ?  We  need  all  the  sense  of  responsibility  we  can 
arouse,  of  all  kinds,  organized  and  directed  into  the  most  intelligent 
and  efficient  channels,  to  make  even  moderately  satisfactory  headway 
with  the  increasingly  complex  problems  that  are  piling  up  ahead  of  us. 

The  scope  of  personal  responsibility  is  broader  than  ever  before, 
not  narrower.  It  is  a  false  notion  of  the  meaning  of  determinism 
which  interprets  it  in  such  a  way  as  to  undermine  the  responsibility 


IMPERSONAL  RELATIONS 


823 


the  individual  for  his  own  choices.  John  Smith  is  still  a  law  unto 
lself,  whatever  the  statistics  may  tell  us  about  the  thousand.  We 
tnnot  predict  him,  for  the  determining  causes  of  his  destiny  lie  partly 
his  own  personality.  The  power  over  his  environment  of  a  man 
10  does  not  know  when  he  is  beaten  is  the  last  thing  we  can  afford 
belittle  or  ignore.  It  is  only  too  obvious  what  a  difference  it  makes 
mether  men  who  are  free  to  act  as  they  will,  choose  to  act  with 
mrage,  self-reliance,  and  generosity  or  not.  The  only  way  the 
ivironment  can  overcome  man  completely  is  by  persuading  him  that 
can  do  so. 
And  laying  responsibility  on  the  environment  cannot  take  it  off 
the  shoulders  of  persons  so  long  as  the  environment  of  each  of  us  con- 
sists chiefly  of  the  rest  of  us.  The  responsibility  is  harder  to  bring 
home  to  the  subject,  and  the  duties  it  imposes  are  harder  to  fulfil 
effectively,  for  "what  is  everybody's  business  is  nobody's  business." 
But  that  simply  means  that  our  first  obligation  is  to  organize  machin- 
ery by  which  these  most  difficult  of  obligations  can  be  first  effectively 
brought  home  and,  second,  effectively  performed.  This  means,  again, 
that  we  are  facing  the  difficult  task  of  keeping  the  sense  of  obligation 
alive  while  delegating  to  specialists  the  bulk  of  the  active  work 
involved  in  meeting  our  obligations  and  fulfilling  them. 

But  it  is  not  alone  by  making  us  jointly  responsible  for  the  general 
social  environment  that  our  personal  responsibilities  are  being  broad- 
ened. We  are  coming  to  see  that  our  everyday  business  dealings  have 
more  far-reaching  effects  than  we  have  ever  realized,  and  that  the 
system  of  free  contract  is  by  itself  quite  inadequate  to  bring  home 
the  responsibility  for  these  effects.  We  have  begun  to  realize  the 
many  inappropriable  values  that  are  created  and  the  many  unpaid 
damages  that  are  inflicted  in  the  course  of  business  exchanges.  New 
possibilities  at  once  of  parasitism  and  of  service  are  here  revealed,  and 
here  at  least  is  a  field  in  which  responsibility  is  being  concentrated 
instead  of  diffused.  Instead  of  unearned  increments  which  come 
from  a  shadowy  social  environment,  and  wastes  for  which  an  imper- 
sonal "system"  is  responsible,  we  are  making  some  beginnings  at 
tracing  these  things  home  to  the  policies  of  particular  enterprises  and 
the  doings  of  particular  individuals. 


See  also  300.  Control  through  Ethical  Development. 
400.  What  Government  Is  Now  Doing. 
413.  Some  Suggestions  Concerning  the  Direction  of  Social 
Control. 


CHAPTER  XII 

THE  INDIVIDUAL  GUIDANCE  OF  ECONOMIC 
.     ACTIVITY 

A.     Problems  at  Issue 

There  have  repeatedly  appeared  in  our  discussion  of  the  structure 
and  functioning  of  modern  industrial  society  implications  and  direct 
statements  that  this  society  is  not  a  regime  of  blind  chaos — that  it  is 
moving  forward  in  an  orderly  fashion,  even  if  the  order  is  not  of  super- 
lative degree.  It  is  of  course  conceivable  that  industrial  society's 
orderly  progress  might  be  the  result  of  the  blind  operation  of 
impersonal  forces.  Beyond  question,  impersonal  forces  do  operate 
to  a  very  considerable  extent  in  our  society.  None  the  less, 
there  is  also  a  very  considerable  conscious  guidance  of  economic 
activity. 

The  term  "guidance  of  economic  activity"  may  be  used  in  either 
or  both  of  two  senses.  Upon  the  one  hand  it  may  mean  the  guidance 
or  apportionment  of  social  energy  among  our  various  industries  and 
among  the  various  plants  within  a  single  industry.  This  phase  of  the 
matter  has  already  been  discussed  under  the  topic  "The  Apportion- 
ment of  Productive  Energy,"  and  will  come  up  for  further  discussion 
in  this  chapter.  Upon  the  other  hand,  it  may  mean  the  guidance 
or  control  of  industrial  operations  within  a  given  business  unit. 
Business  administration  is  in  very  large  part  concerned  with  the 
guidance  of  economic  activity.  This  also  will  be  discussed  in  the 
present  chapter. 

We  have  learned  to  think  of  our  society  as  an  individual  exchange 
co-operative  society.  Are  there  then  individuals  (or  groups)  who 
lead,  who  direct,  in  this  society  ?  If  so,  who  are  these  responsible 
agents  and  what  is  the  extent  of  their  responsibility  and  of  their 
power  ? 

While  we  have  learned  to  think  in  terms  of  an  individualistic 
society,  we  have  also  come  to  understand  that  there  is  social  control 
or  guidance  of  economic  activity.  This  aspect  of  the  matter  is 
reserved  however  to  chapter  xv  for  discussion. 

824 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  825 

QUESTIONS 

1.  Draw  up  a  classified  list  of  our  wants.  Are  they  confined  to  things 
which  enter  into  commerce  ?    Are  they,  confined  to  material  things  ? 

2.  Are  our  wants  wholly  under  the  control  of  our  reason  ?  Do  we  always 
desire  those  things  which  are  beneficial?  worthy?  Can  you  give 
cases  where  wants  seem  to  flow  from  the  action  of  habit  ?  custom  ? 
social  inheritance  ?     instinct  ? 

3.  Why  is  it  that  the  price  of  a  given  good  tends  to  fall  with  an  increased 
output?  What  has  this  fact  to  do  with  the  guidance  of  economic 
activity  ? 

4.  It  is  said  that  "wants  are  determined  largely  by  social  standards." 
(a)  What  evidence  can  you  advance  concerning  the  validity  of  this  state- 
ment ?  (b)  What  practical  results  of  the  working  of  this  law  appear  in 
the  industrial  world  ? 

5.  It  is  said  that  our  subjective  estimate  of  satisfactions  is  continually 
shifting.  What  practical  results  of  the  working  of  this  law  appear  in 
the  industrial  world  ? 

6.  "The  consumer  is  the  real  director  of  social  energy."  What  does  this 
mean  ?  If  true,  does  it  locate  responsibility  in  such  a  way  as  to  enable 
us  to  influence  the  "direction"  through  social  control? 

»"The  consumer  is  a  victim  of  the  producer.  The  producer  is  the  one 
free  agent  in  our  society."  Is  this  true  ?  In  so  far  as  it  is  true,  can 
the  consumer  do  anything  about  it  ? 
If  the  producer  should  be  considered  the  "real  director  of  social  energy," 
would  that  locate  responsibility  in  such  a  way  as  to  enable  us  to  influ- 
ence the  "direction"  through  social  control? 
9.  "  The  fact  that  profit  is  one  of  the  principal  determinants  of  most  changes 
in  the  nature  of  consumables  and  the  standards  of  consumption  is  one 
of  the  most  serious  sources  of  danger  in  the  evolution  of  a  healthy  social 
economy."     Explain. 

"Though  there  are  doubtless  many  reforms  of  the  consumptive  arts  it 
is  much  easier  to  bring  about  reforms  in  production."  Explain  why. 
Formulate  a  statement  of  the  relationship  of  the  teaching  of  domestic 
science  to  the  guidance  of  economic  activity. 

Formulate  a  statement  of  the  relationship  of  consumers'  leagues  to  the 
guidance  of  economic  activity. 

How  do  we  come  to  have  domestic  science  in  our  curricula  today  ?  Is 
it  the  result  of  expanding  scientific  knowledge  ?  of  a  higher  standard 
of  living?  of  anonymous  production?  of  a  higher  appreciation  of 
human  worth?  of  higher  prices  of  foodstuffs?  of  something  else? 
[If  the  consumer  be  a  moral  consumer  and  will  consider  the  issues  he 
will  never  conclude  that  it  is  a  matter  of  no  importance  how  he  makes 
away  with  the  portion  of  wealth  that  falls  under  his  disposal.  Why 
or  why  not  ? 


826  INDUSTRIAL  SOCIETY 

15.  "Demand  governs  the  distribution  of  effort  between  the  production  of 
goods  for  the  present  and  goods  for  the  future  just  as  it  governs  the 
distribution  of  effort  between  different  kinds  of  goods  for  the  present." 
Is  this  true  ?    If  true  what  mechanisms  exist  for  working  out  the  matter  ? 

16.  Make  a  list  of  the  functions  of  the  entrepreneur.  What  ones  of  these 
functions  have  significance  in  the  guidance  of  economic  activity  ? 

17.  "The  boy  who  sells  newspapers  at  a  railway  station  may  be  an  entre- 
preneur; so  is  the  man  or.  woman  who  hawks  round  matches,  or  vege- 
tables, or  fruit."    Is  this  true  ? 

18.  Distinguish  between  the  entrepreneur  and  the  capitalist.  Of  what  sig- 
nificance is  this  distinction  in  discussing  the  guidance  of  economic 
activity  ? 

19.  Who  corresponds  to  the  capitalist  employer  in  the  modern  corporation  ? 

20.  "The  entrepreneur  is  himself  the  servant  of  costs."  What  does  this 
mean? 

21.  "The  entrepreneur  is  the  most  significant  factor  in  the  guidance  of 
economic  activity."  "The  entrepreneur  is  quite  passive;  he  does  what 
the  conditions  under  which  he  operates  force  him  to  do."  With  which 
statement  do  you  agree  ? 

22.  Wherein  does  the  problem  of  the  modern  employer  differ  from  that  of 
the  employer  of  the  seventeenth  century  ? 

23.  Does  it  seem  to  you  that  in  our  society  the  actions  of  the  manufacturer 
are  under  constant  review  by  financial  interests  ?    If  so,  what  of  it  ? 

24.  Just  how  do  lenders  guide  economic  activity  ?  Does  the  small  lender 
really  exercise  any  significant  guidance  ?    If  not,  what  lender  does  ? 

25.  Think  over  the  investing  acts  of  the  typical  small  investor.  Would 
you  say  that  an  intelligent  guidance  of  economic  activity  flows  there- 
from ?  If  you  think  the  small  investor  is  not  particularly  intelligent, 
is  intelligence  nevertheless  secured  in  some  other  way  ? 

26.  Who  are  the  "lenders"  of  society?  Is  a  man  who  saves  one  dollar  a 
week  (putting  it  in  a  savings  bank)  in  this  group  ?  Does  he  exert  any 
influence  on  the  guidance  of  economic  activity  ?  Does  his  dollar  ?  Is 
there  any  reason  for  separating  the  issues  in  this  way  ? 

27.  "The  brief  study  of  the  finance  of  capitalism  makes  it  clear,  first,  that 
a  complex  financial  machinery  is  essential  to  the  delicate  adjustment 
of  modern  industry;  secondly,  that  this  machinery  operated  for  private 
profit  can  often  earn  the  highest  profits  by  causing  industrial  disloca- 
tion and  maladjustments."  Is  this  true  ?  If  true,  what  is  its  relation 
to  the  guidance  of  economic  activity  ? 

28.  How  do  you  explain  the  strategic  position  in  which  the  banker  finds 
himself  ? 

29.  What  is  the  promoter's  special  function  ?  Does  he  play  any  part  in  the 
guidance  of  economic  activity  ?  What  is  the  function  of  the  under- 
writer ? 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  827 

30.  "The  promoter  is  necessary  because  the  great  mass  of  the  funds  used 
in  larger  corporate  enterprises  is  passive."    Do  you  agree  ? 

31.  What  classes  of  persons  are  likely  to  serve  as  promoters  in  our  modern 
society  ? 

32.  Are  the  profits  taken  by  financiers  accurate  measurement  of  the  worth 
of  the  services  they  render  ? 

S3-  Just  why  does  the  technical  expert  play  a  greater  part  in  modern  indus- 
try than  he  did  in  mediaeval  industry  ? 

34.  How  would  you  define  "scientific  management"  ?  What  is  its  signifi- 
cance with  respect  to  the  guidance  of  economic  activity  ? 

35.  "There  are  various  helps  destined  to  play  an  increasing  role  as  the 
handmaids  of  the  new  business  administration."    What  are  these  helps  ? 

36.  Upon  which  phase  of  the  matter,  (a)  the  apportionment  of  social  energy 
among  various  industries  and  industrial  plants,  or  (b)  the  conduct  of 
operations  within  an  industrial  unit,  does  the  technical  expert  have  more 
influence  ?  the  financier  ?  the  promoter  ? 

37.  If  the  doctrine  of  the  socialist  were  to  be  accepted  and  the  co-operative 
commonwealth  came  into  existence,  ought  scientific  management  be 
encouraged  in  such  a  regime  ? 

38.  Who  would  be  responsible  for  the  guidance  of  economic  activity  under 
a  benevolent  despotism  ?  under  communism  ?  under  socialism  ?  Does 
this  mean  responsibility  with  respect  to  (a)  or  (b)  in  question  36  ? 

39.  Do  trade  unions  have  functions  with  respect  to  the  guidance  of  eco- 
nomic activity?  Do  employers'  associations?  Do  associations  of 
commerce  ? 

40.  "Government  affects  the  guidance  of  economic  activity  by  trying  to 
prevent  the  pursuit  of  private  profit  from  clashing  with  public  welfare." 
Explain.     Is  this  the  only  way  in  which  government  affects  guidance  ? 

41.  "Government  keeps  more  closely  to  fundamental  issues  than  is  feasible 
for  the  business  man  in  dealing  with  economic  problems."     Explain. 

42.  Would  co-operation  effectively  get  rid  of  the  entrepreneur,  the  banker, 
and  the  middleman,  or  would  their  functions  still  remain  to  be  done  by 
hired  servants  of  the  co-operators  ?  What  might  we  reasonably  expect 
co-operation  to  accomplish?  What  are  the  advantages  claimed  for 
co-operation  ?  the  disadvantages  ?  Would  the  advantages  be  the  same 
to  all  classes  of  society  ? 

43.  What  is  the  relation  of  (a)  direct  and  indirect  costs;  (b)  the  pecuniary 
organization  of  society;  (c)  specialization;  (d)  concentration,  to.  the 
accurate  and  facile  guidance  of  economic  activity  ? 

44.  What,  if  any,  is  the  relation  of  employment  agencies  to  the  guidance 
of  economic  activity  ? 

45.  "Our  business  executives  of  the  older  school  were  trained  in  a  regime 
of  individualistic  enterprise.  This  unfits  them  to  meet  the  problem  of 
the  new  regime."    Attack  or  defend  with  a  detailed  argument. 


828  INDUSTRIAL  SOCIETY 

46.  "The  changes  occurring  today  are  transforming  the  business  adminis- 
trator from  a  mere  owner  of  private  property  into  a  responsible  agent 
exercising  delegated  authority."    Explain. 

47.  "A  new  and  larger  conception  of  the  function  of  industrial  leadership 
is  called  for."  Just  why  ?  What  will  be  required  of  the  new  industrial 
leadership  ? 

B.     The  Rdle  of  the  Consumer 

320.    INDUSTRIAL   STRUCTURE   THE   PRODUCT   OF   HUMAN 

WANTS1 

We  know  that  one  of  the  basic  social  facts  is  the  very  common- 
place one  that  Nature  does  not  spontaneously  furnish  means  of  satis- 
faction for  all  our  wants,  or  even  for  most  of  them.  We  know  that 
this  fact  serves  largely  to  explain  the  struggles  of  man  with  nature 
and  the  struggles  of  man  with  man.  It  follows,  accordingly,  that 
a  study  of  the  characteristics  of  human  wants  should  reveal  many 
of  the  motive  forces  behind  modern  society.  This  field  of  study, 
enormous  in  extent  and  baffling  in  its  elusiveness,  clearly  belongs  to 
the  psychologist.  The  economist  can  make  no  pretense  of  originality 
or  comprehensiveness  in  dealing  with  such  a  subject.  He  must  rest 
content  with  selecting  a  few  propositions  having  significance  for  his 
purposes. 

1.  There  seems  to  be  little  or  no  cause  to  hope  that  the  sum  total  of 
human  wants  will  ever  be  sated.  Hearn,  in  his  Plutology,  has  discussed 
this  matter  at  considerable  length. 

Certain  very  obvious  and  very  important  consequences  flow  from 
this  characteristic  of  human  wants.  Here,  in  large  part,  lie  the 
motives  to  acquisition  and  to  progress.  Here,  in  large  part,  is  the 
why  of  the  endless  variety  and  increasing  struggle  of  our  modern 
industrial  society. 

2.  Provided  no  change  occurs  in  the  consumer  and  provided  time  for 
physical  recuperation  from  stimuli  is  not  permitted,  any  single  want  is 
capable  of  being  sated.  As  added  units  of  the  desired  good  are  con- 
sumed, a  continual  diminution  of  satisfaction  per  unit  occurs.  Sooner 
or  later  the  point  of  satiety  is  reached.  Under  the  conditions  here 
assumed  the  second  unit  of  a  good  (say,  an  orange)  gives  less  satis- 
faction than  did  the  first;   the  third  gives  less  satisfaction  than  did 

1  Adapted  by  permission  from  Materials  for  the  Study  of  Elementary  Economics 
(Edited  by  L.  C.  Marshall,  C.  W.  Wright,  and  J.  A.  Field),  pp.  20-27.  (The 
University  of  Chicago  Press,  1913.) 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  829 

the  second,  and  so  on  to,  and  even  beyond,  the  point  of  zero- 
.atisfaction.  In  many  texts  this  fact  is  illustrated  by  some  such 
liagram  as  that  in  figure  A  where  the  diminishing  heights  of  the 


Units  consumed 


Units  consumed 


successive  rectangles,  from  left  to  right,  are  supposed  to  represent 
the  diminishing  amounts  of  satisfaction  derived  from  successive  units 
of  some  good.  In  figure  B,  the  same  proposition  is  illustrated  by  a 
"curve  of  descending  utility,"1  instead  of  separate  rectangles. 

Naturally,  so  far  as  we  consciously  distinguish  the  different 
intensities  of  different  wants,  we  tend  to  satisfy  our  most  pressing 
wants  first  and,  equally  naturally,  we  tend  to  apply  our  expenditures 
to  all  our  wants  in  such  a  way  as  to  secure  equal  marginal  utility, 
so-called,  from  each.  That  is,  we  try  to  continue  our  consumption 
of  no  commodity  so  far  that  the  last  unit  consumed  affords  less  satis- 
faction than  might  have  been  secured  by  an  equal  expenditure  for 
some  other  commodity.  Here  again  an  illustration  serves  us  to  good 
advantage.  In  the  following  table  the  Roman  numerals  I- VI  denote 
six  different  commodities,  in  the  order  of  their  importance  to  a  given 
consumer.  The  Arabic  numerals  indicate  the  intensity  of  satisfaction 
to  be  derived  from  the  consumption  of  the  first,  second,  third,  or  sub- 
sequent unit  of  each  specified  commodity. 

Assume,  now,  that  the  same  expenditure  is  necessary  to  secure 
any  one  unit  of  any  commodity.  If,  then,  a  person  is  in  a  position 
to  secure  only  a  single  unit,  he  will,  under  the  stated  conditions,  pre- 
sumably take  a  unit  of  commodity  I  and  derive  a  satisfaction  of  10. 
However,  if  two  units  may  be  had,  two  units  of  I  or  one  unit  of  each  of 

1  The  term  "utility"  has  here  its  conventional  economic  sense  of  capacity  to 
satisfy  want. 


83o 


INDUSTRIAL  SOCIETY 


I  and  II  offer  equal  satisfaction.  A  person  choosing  three  units 
would  select  two  units  of  I  and  one  of  II.  The  fourth  unit  to  be 
chosen  might  be,  indifferently,  a  third  unit  of  I,  a  second  unit  of  II, 
or  a  unit  of  III— and  so  on. 


Commodity 

I 

II 

III 

IV 

V 

VI 

Satisfaction  derived  from  ist  unit  consumed 
«                "          "    2d      " 
u                 u           "     3d      "             " 

«                    a             a     4th     a               « 
a     5th     «                a 

«                 «           "    6th     "             " 
a    7th    ■             a 

«                «           «    8th    «             « 

10 

.9 

8 

7 
6 

5 
4 
3 
2 

1 
0 

9 

8 

7 
6 

5 
4 
3 
2 

1 
0 

8 

7 
6 

5 
4 
3 
2 

1 
0 

7 
6 

5 

4 
3 

2 

1 
0 

6 
5 

4 
3 
2 

1 
0 

5 
4 
3 

2 

1 
0 

"    9th    "            u 

u                     u              u  IQth      «                 « 

a            «        «  IIth   «         « 

We  must  not  permit  the  table  to  mislead  us,  however.  It  is  a 
dangerous  illustration  in  two  or  three  particulars.  If  carried  out  to 
want  X  or  XI  it  would  seem  to  imply  that  the  sum  total  of  human 
wants  could  be  sated,  and  this  we  know  to  be  impossible.  Again, 
if  these  figures  were  charted,  the  curve  of  descending  utility  would 
come  down  at  the  same  angle  for  all  wants.  This  is  of  course  not  the 
case  in  actual  life.  The  curve  of  utility  obviously  descends  more 
rapidly  in  the  case  of  cook-stoves  than  in  the  case  of  slices  of  bread. 
Another  way  of  stating  this  is  to  say  that  desire  is  more  elastic  in  the 
case  of  slices  of  bread  than  in  the  case  of  cook-stoves.  Finally,  we 
must  not  suppose  that  anyone  can  really  measure  satisfactions  in  any 
such  definite  way  as  is  here  assumed  in  using  the  Arabic  numerals. 
It  must  be  kept  in  mind  that  an  illustration  is  not  a  demonstration, 
and  that  a  table  or  chart  used  to  illustrate  one  feature  of  a  subject 
may  be  a  faulty  illustration  of  another  feature. 

What  consequences  flow  from  the  above  statements  ?  A  few  of 
the  consequences  are  here  listed  and  the  student  is  asked  to  show 
how  and  why  these  consequences  do  flow. 

a)  With  an  increased  output  of  a  given  good  its  price  tends  to 
fall,  other  things  remaining  the  same. 

b)  If  the  output  of  several  goods  should  be  increased  at  the  same 
rate  the  prices  might  fall  at  different  rates. 

c)  Diversity  or  variety  of  expenditure  occurs. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY 


831 


d)  In  part,  here  is  an  explanation  of  how  it  happens  that  a  cer- 
tain amount  of  social  energy  is  devoted  to  the  production  of  good  x 
and  a  certain  other  amount  to  the  production  of  good  y.  In  other 
words,  here  is  part  of  the  explanation  of  the  distribution  of  land, 
labor,  and  capital  among  the  various  activities  of  society. 

3.  The  present  estimation  of  the  utility  of  a  future  good  is  less  than 
the  present  estimation  of  the  utility  of  a  present  good,  assuming  no  change 
in  either  quantity  or  quality  of  the  good.  If  you  were  asked  whether 
you  preferred  to  have  a  unit  of  x  today  or  three  years  hence,  under 
the  conditions  above  assumed,  your  decision  would  be  to  receive  it 
today.  There  are  uncertainties  in  life;  you  might  not  live  the  three 
years;  your  wants  might  change;  three  years  hence  is  a  "long  time 
off."  Of  course,  if  x  is  a  bottle  of  grape  juice,  it  might  be  preferred 
three  years  hence  as  wine,  but  in  that  case  a  change  in  quality  has 
occurred.  Equally,  of  course,  if  x  is  now  plentiful  and  you  have 
reason  to  know  that  x  will  be  scarce  three  years  hence,  you  might 
vote  to  defer  present  consumption,  but  in  that  case  a  change  in 
quantity  has  occurred. 

The  proposition  here  before  us  has  been  illustrated  by  the  follow- 
ing diagram: 


Present  Estimation  of 

Prese 

nt  Est 

imation  of 

'    Present  Good 

Future  Good 

.tJ 

o. 

a 

0 
I 

•B 

3 

Cfi 

I 

2 

3 

4 

5 

I 

2 

3 

Nun 

iber  0 

units 

Nun 

iber  of  units 

If  this  proposition  be  true,  should  we  have  reason  to  expect  that 
society  might  have  occasion  to  induce  some  of  its  members  to  save 
by  paying  them  interest  on  their  savings  ? 

4.  Our  wants  are  often  imposed  upon  us  by  the  force  of  imitation  and 

social  standards.  The  gregarious  instinct  is  powerful.  We  move 
herds.    We  buy  hats  and  clothing  at  Easter.    We  buy  extensively 

Christmas.    Teddy  bears  become  the  rage  and  as  suddenly  are 


832 


INDUSTRIAL  SOCIETY 


supplanted  by  some  new  fad.  The  tulip  craze  affects  the  industry  of 
a  whole  country.  And  so  examples  without  limit  may  be  heaped  up. 
The  economist,  however,  is  mainly  interested  in  the  economic 
consequences  of  these  characteristics  of  our  wants.  Some  of  the 
consequences  of  this  particular  characteristic  may  be  stated  as  follows: 

a)  An  explanation  of  the  magnitude  of  some  of  our  industrial 
phenomena. 

b)  Great  social  saving  through  the  economies  of  large  scale  pro- 
duction. 

c)  Great  social  waste  of  machinery,  goods,  and  established 
industrial  and  commercial  connections  when  a  shifting  of  taste  occurs. 

d)  A  partial  explanation  of  such  phenomena  as  rush  work, 
sweated  industries,  and  overcrowding. 

e)  A  partial  explanation  of  the  growth  of  cities. 

5.  Our  subjective  estimate  of  satisfactions  is  continually  shifting. 
I  may  have  in  mind  such  a  table  of  satisfactions  as  was  used  under  2, 
above,  and  a  word  from  you,  an  advertisement  read,  a  look  at  a 
show  window,  or  any  one  of  a  thousand  other  things,  trivial  or  impor- 
tant, may  change  the  table.  With  the  lapse  of  time  the  case  is  even 
more  striking.  We  change  as  a  result  of  every  factor  of  our  environ- 
ment, by  education,  by  travel,  by  association,  even  by  the  very  process 
of  consuming  goods. 

Since  industry  caters  to  wants,  it  follows  that  there  will  be  a  con- 
tinual shifting  in  industry  and  that  a  person  engaged  in  supplying 
the  means  of  satisfaction  of  these  wants  will  assume  risks  and  chances 
quite  independent  of  the  risks  of  climate,  fire,  or  accident.  It  need 
not  surprise  us  to  find  that  men  must  be  rewarded  to  induce  them  to 
incur  these  risks. 

In  all  the  above,  little  was  said  concerning  the  why  of  wants. 
This  is  a  problem  for  the  psychologist  rather  than  the  economist.  It 
is  referred  to  at  this  point  merely  to  emphasize  the  fact  that  the 
economist  is  making  no  arbitrary  assumptions  in  this  matter.  Wants 
may  be  and  are  the  results  of  instincts,  reason,  suggestion,  habits,  and 
a  thousand  other  things.  Be  all  that  as  it  may,  the  significant  thing 
for  the  economist  is  that  motivation  of  economic  actions  is  to  be 
found  in  wants.  The  purpose  of  this  survey  is  solely  to  cause  the 
student  of  economics  to  feel  that  the  curtain  has  been  pulled  aside 
and  that  a  view  has  been  given  of  some  of  the  real  forces  actuating 
industrial  society. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  833 

See  also    5.  How  the  Industrial  System  Works. 
101.  The  Individual,  and  the  Gain  Spirit. 
103.  Human  Motives  in  Economic  Life. 

321.  THE  PRESSURE  EXERTED  BY  THE  CONSUMER 


Paradoxical  as  it  may  appear,  in  the  highly  developed  commercial 
jtom  of  the  England  of  today  the  capitalist  manufacturer  stands  at 
great  a  relative  disadvantage  to  the  wholesale  trader  as  the  isolated 
workman  does  to  the  capitalist  manufacturer.  First,  we  have  the 
fact  that  the  manufacturer  stands  to  lose  more  by  failing  to  sell  his 
product  with  absolute  regularity  than  the  wholesale  trader  does  by 
temporarily  abstaining  from  buying.  To  the  manufacturer,  with  his 
capital  locked  up  in  mills  and  plant,  continuity  of  employment  is  all- 
important.  To  the  wholesale  trader,  on  the  other  hand,  it  is  com- 
paratively a  small  matter  that  his  stocks  run  low  for  a  short  time. 
His  unemployed  working-capital  is,  at  worst,  gaining  deposit  interest 
at  the  bank,  and  all  he  foregoes  is  a  fraction  of  his  profits  for  the 
year.  Moreover,  as  the  wholesale  trader  makes  his  income  by  a  tiny 
profit  per  cent  on  a  huge  turnover,  any  particular  transaction  is 
comparatively  unimportant  to  him.  The  manufacturer,  earning  a 
relatively  large  percentage  on  a  small  turnover,  is  much  more  con- 
cerned about  each  part  of  it.  The  disparity  is  no  less  great  with 
regard  to  that  knowledge  of  the  market  which  is  invaluable  in  bargain- 
ing. The  manufacturer,  even  if  he  has  a  resident  agent  at  the  chief 
commercial  centre,  can  never  aspire  to  anything  like  the  wide  outlook 
over  all  the  world,  and  the  network  of  communications  from  retail 
traders  and  shipping  agents  in  every  town,  which  make  up  the  business 
organization  of  the  wholesale  trader. 

Thus,  when  the  manufacturer  negotiates  for  an  order,  he  is, 
within  certain  undefined  limits,  at  the  mercy  of  the  wholesale  trader. 
He  is  told  that  the  price  of  his  product  is  too  high  to  attract  customers; 
that  the  shopkeepers  find  no  demand  for  it;  that  foreign  producers 
are  daily  encroaching  on  the  neutral  markets;  and,  finally,  that  there 
has  just  come  an  offer  from  a  rival  manufacturer  to  supply  the  same 
kind  of  article  at  a  lower  price.  The  manufacturer  may  doubt  these 
statements,  but  he  has  no  means  of  disproving  them.    He  is  keenly 

1  Adapted  by  permission  from  Sidney  and  Beatrice  Webb,  Industrial  Democ- 
racy, pp.  662-72.     (Longmans,  Green  &  Co.,  1902.) 


834  INDUSTRIAL  SOCIETY 

alive  to  the  fact  that  his  brother  manufacturers  are  as  eager  as  he  is  to 
get  the  order,  and  some  of  them,  he  knows,  are  always  striving  to 
undercut  prices.  Unless  he  is  a  man  of  substance,  able  to  wait  for 
more  profitable  orders,  or  unless  his  product  is  a  specialty  of  his  own, 
which  no  one  else  makes,  he  is  almost  certain  to  be  tempted,  rather 
than  lose  the  business,  to  accept  a  lower  offer  than  he  meant  to.  The 
price  he  has  accepted  can  only  work  out  in  a  profit  by  some  lowering 
of  the  cost  of  production. 

But  we  should  make  a  mistake  if  we  imagined  that  the  pressure 
originated  with  the  wholesale  trader.  Just  as  the  manufacturer  is 
conscious  of  his  weakness  in  face  of  the  wholesale  trader,  so  the  whole- 
sale trader  feels  himself  helpless  before  the  retail  shopkeeper  to  whom 
he  sells  his  stock.  Here  the  inferiority  is  not  in  any  greater  loss  that 
would  arise  if  no  business  were  done,  for  the  retailer  is  impelled  to 
buy  by  motives  exactly  as  strong  as  those  which  impel  the  wholesale 
house  to  sell.  Nor  is  it  in  any  difference  in  bargaining  power.  In 
both  these  respects  the  wholesale  house  may  even  have  the  advantage 
over  the  shopkeepers.  But  the  shopkeepers  have  a  closer  and  more 
up-to-date  knowledge  of  exactly  what  it  is  that  customers  are  asking 
for,  and  what  is  far  more  important  they  can  to  some  extent  direct 
this  demand  by  placing,  before  the  great  ignorant  body  of  consumers, 
one  article  rather  than  another.  They  have,  therefore,  to  be  courted 
by  the  wholesale  trader,  and  induced,  to  push  the  particular  "lines" 
that  he  is  interested  in.  There  is,  however,  yet  another,  and  even  a 
more  active,  cause  for  the  weakness  in  strategic  position  of  the  whole- 
sale trader.  There  has  been,  for  the  last  half-century,  a  constant 
tendency  toward  a  revolution  in  retail  trade.  In  one  town  or  one 
district  after  another  there  grow  up,  instead  of  numberless  little  shops, 
large  retail  businesses,  possessing  as*  much  capital  and  commercial 
knowledge  as  the  wholesale  house  itself,  and  able  to  give  orders  that 
even  the  wealthiest  manufacturers  are  glad  to  receive.  Hence  the 
wholesale  house  stands  in  constant  danger  of  losing  its  clients,  the 
smaller  ones  because  they  cannot  buy  cheaply  enough  to  resist 
the  cutting  prices  of  their  mammoth  rivals,  and  these  leviathans  them- 
selves because  they  are  able  to  do  without  their  original  intermedi- 
aries. The  wholesale  trader's  only  chance  of  retaining  their  custom 
is  to  show  a  greater  capacity  for  screwing  down  the  prices  of  the 
manufacturers  than  even  the  largest  shopkeeper  possesses.  He  is 
therefore  driven,  as  a  matter  of  life  and  death,  to  concentrate  his 
attention  on  extracting,  from  one  manufacturer  after  another,  a 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  835 

mtinual  succession  of  heavy  discounts  or  special  terms  of  some 
:ind.    This,  then,  is  the  fundamental  reason  why  the  manufacturer 
ids  the  wholesale  trader  so  relentless  in  taking  advantage  of  his 
rategic  position.    Though  performing  a  service  of  real  economic 
advantage  to  the  community,  he  can  only  continue  to  exist  by  a  con- 
stant "squeezing"  of  all  the  other  agents  in  production. 

We  come  now  to  the  last  link  in  the  chain,  the  competition 
between  retail  shopkeepers  to  secure  customers.  Here  the  superiority 
in  knowledge  and  technical  skill  is  on  the  side  of  the  seller,  but  this 
is  far  outweighed  by  the  exceptional  freedom  of  the  buyer.  The 
shopkeeper,  it  is  true,  is  not  bound  to  sell  any  particular  article  at  any 
particular  time.  But  he  must,  on  pain  of  bankruptcy,  attract  a 
constant  stream  of  customers  for  his  wares.  The  customer,  on  the 
other  hand,  is  as  free  as  air.  He  can  buy  in  one  shop  as  well  as  in 
another.  He  is  not  even  bound  to  buy  at  all,  and  may  abstain,  not 
only  without  loss,  but  with  a  positive  saving  to  his  pocket.  He  must, 
in  short,  be  tempted  to  buy,  and  to  this  end  is  bent  all  the  shopkeeper's 
knowledge  and  capacity.  Now,  with  regard  to  the  general  run  of 
commodities,  the  only  way  of  tempting  the  great  mass  of  consumers 
to  buy  is  to  offer  the  article  at  what  they  consider  a  low  price.  Hence 
a  shopkeeper  is  always  on  the  look-out  for  something  which  he  can  sell 
at  a  lower  price  than  has  hitherto  been  customary,  or  cheaper  than 
his  competitors  are  selling  it  at.  Competition  between  shopkeepers 
becomes,  therefore,  in  all  such  cases  entirely  a  matter  of  cutting  prices, 
and  the  old-fashioned,  steady-going  business,  which  once  contentedly 
paid  whatever  price  the  wholesale  trader  asked,  is  driven  to  look  as 
sharply  after  "  cheap  lines  "  as  the  keenest  trader.  Under  these  circum- 
stances, it  is  easy  to  understand  how  the  revolution  in  retail  trade,  to 
which  we  have  already  referred,  plays  into  the  hands  of  the  customer. 
The  mammoth  establishments,  having  a  much  lower  percentage  of 
working  expenses  to  turn  over,  are  able  to  sell  at  lower  prices  than  the 
small  shops,  and  they  naturally  do  their  utmost  to  attract  customers 
by  widely  advertising  their  cheapness.  The  customers  become  used  to 
these  low  prices,  and  insist  on  them  as  the  only  condition  upon  which 
they  will  continue  to  patronise  the  surviving  smaller  shops.  These, 
unable  to  reduce  their  working  expenses,  complain  piteously  to  the 
wholesale  houses,  who  are,  as  we  have  seen,  driven  to  supply  them  on 
the  lowest  possible  terms,  lest  they  lose  their  custom  altogether. 

We  thus  arrive  at  the  consumer  as  the  ultimate  source  of  that 
persistent  pressure  on  sellers,  which,  transmitted  through  the  long 


836 


INDUSTRIAL  SOCIETY 


chain  of  bargainings,  finally  crushes  the  isolated  workman  at  the  base 
of  the  pyramid.  Yet,  paradoxical  as  it  may  seem,  the  consumer  is,  of 
all  the  parties  to  the  transaction,  the  least  personally  responsible  for 
the  result.  For  he  takes  no  active  part  in  the  process.  In  the  great 
market  of  the  world  he  but  accepts  what  is  spontaneously  offered  to 
him.  He  does  not,  as  a  rule,  even  suggest  to  the  shopkeeper  that  he 
would  like  prices  lowered.  All  he  does — and  it  is  enough  to  keep  the 
whole  machine  in  motion— is  to  demur  to  paying  half  a  crown  for  an 
article  when  someone  else  is  offering  him  the  same  thing  for  two 
shillings.  It  may  be  urged  that  he  ought  to  be  ready  to  pay  a  higher 
price  for  a  better  quality.  As  a  matter  of  fact,  consumers,  whether 
rich  or  poor,  do  strive,  in  an  almost  pathetic  way,  after  some  assur- 
ance of  specific  quality  that  would  reconcile  them  to  paying  the  higher 
price.  They  recognise  that  their  own  personal  experience  of  any 
article  is  too  casual  and  limited  to  afford  any  trustworthy  guide,  and 
they  accordingly  exhibit  a  touching  faith  in  "authority"  of  one  kind 
or  another.  Tradition,  current  hearsay  as  to  what  experts  have  said, 
and  even  the  vague  impression  left  on  the  mind  by  the  repeated  asser- 
tions of  mendacious  advertisements,  are  all  reasons  for  remaining  faith- 
ful to  a  particular  commodity,  a  particular  brand  or  make,  or  even  a 
particular  shop,  irrespective  of  mere  cheapness.  But  to  enable  the 
consumer  to  exercise  this  choice,  there  must  be  some  easy  means 
of  distinguishing  between  rival  wares.  It  so  happens  that  the  bulk 
of  the  consumption  of  the  community  consists  of  goods  which  cannot 
be  labeled  or  otherwise  artificially  distinguished.  With  regard  to  the 
vast  majority  of  the  purchases  of  daily  life,  no  one  but  an  expert  can, 
with  any  assurance,  discriminate  between  shades  of  quality,  and  the 
ordinary  customer  is  reduced  to  decide  by  price  alone. 

See  also  252.  The  Decline  of  the  Handicrafts. 

344.  Competition  and  the  Fate  of  Industries. 
347.  What  Marketing  Methods  Shall  Survive  ? 

B1 

[Note.— The  following  is  an  outline  presentation  of  factors  bear- 
ing upon  the  economic  choices  of  the  consumer.  In  studying  the 
outline,  the  student  should  work  out  illustrations  of  the  propositions 
given.] 

1  Adapted  by  permission  from  J.  M.  Clark,  "Economics  and  Modern  Psy- 
chology," Journal  of  Political  Economy,  XXVI  (1918),  161-65. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  837 

Guidance  of  Consumer's  Choices 
Self-guidance 

a)  Grades  of  consumers'  interests 

(1)  Interest  in  one  commodity  as  compared  to  another 

(a)  Choice  commonly  made  outside  the  market  environment 

(b)  Commonly  fortified  by  habit  and  less  subject  to  sway  of  sales- 
manship than  choice  of  rival  brands 

(2)  Interest  in  one  brand  as  compared  to  another 

(a)  Frequently  reducible  to  standardized  terms:  price  and  objec- 
tive tests  of  quality 

(b)  Less  fortified  by  habit  and  more  subject  to  sway  of  salesman- 
ship than  choice  between  different  commodities 

(3)  Choice  between  buying  a  service  and  performing  it  one's  self 

(a)  The  chief  case  in  which  consumer  has  sufficient  control  over 
working  time  and  output  to  bring  "marginal  disutility  of 
labor"  into  play  as  an  active  factor  in  choosing  whether  to 
make  a  given  purchase  or  not 

(b)  Such  work  is  a  change  from  one's  main  vocation,  and  likely 
to  be  more  healthy  than  attempts  to  speed  up  in  one's  regular 
"  gainful  employment."  This  tends  to  balance  low  efficiency 
of  unspecialized  work 

(c)  Collective  guidance  may  increase  efficiency  of  work  in  such 
"side-lines" 

b)  Comparison  of  prices  and  of  quality  so  far  as  that  can  be  tested  by 
objective  standards 

(1)  Incentive  relatively  weak 

(a)  Not  much  money  generally  involved  in  any  one  purchase. 
Some  have  distaste  for  price-searching  and  avoid  it  as  far  as 
possible  in  ordinary  purchases,  though  not  in  contracts  where 
getting  a  living  is  at  stake 

(b)  Exceptions:  housewife's  pride  in  buying  as  a  profession. 
Not  universal.  Success  limited  by  lack  of  all  divisions  of 
labor.  Sportsman's  or  connoisseur's  judgment  of  qualities. 
Limited  in  scope  and  itself  an  expensive  pursuit 

(2)  Means  available 

(a)  Investigation  previous  to  purchase.  More  effective  as  to 
prices  than  qualities,  and  chiefly  for  large  purchases  of  goods 
not  often  renewed.  For  other  purchases  preliminary  inves- 
tigation is  limited  by  trouble  of  carrying  it  out.  This  affected 
by  location  of  shop  and  affects  it  in  turn 

(b)  Trial  and  error  through  repeated  purchases;  only  obvious 
errors  eliminated.  Especially  if  new  article  may  call  for 
slightly  new  method  of  using  (e.g.,  cooking  food),  consumer 
has  no  assurance  of  his  being  adequately  forewarned  or 


838  INDUSTRIAL  SOCIETY 

instructed.    Habit  tends  to  continued  use  of  anything  not 
actively  unsatisfactory 
(c)  Habit  (necessary  reliance  of  single  consumers)  fails  to  keep 
pace  with  changes  in  production  and  commercial  conditions. 
Is  fortified  by  consumer's  distrust  of  commercial  channels  of 
information,  as  he  knows  these  are  not  disinterested 
(3)  Particular  quality- values.    Health-value  of  food;    accuracy  of 
information;  durability  of  a  house,  etc. 
c)  Choosing  between  services  of  different  kinds.     More  dominant  in 
consumer's  work  than  in  any  other  field  of  guidance 

(1)  Range  of  choice  limited  by  standardization  of  production  under 
influence  of  economy  of  large  output.    Effects  of  this  ? 

(2)  Range  of  possible  standardization  of  consumers'  wants  increasing 
with 

(a)  Growth  of  scientific  knowledge  (e.g.,  food-values,  health- 
values,  industrial  effects  of  alcoholism) 

(b)  Increasing  dominance  of  social  purposes  resulting  in  regard- 
ing personal  consumption  as  a  means  to  definite  social  ends 
rather  than  solely  as  an  individualistic  end  in  itself;  war  the 
supreme  example  of  this,  but  it  appears,  in  less  degree,  in 
time  of  peace,  e.g.,  prohibition  and  industrial  efficiency 

(3)  Fundamental  method;  trial  and  error  acting  around  a  core  of 
habit  and  custom  and  often  changing  the  personality  itself, 
including  the  unforeseen  crowding  out  of  present  interests 
and  pursuits 

(4)  Buying  registers  not  average  judgment,  but  may  record  moment 
of  maximum  susceptibility 

2.  Commercial  agencies 

a)  Location  of  stores  as  a  form  of  guidance  of  consumers 

(1)  Businesses  that  concentrate  versus  those  that  scatter.  Where 
each  purchase  is  important  enough  to  consumer  to  make  him 
investigate  brands  and  prices,  dealers  tend  to  concentrate;  where 
the  opposite  is  true  they  tend  to  scatter  in  search  of  quasi- 
monopolies  of  location 

(2)  Consumers'  interest  in  access  to  all  the  various  competitive 
brands.  E.g.,  factor's  agreement  viewed  in  this  aspect  is  unde- 
sirable chiefly  in  the  trades  where  dealers  scatter  so  that  con- 
sumer needs  to  find  all  brands  in  one  shop  if  he  is  to  have  any 
easy  way  of  comparing  them 

(3)  Attention-value  versus  "place  utility"  in  store  sites;  taking  store 
sites  for  public  uses  may  result  in  transfer  rather  than  destruction 
of  a  large  part  of  their  attention- value,  and  may  even  increase 
the  total,  e.g.,  effect  of  making  a  new  park  in  a  built-up  section 
of  a  city 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  839 

b)  Advertising  and  salesmanship 

(1)  Service  of  information 

(a)  Identification  of  goods,  value  limited  by  uncertainty  whether 
quality  is  maintained  or  not 

(b)  An  unnecessarily  expensive  method  of  getting  this  work  done 

(c)  Information  given  by  salesmen  has  an  important  incidental 
attention-value  in  directing  customers'  attention  and  inhibit- 
ing inconvenient  inquiries 

(d)  For  this  very  reason  its  value  as  information  is  discounted 
by  customers 

(2)  Stimulus  or  attention-value 

(a)  A  necessary  and  valuable  economic  service  as  a  whole 

(b)  Effects  to  some  extent  mutually  inhibitory 

(c)  Competitive  gain  in  increasing  it  beyond  the  point  of  maxi- 
mum social  gain  ? 

c)  Determination  of  styles 

(1)  Are  producers  responsible  for  frequency  of  changes? 

(2)  If  not,  their  control  of  channels  in  which  change  is  to  run  makes 
chiefly  for  regularizing  of  production  by  enabling  producers  to 
count  on  demand  and  manufacture  their  goods  in  advance 

d)  Printed  matter  as  aid  to  consumer 

e)  Professional  sellers  of  guidance:  doctors,  etc. 

/)   Industrialized  housekeeping  (hotels,  apartment-houses,  etc.)  as  substi- 
tutes for  personal  household  management.  Effect  on  consumers'  desires 
Co-operative  agencies 

a)  Co-operative  retailing  as  eliminating  many  expensive  features  of  com- 
petitive guidance 

b)  Informal  co-operative  buying 

c)  Co-operative  housekeeping 

Public  agencies:    needed  to  make  good  shortcomings  which  foregoing 
study  has  revealed  in  the  work  of  other  agencies 

a)  Pure-commodities  laws 

(1)  Information 

(2)  Prohibition  of  harmful  goods 

b)  Standardization  of  consumption,  especially  in  time  of  war  when 
economy  and  changes  of  habits  of  consumption  become  necessary, 
and  if  unguided  might  endanger  health.  More  standardization  and 
control  possible  in  temporary  emergency  than  would  be  endured  as 
permanent  policy,  since  the  standardized  health-values  become  tem- 
porarily paramount,  and  are  in  unusual  danger 

c)  Education 

d)  Playgrounds,  public  recreation  centers,  social  settlements,  churches, 
etc.,  as  agencies  in  formation  of  desires  embodying  social  ideals  and 
serving  as  offsets  to  guidance  by  pure  commercial  principles 


840 


INDUSTRIAL  SOCIETY 


5.  Social  standards 

a)  Of  prestige;  display.    Why  do  styles  change  so  fast  ? 

b)  Of  moderation,  good  taste,  and  reasonable  economy 

c)  Of  generosity  and  public  spirit  and  other  standards 

322.  THE  CONSUMER  AND  THE  PRODUCER1 
The  production  of  an  article  will  present  a  far  larger  number 
of  opportunities  for  change  than  its  consumption,  and  there  will  be 
a  greater  likelihood  that  advantageous  changes  will  be  tried  and 
adopted.  A  new  idea  of  saving  labour,  the  chance  discovery  of  some 
new  material,  will  be  approved  more  readily  than  any  suggestion  for 
some  new  food,  or  an  unaccustomed  article  of  clothing.  For,  in  the 
former  case,  the  reasoning  faculty  is  of  necessity  alive  and  operative 
to  some  degree,  and  the  gain  of  the  change  can  be  realized  experi- 
mentally, while  in  the  latter  case  the  reasoning  faculty  is  hardly 
awake,  and  any  novelty  of  consumption  is  apt  to  have  an  initial 
barrier  of  natural  aversion  to  overcome. 

But  there  is  another  reason  for  the  easier  progress  of  the  pro- 
ductive costs.  In  proportion  as  work  passes  into  the  shape  of  an 
organised  business,  administered  by  an  employer  for  profit,  the  control 
of  any  of  its  processes  by  primitive  custom  or  taboo  tends  to  disappear. 
For  the  rationalism  involved  in  the  profitable  conduct  of  the  business 
compels  the  employer  to  break  any  traditional  barriers  obstructing 
the  adoption  of  profitable  reforms.  Though  there  are  doubtless 
many  reforms  of  the  consumptive  arts  as  humanly  economical  and 
profitable  as  any  of  the  great  industrial  reforms,  there  is  not  the  same 
concentrated  motive  of  large  immediately  realized  gains  to  urge  their 
claims  on  any  body  of  consumers.  Not  only  are  the  gains  from  an 
improvement  in  production  more  immediate,  more  concrete,  and 
more  impressive,  but  the  risks  and  inconveniences  of  the  change  are 
largely  borne  by  others  than  the  reformer,  viz.,  his  employees,  or  his 
shareholders.  The  consumer,  on  the  other  hand,  has  himself  to  bear 
all  risks  and  inconveniences  involved  in  the  abandonment  of  an  old 
article  or  method  of  consumption,  or  the  adoption  of  a  new  one. 
Finally,  it  must  be  remembered  that  the  actual  risks  attending  an 
innovation  are  greater  for  the  consumer.  For  the  modern  pro- 
ducer is  a  skilled  specialist  in  the  particular  art  of  production  in 
which  he  is  engaged;  the  consumer  is  an  unskilled  amateur  in  a  more 

1  Taken  by  permission  from  J.  A.  Hobson,  Work  and  Wealth,  pp.  1 1 1-13.  (The 
Macmillan  Co.,  1914.    Author's  copyright.) 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  841 

general  art,  possessing  little  knowledge  and  no  effective  power  of 
>rganising  for  his  self-defense. 

The  fact  that  the  monetary  profit  of  producers  is  the  principal 
leterminant  of  most  changes  in  the  nature  of  consumables  and  the 
standards  of  consumption  is  one  of  the  most  serious  sources  of  danger 
the  evolution  of  a  healthy  social  economy.  The  present  excessive 
:ontrol  by  the  producer  injures  and  distorts  the  art  of  consumption 
three  ways.  (1)  It  imposes,  maintains,  and  fosters  definitely 
ljurious  forms  of  consumption,  the  articles  of  "  illth."  (2)  It  degrades 
>r  diminishes  by  adulteration,  or  by  the  substitute  of  inferior  materi- 
Is  or  workmanship,  the  utility  of  many  articles  of  consumption  used  to 
ttisfy  a  genuine  need.  (3)  It  stimulates  the  satisfaction  of  some 
luman  wants  and  depresses  the  satisfaction  of  others,  not  according 
to  their  true  utility,  but  according  to  the  more  or  less  profitable  char- 
icter  of  the  several  trades  which  supply  these  wants. 

The  prevalence  of  many  of  the  most  costly  social  evils  of  our  time, 
war,  drink,  gambling,  prostitution,  overcrowding,  is  largely  attribut- 
able to  the  fact  that  their  material  or  trade  appliances  are  sources  of 
great  private  profit.  Such  trades  are  the  great  enemies  of  progress 
in  the  art  of  life,  and  the  rescue  of  the  consuming  public  from  their 
grip  is  one  of  the  weightiest  problems  of  our  time.  Two  methods 
of  defence  are  suggested.  One  is  the  education  and  co-operation  of 
consumers.  But  while  education  may  do  much  to  check  the  con- 
sumption of  certain  masses  of  "illth,"  it  can  hardly  enable  the  con- 
sumer to  cope  with  the  superior  skill  of  the  specialist  producer  by 
defeating  the  arts  of  adulteration  and  deterioration  which  are  so 
profitable.  Consumers'  Leagues  can  perhaps  do  something  to  check 
adulteration  and  sweating  by  the  employment  of  skilled  agents. 
But  it  will  remain  very  difficult  for  any  such  private  action  to  defeat 
the  ever-changing  devices  of  the  less  scrupulous  firms  in  profitable 
trades.  The  recognition  of  these  defects  of  private  action  causes  an 
increased  demand  for  public  protection,  by  means  of  legislative  and 
administrative  acts  of  prohibition  and  inspection.  The  struggle  of 
the  State  to  stamp  out  or  to  regulate  the  trades  which  supply  injuri- 
ous or  adulterated  foods,  drinks,  and  drugs,  to  stop  gambling,  prosti- 
tution, insanitary  housing  and  other  definitely  vicious  businesses,  is  one 
of  the  greatest  of  modern  social  experiments.  Though  the  protection 
of  the  consumer  is  in  many  cases  joined  with  other  considerations  of 
public  order,  it  is  the  inherent  weakness  of  the  consumer,  when  con- 
fronted by  the  resources  of  an  organised  group  of  producers,  that  is 


342  INDUSTRIAL  SOCIETY 

the  primary  motive  of  this  State  policy.  How  far  the  State  protec- 
tion is,  or  can  be  made,  effective  is  a  question  too  large  for  discussion 
here,  'it  must  suffice  to  observe  that  the  conviction  that  the  private 
interests  of  producers  will  continue  to  defeat  all  attempts  at  State 
regulation  in  socially  "dangerous  trades"  furnishes  to  socialism  an 
argument  on  which  there  is  a  tendency  to  lay  an  ever-greater  stress. 

323.  DEFENCES  OF  THE  CONSUMER1 
At  the  meeting  of  the  American  Economic  Association  in  Wash- 
ington in  December,  191 1,  Professor  T.  N.  Carver,  of  Harvard  Uni- 
versity, said:  "It  would  be  an  interesting  and  illuminating  statistical 
investigation  if  we  could  count  and  tabulate  the  agencies  of  'high- 
pressure  business.'  If  we  could  arrange  two  columns  of  figures,  one 
giving  the  number  of  courses  of  instruction  on  the  psychology  of 
salesmanship,  the  other  giving  the  number  on  the  psychology  of  resist- 
ing salesmanship;  one  giving  the  number  of  articles  in  business  jour- 
nals on  how  to  make  sales  or  how  to  get  orders,  the  other  giving  the 
number  on  how  to  avoid  buying  what  you  don't  want,  or  how  to  avoid 
giving  orders,  the  result  would  be  illuminating.  We  should  probably 
find  a  parallel  to  Guizot's  famous  generalization  regarding  the  relative 
efficiency  at  different  historical  epochs  of  the  forces  of  attack  and  the 
forces  of  defense.  In  this  case  we  should  find  the  individual  bent  on 
defending  his  income  and  his  meagre  savings,  while  a  great  array  of 
forces  is  bent  on  attacking  them.  Just  as  gunpowder  and  cannon 
made  the  forces  of  attack  superior,  and  changed  the  political  con- 
dition of  Europe,  so  now,  wood-pulp  paper,  cheap  advertising,  and 
shrewd  salesmanship  are  making  the  forces  of  attack  stronger." 
f  The  consumer  is  the  point  of  attack,  either  immediately  or  ulti- 

mately, in  every  advertising  campaign  for  advertising  goods  finally 
sold  at  retail.  And  while  we  are  discussing  methods  of  attack,  is  it 
not  well  to  take  stock  of  the  consumer's  defense  ?  What  are  the 
characteristics  of  the  consumer  as  a  class  which  meet,  and,  in  a 
measure,  offset  advertising  and  selling  betterments  ?  Space  will  not 
let  us  catalogue  more  than  a  very  few: 

(1)  The  consumer's  spending  power  is  limited  by  his  earning 
ability.  He  may  develop,  or  have  stirred  in  him,  new  wants,  strong 
enough  to  make  him  work  harder  in  order  to  earn  more,  but  he  cannot 

1  Adapted  by  permission  from  P.  T.  Cherington,  Advertising  as  a  Business 
Force,  pp.  92-94,  116.  (Doubleday,  Page  &  Co.,  1913.  Copyright  by  the  Asso- 
ciated Advertising  Clubs  of  America.) 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  843 


honestly  spend  more  money  than  he  earns,  no  matter  how  complicated 
his  wants  may  become.    This  sets  a  final  limit  on  consuming  capacity, 
id  sets  a  limit  to  the  exercise  of  his  will. 

(2)  The  strength  of  the  consumer's  savings  instinct  determines 
Le  margin  between  his  earning  power  and  his  willingness  to  spend. 
'  Le  strength  of  this  instinct  is  only  relative  and  here  the  consumer  is 
ilnerable.    His  "will  to  save"  is  elastic. 

(3)  The  "standard  of  living,"  the  opinion  of  the  class  to  which 
consumer  belongs  as  to  what  may  be  expected  of  him  in  the 

spending  of  his  income,  has  its  constant  effect  on  a  civilized  man's 
conduct,  and  this  again  is  relative  and  open  to  attack. 

(4)  Price  habits  have  tended  to  become  fixed  in  many  lines  of 
retail  business.  The  consumer  has  come  to  accept  an  increasing 
number  of  set  prices,  and  set  price  intervals.  There  may  be  a  few 
places  in  this  country  where  a  man  expects  to  find  a  necktie  line  regu- 
larly carried  at  some  price  other  than  50  cents  or  $1  or  upward,  but 
they  are  few.  And  so  it  is  with  suspenders,  shirts,  shoes,  socks— al- 
most everything  a  man  wears— certain  price  habits  have  become  well 
established.  This  puts  competition  in  these  lines  on  a  basis  of 
quality,  or  service.    It  makes  purchase  easy  for  the  consumer,  but 

t modifies  the  character  of  the  advertising  appeal,  as  we  shall  see. 
(5)  Buying  habits  are  undergoing  modification  also.  And  these 
ike  another  change  in  the  advertiser's  position.  With  price 
"higgling"  partly  eliminated,  and  the  whole  problem  of  appeal  and 
sale  based  on  quality  and  guaranteed  satisfaction,  the  consumer  has 
come  to  expect  that  goods  can  be  bought  without  bargaining.  The 
consumer  certainly  is  safer  in  his  purchasing,  but  equally  certainly 
he  is  more  careless.  ^V 

(6)  And  again  there  is  the  effect  of  the  multiplicity  of  appeals 
being  made  to  the  consumer.  The  individual  consumer  and  the 
consumer  as  a  class  is  appealed  to  from  so  many  sides  that  the  effect 
of  no  single  appeal  can  be  what  it  would  if  it  stood  alone. 

To  sum  up  these  consumer  defenses  we  find  that,  while  the 
consumer,  as  an  individual  or  as  a  class,  may  be  led,  stimulated, 
diverted,  directed  or  otherwise  influenced  in  buying,  there  are  certain 
roughly  ascertainable  limits  to  the  effects  which  may  be  expected 
to  follow  attacks  on  the  will  of  the  consumer.  There  are  certain 
limits  beyond  which  his  earning  power  will  not  let  him  go,  there 
are  others,  less  certain,  beyond  which  he  will  not  buy  unless  his 
saving  impulses  are  stifled,  there  are  social  and  commercial  habit 


844 


INDUSTRIAL  SOCIETY 


barriers  to  consumer  diversion,  and,  last  of  all,  the  appeals  to  the 
consumer  may  partly  neutralize  each  other  by  their  mere  multiplicity. 

These  few  points,  out  of  many  which  could  be  considered,  have 
been  presented  in  order  to  help  us  appreciate  how  much  more  than  a 
mere  market  for  goods  is  the  modern  consumer.  As  an  object  of 
advertising  attack  he  is  a  complicated  and  variable  composite  under 
pressure  from  within  and  without.  And  there  is  scarcely  an  emo- 
tional motive,  or  an  economic  impulse  with  any  influence  on  human 
action,  which  can  be  ignored  with  safety  by  the  advertiser  who  wants 
to  catch  and  hold  him. 

Nor  is  the  consumer  inert.  He  has  powers  of  resistance,  and 
he  is  learning  how  to  use  them.  Even  leaving  the  supremely  impor- 
tant problems  of  consumer  psychology  out  of  consideration,  he  has 
means  at  hand  for  taking  advantage  of  any  weakness  in  advertising 
plans.  The  consumer  problems  of  the  modern  advertiser  are  not 
merely  to  discover  buyers  of  goods  and  to  exploit  them.  They  are 
as  intricate  as  war  plans. 

324.    WOMAN  AS  A  DIRECTOR  OF  CONSUMPTION1 

Women  still,  in  the  main,  establish  a  connection  with  the  economic 
order  through  the  family  and  the  household.  In  spite  of  the  increase 
in  their  gainful  employment,  analysis  of  the  data  shows  that  the  aver- 
age length  of  employment  is  short,  usually  from  the  time  of  leaving 
school  until  marriage.  It  is  only  the  occasional  woman  who  retains 
or  resumes  gainful  employment  after  marriage,  and  then  usually 
because  of  some  irregularity,  such  as  the  desertion,  illness,  or  unem- 
ployment of  the  male  breadwinner;  or  for  a  reason  of  a  different  type, 
unusual  capacity  or  inclination  for  a  definite  gainful  pursuit.  To 
reiterate,  their  main  economic  functioning  is  still  in  connection  with 
the  household.  This  may  or  may  not  be  considered  desirable.  At 
any  rate  the  arrangement  has  shown  persistence. 

The  economic  activities  or  relations  of  the  household  form  a 
natural  complement  to  the  existing  industrial  structure.  The  changes 
in  the  one  are  the  result  of  the  development  of  the  other  and  its  direc- 
tion. The  rise  of  the  factory  system  meant  that  the  household  sur- 
rendered one  after  another  its  productive  activities  to  an  outside 
agency— the  business  unit.  The  concomitant  development  of  an 
exchange  society,  with  production  for  the  market— a  price-controlled 
economy— meant  also  a  separation  between  production  and  consump- 

1  Prepared  by  Hazel  Kyrk. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  845 

which  could  only  be  bridged  over  by  a  process  of  expenditure. 

?he  individual   household  remained   the   center   for  consumption, 

>ut  production  was  no  longer  by  the  family  for  the  family,   or 

jven  by  the  women  for  the  family.    The  age-long  division  of  labor 

>etween  men  and  women  took  a  new  form.    The  family  now  satisfies 

ts  wants,  first,  by  a  sale  of  highly  specialized  goods  and  services  upon 

'ie  market  by  certain  members,  and  secondly,  through  a  distribution 

of  the  resultant  income  by  market  purchases  of  the  desired  goods  and 

services.     The  family  welfare  is  affected  both  by  the  size  of  the  income 

and  the  manner  of  distribution. 

It  might  be  suggested  that  the  change  in  the  technique  and  organi- 
ttion  of  production  both  complicated  and  facilitated  the  further 
rocess  of  securing  satisfactions,  which  now  became  separate  and  dis- 
ict.  (1)  It  immensely  widened  the  possibilities  by  the  abundance 
id  variety  of  goods  made  available.  The  consumer  is  not  limited 
what  he  can  make  or  do  alone,  but  has  increased  his  output  by 
-operation  with  others  and  the  use  of  mechanical  devices.  (2)  In 
lother  sense  it  widened  the  limits  of  choice.  Customary  production 
meant  customary  consumption.  Free  competition  and  individual 
initiative  in  production  mean  freedom  of  choice  on  the  part  of  the 
purchaser.  (3)  The  separation  between  the  producer  and  the  con- 
sumer made  necessary  the  agencies  and  facilities  for  storing  and  dis- 
tributing goods,  and  gathering  and  disseminating  information. 

Following  out  the  implications  of  some  of  these  suggestions  might 
indicate  some  reasons  for  the  emergence  of  a  director  of  consumption 
— why  the  household  as  the  center  of  this  process  needs  a  manager. 
The  modern  organization  of  production  gave  rise  to  the  function  of 
business  manager.  An  interesting  analogy  might  be  worked  out 
between  the  two. 

Granting  the  importance  of  expenditure  in  the  sense  of  choosing 
and  buying  goods  to  be  utilized  by  the  household,  to  what  extent  has 
it  been  turned  over  to  women  ?  There  are  various  indications  aside 
from  individual  observation  that  this  has  taken  place  to  a  considerable 
extent.  (1)  There  is  the  testimony  to  the  effect  that  in  the  well- 
regulated  wage-earner's  family  the  weekly  pay  envelope  is  turned 
over  to  the  wife  for  disbursement.  (2)  Again,  notice  the  extensive 
use  that  dealers  in  consumer's  goods  make  of  household  journals  as 
advertising  media.  (3)  Significant  also  are  the  curricula  and  texts 
of  modern  schools  of  home  economics  with  their  change  of  emphasis 
from  drill  in  the  household  arts  to  household  administration,  involv- 
ing the  selection  of  food,  clothing,  and  shelter,  and  the  theory  and 


846 


INDUSTRIAL  SOCIETY 


practice  of  budget-making.  (4)  There  is  finally  the  widely  accepted 
theory  that  our  competitive  consumption,  the  conspicuous  consump- 
tion to  win  social  distinction  by  display  of  wealth,  has  been  largely 
delegated  to  women. 

Are  women,  then,  if  called  directors  of  family  consumption, 
responsible  for  the  guidance  of  economic  activity  by  their  choices  in 
the  exercise  of  demand?  In  the  first  place,  it  might  be  inquired 
whether  they  are  agents  or  principals  in  these  transactions  ?  Do  they 
determine  policy  or  merely  carry  it  out  ?  Probably  they  are  neither 
entirely  passive  nor  the  main  active  force.  As  to  the  bases  of  house- 
hold policy  several  considerations  might  be  briefly  noted. 

1.  All  consumers  are  liable  to  be  the  victims  of  certain  faults  of 
the  system,  and  are,  as  compared  with  the  producer,  in  a  weak  bar- 
gaining position.  Since  the  producer  takes  the  initiative,  he  often 
creates  the  want  and  is  under  some  pressure  to  deceive  or  to  adulter- 
ate. Further  the  consumer  suffers  from  lack  of  knowledge,  and  the 
scarcity  of  objective  tests  which  she  can  apply  or  could  afford  to 
apply  to  a  great  variety  of  goods  bought  in  small  quantities. 

2.  The  art  of  spending  for  the  household  tends  to  be  unprogres- 
sive,  conservative,  and  largely  non-rational.  Some  of  the  reasons 
that  have  been  assigned  are  the  individual,  undifferentiated  nature 
of  the  act,  the  lack  of  such  standards  as  the  profit  test  in  industry  to 
measure  improvements,  the  lack  of  competition  to  weed  out  the 
inefficient,  the  slow  development  of  the  sciences  such  as  psychology 
and  physiology  upon  which  progress  in  consumption  rests,  and  the 
resistance  to  change  which  any  institution  which  centers  in  the  family 
shows. 

3.  The  final  ends  which  are  behind  the  choices  and  preferences 
displayed  in  the  distribution  of  the  family  income  could  probably  be 
summed  up  in  the  phrase,  The  family  standard  of  living.  The  expen- 
diture is  an  attempt  to  serve  those  interests  and  promote  those  pur- 
poses which  seem  "necessary,"  "worthy,"  "desirable."  What  they 
are  is  probably  determined  partly  by  tradition,  custom,  habit,  sug- 
gestion, and  imitation,  and  partly  by  "taking  thought." 

[Note.— The  discussion  of  the  part  played  by  the  consumer 
(demand)  reveals  something  of  the  significance  of  the  market  function 
and  market  structure  in  our  society.  Some  aspects  of  the  market 
structure  were  pointed  out  in  Selections  94-99.] 

See  also  271.  The  Standard  of  Living. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  847 

C.     Entrepreneurship 
325.    SOME  RESPONSIBLE  AGENTS1 

1.  The  role  played  by  technical  experts. — The  making  and  dis- 
ributing  of  goods  by  the  elaborate  modern  methods  requires  highly 
:illed  direction.    On  the  technical  side  the  work  is  planned  by,  and 

executed  under  the  supervision  of,  civil,  mechanical,  mining,  and  elec- 
trical engineers,  designers,  industrial  chemists,  "efficiency  experts," 
etc.  These  are  the  men  who  know  how  to  extract  raw  materials, 
refine  and  manufacture  them,  devise  and  operate  machinery,  organize 
working  forces — in  short,  the  men  who  know  how  to  secure  the  principal 
efficiency  of  economic  effort.  By  applying  the  results  and  the  methods 
of  science  to  the  everyday  work  of  the  world,  they  have  led  the  rapid 
advance  in  the  technique  of  production  of  which  we  feel  so  proud. 

2.  The  role  played  by  enterprisers. — But  in  no  country  in  the  world 
:e  these  technical  experts  allowed  free  scope  in  directing  the  work  of 
roviding  material  goods.  Higher  authority  is  assigned  by  the  money 
:onomy  to  another  class  of  experts,  business  men  who  are  skilled,  not 

making  goods,  but  in  making  money.  As  an  employee  of  the  busi- 
less  man,  the  engineer  must  subordinate  his  interest  in  mechanical 
efficiency  to  his  superior's  interest  in  profitable  investment.  The 
chief  role  in  directing  what  use  shall  be  made  of  the  country's  natural 
resources,  machinery,  and  labor  is  therefore  played  by  its  enterprisers. 

But  who  and  what  are  these  enterprisers  ?  The  classical  econo- 
mists assumed  that  there  stood  at  the  head  of  the  typical  business 
enterprise  a  capitalist-employer,  who  provided  a  large  part  of  the 
capital  invested,  assumed  the  pecuniary  risk,  performed  the  "work 
of  superintendence,"  and  pocketed  the  profits.  Many  enterprisers 
of  this  versatile  type  remain  today;  but  the  extraordinary  growth  in 
size  and  influence  of  the  joint-stock  company  has  given  greater  promi- 
nence to  another  form  of  business  management. 

In  such  an  organization  it  is  difficult  to  find  anyone  who  corre- 
sponds closely  to  the  capitalist-employer.  Certainly  the  typical 
stockholder,  who  takes  no  part  in  managing  the  corporation  beyond 
sending  in  his  proxies  to  be  voted  at  the  annual  meeting,  does  not  fill 
the  bill.  Neither  does  the  typical  director,  who  confines  such  atten- 
tion as  he  may  give  the  corporation's  affairs  to  passing  on  questions 
of  general  policy,  selecting  officers,  criticizing  or  approving  their 

1  Adapted  by  permission  from  W.  C.  Mitchell,  Business  Cycles,  pp.  32-37. 
(University  of  California  Press,  1913.     Author's  copyright.) 


g  g  INDUSTRIAL  SOCIETY 

reports,  and  the  like.  Finally,  the  general  officers,  dependent  on 
the  directors,  remunerated  largely  if  not  wholly  by  salaries,  and 
practicing  among  themselves  an  elaborate  division  of  labor,  have  no 
such  discretion  and  carry  no  such  risk  as  the  capitalist-employer.  The 
latter,  in  fine,  has  been  replaced  by  a  "management,"  which  includes 
several  active  directors  and  high  officials,  and  often  certain  financial 
advisers,  legal  counsel,  and  large  stockholders  who  are  neither  directors 
nor  officials.  It  is  this  group  which  decides  what  shall  be  done  with 
the  corporation's  property. 

In  other  cases,  however,  a  single  enterpriser  dominates  the  cor- 
poration and  wields  full  authority.  Within  the  class  of  enterprisers 
there  has  gradually  been  differentiated  a  special  set,  which  plays  an 
exceptionally  active  role  in  guiding  economic  activity— promoters. 
The  promoter's  special  province  is  to  find  and  bring  to  the  attention 
of  investors  new  opportunities  for  making  money:  new  natural 
resources  to  be  exploited,  new  processes  to  be  developed,  new  products 
to  be  manufactured,  new  organizations  of  existing  business  enter- 
prises to  be  arranged,  etc.  But  the  promoter  is  seldom  more  than  an 
explorer  who  points  out  the  way  for  fresh  advances  of  the  army  of 
industry.  When  an  enterprise  of  his  imagination  has  been  organized 
and  has  begun  operations,  the  promoter  does  not  often  retain  the 
leadership  for  long.  As  permanent  officers  men  of  more  cautious 
temper  and  more  systematic  habits  commonly  take  command. 

3.  The  role  played  by  lenders. — The  enterprisers,  indeed,  do  not 
have  unlimited  discretion  in  deciding  what  use  shall  be  made  of  the 
available  resources,  equipment,  and  labor.  In  matters  of  importance 
their  decisions  are  subject  to  review  by  a  higher  court.  For  most 
business  projects  require  the  use  of  funds  borrowed  from  banks,  large 
capitalists,  or  from  the  investing  public,  and  this  fact  gives  the  lenders 
an  effective  veto  power  over  proposals  which  do  not  meet  their 
approbation. 

Whenever  an  enterpriser  applies  to  an  individual  capitalist  to  take 
an  interest  in  some  project,  to  a  bank  to  discount  his  notes,  or  to  the 
investing  public  to  buy  bonds,  he  must  satisfy  the  lenders  of  his  ability 
to  keep  up  the  interest  and  to  repay  the  principal.  Even  when  the 
applicant  can  provide  collateral  security  for  the  loan,  and  obviously 
when  he  cannot,  the  lender's  decision  depends  largely  upon  his  own 
judgment  regarding  the  business  prospects  of  the  intended  venture. 
To  aid  their  officers  in  forming  intelligent  decisions,  banks  are  coming 
to  require  applicants  for  loans  to  make  on  standard  forms  systematic 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  849 

statements  of  their  financial  standing  and  projects.  In  addition,  the 
banks  and  the  houses  which  grant  mercantile  credits  subscribe  to 
commercial  agencies  and  maintain  credit  departments  of  their  own 
for  the  purpose  of  collecting  and  classifying  information  about  the 
business  standing  and  prospects  of  their  customers.  Similarly, 
corporations  which  offer  bonds  or  stocks  for  sale  find  it  advisable 
to  publish  advertisements  and  circulars  setting  forth  their  finan- 
cial condition,  the  purposes  for  which  money  is  being  raised,  and 
the  anticipated  profitableness  of  the  extensions  in  view.  Affida- 
vits from  certified  public  accountants,  legal  counsel,  and  consulting 
engineers  are  often  appended  to  lend  these  statements  greater  force. 

The  review  of  the  projects  of  enterprisers  by  lenders,  then,  is  no 
perfunctory  affair.  Nor  is  its  practical  influence  upon  the  guidance  of 
economic  activity  negligible.  There  are  always  being  launched  more 
schemes  than  can  be  financed  with  the  available  funds.  In  rejecting 
some  and  accepting  others  of  these  schemes,  the  men  of  money  are 
taking  a  very  influential  though  not  a  very  conspicuous  part  in 
determining  how  labor  shall  be  employed,  what  products  shall  be 
made,  and  what  localities  built  up. 

Not  all  lenders,  however,  are  able  to  make  intelligent  decisions. 
The  great  mass  of  small  investors  and  not  a  few  of  the  large  lack  the 
experience  or  the  ability  to  discriminate  wisely  between  profitable 
and  unprofitable  schemes.  Many  such  folk  put  their  money  into 
savings  banks,  rely  upon  the  advice  of  friends  who  are  better  equipped, 
consult  with  their  bankers,  take  counsel  from  the  financial  press,  or 
follow  what  they  suppose  to  be  the  lead  of  some  conspicuous  figure 
in  high  finance.  Not  being  able  to  obtain  from  impartial  sources  or 
personal  examination  the  data  necessary  for  forming  an  independent 
judgment,  they  cannot  work  out  their  problems  along  strictly  rational 
lines.  Hence  they  are  peculiarly  subject  to  the  influence  of  feeling  in 
matters  where  feeling  is  a  dangerous  guide.  The  alternating  waves 
of  overconfidence  and  unreasoning  timidity  which  sweep  over  the 
investment  market  are  among  the  most  characteristic  phenomena  of 
business  cycles.  Even  those  who  are  looked  to  for  advice  are  not 
wholly  immune  from  the  contagion  of  emotional  aberration.  It 
follows  that  the  guidance  of  economic  activity  by  the  investing  class 
is  not  strictly  comparable  with  the  intelligent  review  of  plans  by 
competent  experts. 

A  more  vigorous  and  more  intelligent  leadership  is  exercised  by 
the  larger  capitalists.    They  excel  the  investing  public,  not  only  in 


g50  INDUSTRIAL  SOCIETY 

means  of  securing  information  and  in  business  sagacity,  but  also  in 
ability  to  control  conditions.  The  greatest  lenders  become  perforce 
much  more  than  lenders.  Over  the  enterprises  in  which  they  embark 
large  sums  they  must  keep  watchful  eyes.  They  support  the  prices 
of  their  securities  on  the  stock  market,  seek  to  maintain  profitable 
connections  with  customers  and  financial  institutions,  keep  informed 
concerning  the  business  of  competitors,  arrange  consolidations,  plan 
dividend  disbursements,  and  the  like— in  short,  care  for  all  the 
varied  financial  interests  of  the  enterprises  in  which  their  fortunes 
and  their  prestige  are  at  stake.  On  the  highest  levels  of  business 
success,  indeed,  the  functions  of  the  investor  and  the  enterpriser 
merge  into  each  other.  The  great  capitalist  becomes  a  great  pro- 
moter. He  not  only  vetoes  schemes,  but  forms  them  and  sees  that 
they  are  carried  out. 

4.  The  role  played  by  government. — A  fundamental  difference  of 
principle  sets  off  the  role  played  by  government  in  guiding  economic 
activity  from  that  played  by  business  enterprises.  While  business 
enterprises  aim  at  making  money,  government  aims  at  securing  public 
welfare. 

Notoriously,  this  broad  difference  of  principle  is  sadly  blurred  in 
practice.  Even  in  the  most  democratic  countries,  public  welfare  is  not 
always  the  ruling  passion  of  the  men  elected  to  office.  Besides,  public 
welfare  remains  so  vague  a  concept  as  to  leave  wide  room  for  differ- 
ences of  opinion  about  the  relative  value  of  rival  policies  proposed  for 
its  promotion.  Moreover,  among  the  citizens  of  a  money  economy 
the  habit  of  applying  pecuniary  tests  and  accepting  pecuniary  stand- 
ards gives  a  strong  commercial  flavor  to  their  very  statesmanship. 
Finally,  government  is  forced  to  pursue  its  social  ends  largely  by 
business  methods.  It  must  count  the  cost  even  when  it  cannot  count 
the  gains  of  what  it  does  in  dollars,  and  by  some  shift  it  must  raise  a 
money  revenue  to  defray  its  money  outgo.  But,  after  all  the  necessary 
qualifications  have  been  made,  it  still  holds  true  that  in  dealing  with 
economic  problems  government  keeps  closer  to  fundamental  issues 
than  is  feasible  for  business  men.  Government  can  consider  what 
needs  it  is  important  to  satisfy,  while  business  men  must  consider  what 
market  demand  it  is  profitable  to  supply  or  profitable  to  create. 

Were  this  difference  of  aim  the  sole  difference  between  the  public 
and  private  guiding  of  economic  activity,  society  would  probably  be 
organized  on  the  basis  of  state  socialism  instead  of  on  the  basis  of 
money  economy.    But  there  is  this  further  difference,  that  govern- 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  851 

ment  is  far  less  efficient  in  pursuing  its  aim  of  social  welfare  than 
business  enterprise  in  pursuing  its  aim  of  making  money.  The  scope 
actually  accorded  to  government  in  managing  industry  has  been 
affected  no  less  by  apprehension  of  this  shortcoming  than  by  apprecia- 
tion of  government's  function  as  the  guardian  of  common  interests. 

The  few  services  which  are  almost  everywhere  performed  by 
government  are  services  in  which  management  for  profit  is  deemed 
quite  incompatible  with  public  welfare.  Schools  run  for  profit  would 
not  teach  the  children  of  the  very  poor;  sanitary  bureaus  run  for 
profit  could  not  force  their  services  upon  communities  which  need 
attention,  etc.  The  longer  list  of  services  which  in  some  places  are 
assumed  by  government  and  in  others  left  to  business  enterprise  fall 
mainly  into  four  classes:  undertakings  like  water  supply,  street  cars, 
and  railways  which  are  most  economically  managed  as  monopolies 
and  therefore  open  to  the  suspicion  of  practicing  extortion;  under- 
takings like  the  management  of  forests  in  which  the  community  is 
interested  in  conserving  sources  of  supply  over  a  longer  period  than 
competing  business  enterprises  think  it  profitable  to  regard;  under- 
takings like  the  improvement  of  rivers  and  harbors,  the  reclamation  of 
waste  lands,  and  the  building  of  canals  in  which  the  prospects  of  profit 
are  not  sufficiently  bright  to  attract  the  requisite  amount  of  private 
capital;  and  undertakings  like  the  salt,  tobacco,  mining,  and  lottery 
monopolies  of  Europe  which  are  frankly  exploited  by  government  for 
the  sake  of  raising  revenue. 

Over  a  far  wider  field,  government  affects  the  guidance  of  eco- 
nomic activity  by  trying  to  prevent  the  pursuit  of  private  profit  from 
clashing  with  public  welfare.  Factories  are  required  to  adopt  expen- 
sive safeguards  for  the  benefit  of  their  employees  or  patrons;  they  are 
forbidden  to  employ  the  cheap  labor  of  young  children,  to  keep  women 
at  work  more  than  eight  hours  a  day,  etc.  Most  of  these  regulations 
are  negative  in  character;  but  government  also  attempts  to  direct 
business  enterprise  into  undertakings  which  are  claimed  to  be  socially 
advantageous  though  unprofitable  without  assistance  from  the  state. 
Protective  tariffs  upon  imports,  bounties  upon  the  production  of  sugar, 
the  ship  subsidies,  are  examples  in  point. 

Still  more  in  general,  the  whole  plan  of  raising  public  revenues 
and  deciding  public  expenditures,  the  methods  of  providing  for  the 
public  defense  and  maintaining  domestic  order,  the  monetary  system, 
and  even  the  form  of  political  institutions;  in  short,  everything 
government  is  and  does,  influences  the  direction  of  economic  activity. 


g52         .  INDUSTRIAL  SOCIETY 

For  the  money  economy  is  so  flexible  a  form  of  organization  that 
the  prospects  of  profits  and  therefore  the  direction  of  economic  activity 
by  private  initiative  are  affected  by  a  thousand  acts  of  government 
done  for  other  than  economic  ends. 

See  also  105-112  on  The  Apportionment  of  Productive  Energy. 
139.  Faulty  Direction  of  Economic  Activity. 
290.  Trade  Associations. 
400.  What  Government  Is  Now  Doing. 
404.  Modern  Statements  of  the  Functions  of  Govern- 
ment. 

326.  THE  ENTREPRENEUR  AND  THE  CAPITALIST1 
The  entrepreneur  class  comprises  the  modern  employers  of  labor, 
men  of  business,  "captains  of  industry."  It  is  much  to  be  regretted 
that  we  have  not  a  single  English  word  which  exactly  fits  the  person 
who  performs  this  office  in  modern  industry.  The  word  "undertaker," 
the  man  who  undertakes,  at  one  time  had  very  much  this  extent; 
but  it  has  long  since  been  so  exclusively  devoted  to  funereal  uses  as  to 
become  an  impossible  term  in  political  economy.  The  word  "adven- 
turer," the  man  who  ventures,  also  had  this  sense;  but  in  modern 
parlance  it  has  acquired  a  wholly  sinister  meaning.  The  French  word 
"entrepreneur"  has  very  nearly  the  desired  significance;  and  it  may 
be  that  the  exigencies  of  politico-economical  reasoning  will  yet  lead 
to  its  being  naturalized  among  us. 

This  function,  then,  of  the  man  of  business,  middleman,  under- 
taker, adventurer,  entrepreneur,  employer,  requires  to  be  carefully 
discriminated.  The  assumption  that  the  capitalist  is  the  employer, 
the  employer  the  capitalist,  is  monstrously  unreal.  True  it  is  that  the 
employer  should  be  a  capitalist,  that  he  should  have  possession  of 
some  accumulations,  not  only  to  guarantee  the  loans  he  contracts  and 
the  wages  he  becomes  responsible  for,  but  also  to  steady  his  own 
operations,  lest  he  should  act  as  one  who  has  everything  to  gain  and 
nothing  to  lose;  true  it  is  that  able  employers  come  to  own  an  increas- 
ing share  of  the  capital  used  in  their  increasing  business,  and  that  the 
larger  their  accumulations  become,  the  greater  the  freedom  and 
strength  with  which  they  conduct  business.  Yet  it  still  remains  that 
the  employer  is  not  an  employer  because  he  is  a  capitalist,  or  in  pro- 

1  Adapted  by  permission  from  F.  A.  Walker,  The  Wages  Question,  pp.  227- 
46.     (Henry  Holt  &  Co.,  1891.) 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  853 

portion  as  he  is  a  capitalist.  Of  capitalists,  under  our  modern  organi- 
zation of  industry,  but  a  small  minority  employ  labor;  of  employers 
few  but  use  capital  far  in  excess  of  what  they  own. 

Who,  then,  are  the  capitalists  who  are  not  employers  of  labor  ?  I 
answer,  first,  those  who  by  age,  sex,  or  infirmity  are  disabled  from 
active  operations,  men  retired  from  business,  women  of  all  ages, 
children  and  young  persons  of  both  sexes,  the  crippled  and  incompe- 
tent for  whom  provision  has  been  made;  these,  in  the  order  of  nature, 
own  a  large  part  of  the  property  of  the  world.  If  their  wealth  is  in 
their  own  hands,  they  know  their  limitations,  and  do  not  undertake 
to  employ  it  personally;  if  their  wealth  is  held  for  them,  the  responsi- 
bilities of  the  trustee  or  guardian  are  incompatible  with  the  ventures 
of  manufacture  or  trade.  Secondly,  those  who,  from  dignity  and 
love  of  leisure,  as  is  especially  the  case  with  men  of  inherited  means, 
are  indisposed  to  increase  their  store  by  active  exertions,  but  live  upon 
their  income;  and  those  who  are  engaged  in  professions  which  do 
not  allow  the  investment  of  their  earnings.  Thirdly,  the  laboring 
classes,  whether  receiving  wages  or  salaries,  who  are  able,  even  out 
of  scanty  earnings,  to  make  savings  which  they  are,  from  the 
nature  of  their  industrial  position,  unable  to  apply  personally  to 
production. 

Small  as  are  the  individual  contributions  of  this  class  to  the  loan- 
able capital  of  a  community,  the  statistics  of  the  savings  banks  show 
what  is  the  virtue  of  a  large  multiplier.  There  might  be  added,  per- 
haps should  be  added,  to  the  vast  aggregate  of  capital  thus  constituted, 
the  accumulating  profits  of  industries  which  are  already  full  of  capital 
up  to  the  point  of  "  diminishing  returns,"  where  overflow  must  take 
place  into  newer  branches  of  production. 

327.    THE  FUNCTIONS  OF  THE  ENTREPRENEUR 
A1 

Adam  Smith's  "profits  of  stock"  included  the  general  returns  of 
the  capitalist-employer.  More  recent  writers  have  recognized  that 
this  person  performs  two  functions,  and  receives  a  reward  in  each 
capacity.  That  which  accrues  to  him  as  a  capitalist  is  interest;  and 
that  which  comes  to  him  as  an  employer,  or  business  manager,  is 
known  as  entrepreneur's  profit. 

x  Adapted  by  permission  from  J.  B.  Clark,  "Profits  under  Modern  Conditions," 
Political  Science  Quarterly,  II  (1887),  603-7. 


gs  INDUSTRIAL  SOCIETY 

An  entrepreneur  is,  first,  an  industrial  organizer;  he  directs  the 
productive  energies  of  other  persons.  If  he  be  a  manufacturer  he 
divides  and  subdivides  the  labor  of  making  a  product,  and  assigns  to 
each  workman  the  part  of  the  process  to  which  he  is  adapted.  The 
thing  to  be  accomplished  is  prescribed;  there  is  a  certain  article  to  be 
produced,  and  there  is  an  accepted  manner  of  producing  it;  and  the 
routine  function  which  first  falls  to  the  employer  consists  in  directing 
the  operation  in  its  execution.  He  guards  against  wastes,  impels 
workers  to  effective  effort,  and  co-ordinates  their  labors.  By  his 
direction  the  work  of  many  individuals  is  brought  into  organic  unity. 
He  is  the  brain  of  a  social  organism;  he  does  its  executive  planning, 
and  communicates  to  the  muscles  the  motive  impulses  that  set  them 
at  work  and  control  their  action. 

In  this  capacity  the  employer  is  the  most  important  part  of  the 
personnel  of  the  shop.  He  is  a  directive  laborer.  The  outcome  of  his 
effort  is  a  certain  mechanical  result,  a  transformation  of  matter. 
Directive  labor,  muscular  labor,  and  machines  together  create 
"form  utilities";  they  transform  iron  into  implements,  wool  into 
cloth,  etc.,  and  in  these  changes  of  form  lies  the  value  that  they  jointly 
bring  into  existence.  Employer  and  workman  are  thus  far  laborers 
together;  what  they  get  for  their  efforts  is,  in  the  broad  sense  of 
the  term,  wages;  and  the  employer's  part  is  distinctively  the  wage  of 
directive  labor. 

In  addition  to  this  there  comes  to  an  employer  a  return  having  a 
wholly  different  origin  and  nature;  it  is  essentially  mercantile.  An 
employer  buys,  sells,  and  gets  gain  like  any  dealer  on  the  street.  The 
business  operations  of  a  woolen  manufacturer  do  not  begin  with  wool 
in  the  sorting  room  and  end  with  goods  in  the  storehouse.  He 
must  obtain  the  wool  from  dealers,  and  must  hand  the  goods  over 
to  purchasers.  The  mechanical  part  of  his  business  is  completed  at 
the  mill  and  by  the  working  organism  of  which  he  is  the  head;  the 
mercantile  part  extends  into  the  world  and  brings  him  into  connection 
with  other  producing  organisms.  In  this  particular  exchanging 
function  the  workmen  have  no  part;  the  employer  only  is  recognized 
in  the  market  as  the  buyer  of  materials  and  the  seller  of  goods. 

The  buying  of  raw  materials,  however,  does  not  end  the  employer's 
function  as  a  purchaser;  there  is  something  more  to  be  acquired  if  he 
is  to  become  the  valid  owner  of  the  product.  Into  the  finished  goods 
there  enter  other  elements  than  raw  materials,  and  these  must  be  in 
part  acquired  by  purchase.    Within  the  mill  itself  there  are  titles  to  be 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  855 

transferred.  Day  by  day,  hour  by  hour,  as  the  manufacturing  goes 
on,  new  utilities  come  into  existence.  Every  turn  of  the  engine 
results  in  more  cloth,  more  yarn,  more  carded  wool,  etc.  The  utilities 
thus  created  have  definite  values;  unfinished  goods  may  not  be 
immediately  salable,  but  the  employer  would  know  how  to  rate  them 
were  he  to  take  an  account  of  stock.  Every  step  in  the  process  that 
brings  them  nearer  to  the  condition  in  which  they  can  be  placed  upon 
the  market  adds  something  to  the  value  of  the  crude  materials  with 
which  the  process  began.  These  increments  of  utility  are  jointly 
created  by  three  agencies:  directive  labor,  muscular  labor,  and 
machines.  This  determines  their  ownership;  they  belong,  in  undi- 
vided share,  to  the  director,  the  workmen,  and  the  furnisher  of 
machines,  or  the  capitalist. 

Now  the  essential  fact  is  that  the  employer  buys  out  his  partners 
in  the  productive  operation.  He  pays  for  the  share  of  the  workmen  in 
wages  and  for  that  of  the  capitalist  in  interest,  and  acquires  thereby 
a  title  to  the  utilities  created  in  the  mill.  As  the  raw  material  is  his 
from  the  outset,  he  ends  by  becoming  the  owner  of  every  element  of 
the  product.  In  his  own  name  he  may  place  the  goods  on  the  market 
and  get  what  he  can  for  them. 

The  function  of  the  entrepreneur  as  such  consists,  therefore,  in 
two  operations,  the  one  mechanical  and  the  other  mercantile;  he 
directs  a  productive  process,  and  he  buys  the  elements  that  enter  into 
the  product  and  sells  them  collectively  in  the  product  itself.  In  the 
one  capacity  he  is  a  laborer  and  receives  a  higher  variety  of  wages;  in 
the  other  capacity  he  is  a  merchant  and  receives  a  margin  of  difference 
between  what  he  pays  and  what  he  gets.  The  finished  goods  are 
supposed  to  bring  in  the  market  more  than  the  cost  of  all  the  elements 
that  compose  them. 

The  general  wage  of  business  management  constitutes  one  of  the 
preferred  claims  on  the  returns  of  business;  it  must  be  deducted  from 
them  before  final  profits  can  be  computed.  Ordinary  wages  constitute 
another  preferred  claim,  interest  a  third,  and  the  cost  of  materials  a 
fourth.  If,  to  avoid  intricacy,  we  group  taxes,  all  forms  of  insurance, 
and  incidental  expenses  as  a  fifth  claim,  the  sum  of  these  five  amounts 
will  represent  the  total  cost  of  acquiring  the  title  to  a  product.  In 
selling  the  product  for  more  than  this  sum-total  lies  the  employer's 
chance  of  ultimate  gain.  Pure  profit  is  the  return  of  simple  ownership. 
It  is  free  from  all  admixture  of  wages  and  of  interest.  It  accrues  to 
him  who  simply  extends  the  aegis  of  civil  rights  over  the  elements  of  a 


g56  INDUSTRIAL  SOCIETY 

product,  and  then  withdraws  it  in  order  that  the  product  may  pass 
into  other  hands.  The  entrepreneur  or  assumer  is  he  who  takes  upon 
himself  the  responsibility  of  ownership. 

That  the  capitalist,  the  manager,  and  the  owner  of  the  product 
may  at  times  be  one  and  the  same  person  does  not  affect  the  analysis; 
the  three  functions  are  distinct,  and  the  rewards  attaching  to  them 
are  equally  so.  The  growth  of  corporations  tends  in  a  practical  way 
to  separate  these  functions.  Capitalists  are  here  a  body  of  stock- 
holders, bondholders,  and  business  creditors;  managers  are  a  body  of 
salaried  officials;  while  entrepreneurs,  in  the  limited  sense  of  the  term, 
are  the  stockholders.  Pure  profit  resides  in  the  portion  of  the  divi- 
dends that  is  in  excess  of  current  interest  on  the  paid-up  capital. 

B1 

[Note. — The  following  is  an  outline  presentation  of  factors  bear- 
ing upon  the  economic  choices  of  the  entrepreneur.  In  studying  the 
outline,  the  student  should  work  out  illustrations  of  the  propositions 
given.] 

Guidance  of  Entrepreneur's  Choices 

i.  By  the  entrepreneur  himself 
a)  General  considerations 

(i)  Effect  of  entrepreneur's  guidance  best  seen   by  comparison  of 
personal  entrepreneur,  corporate  entrepreneur,  public  manager, 
co-operative    manager,    and    independent    civic    associations, 
throughout  following  treatment 
(2)  How  affected  by  range  of  alternatives  open  to  him 

(a)  In  general,  alternatives  open  to  entrepreneur  represent  a  sur- 
plus over  minimum  needs,  in  contrast  to  those  open  to  labor, 
which  may  represent  a  shortage 

(b)  After  committing  one's  self  to  an  enterprise,  range  of  alter- 
natives less  favorable 

(c)  Most  efficient  policy  for  business  as  a  whole  may  not  be  open 
to  a  single  entrepreneur,  e.g.,  best  location  for  any  one  produce 
jobbing  house  is  near  the  others,  even  if  they  are  not  in  the 
best  place  for  the  trade  as  a  whole.  Intelligent  individual 
decisions  will  not  prevent  perpetuation  of  location  that  has 
become  uneconomical 

(d)  Individual  may  avoid  costs  which  the  community  still  has  to 
bear  (e.g.,  discharging  a  misfit  workman  versus  finding  a 

'Adapted  by  permission  from  J.  M.  Clark,  "Economics  and  Modern  Psy- 
chology," Journal  of  Political  Economy,  XXVI  (1018),  152-60. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  857 

place  where  he  will  fit.     Society  must  do  the  latter  in  any 
case,  or  suffer  the  greater  loss  of  the  workman's  degenera- 
tion— a  loss  not  confined  to  the  workman  himself) 
(3)  Motives:    entrepreneur  not  below  the  average  in  sympathy, 
group  loyalty,  moralty.     Above  the  average  in  emotional  enthu- 
siasm for  work  as  such  and  readiness  to  assume  positions  of 
responsibility.     Justification    for    regarding    him    as    primarily 
governed  by  calculating  self-interest  chiefly  due  to  situation  in 
which  he  operates 

b)  Calculation  of  prices,  qualities,  performances,  costs,  etc. 

(1)  Entrepreneur  has  greater  interest  in  accuracy  than  consumers  and 
others,  because  his  entire  income  may  hinge  on  a  narrow  margin 
between  expense  and  income  of  business,  especially  if  competition 
is  active 

(2)  He  has  resources,  if  his  business  is  a  large  one,  to  make  expensive 
studies.  Disadvantage  of  small  producer  may  be  made  good  by 
co-operative  action 

(3)  Limitations  of  cost-accounting:  expense,  impossibility  of  adapt- 
ing one  formula  for  apportionment  of  overhead  items  to  varied 
requirements  of  shop  policy,  marketing  policy,  large  versus  small 
increments  of  business,  short-time  versus  long-time  increments, 
plant  running  part  time  versus  plant  running  at  full  capacity, 
labor  policy,  etc.  Need  of  business  statistics,  rather  than  mere 
accounting  formulas,  for  apportioning  general  items  of  expense. 
Such  work  most  economically  done  by  an  agency  covering  many 
plants  and  many  industries.  Peculiarly  inadequate  is  knowledge 
of  costs  and  values  of  employment  departments,  labor  turnover, 
and  labor  policies  in  general 

c)  Finding  the  "best  proportion  of  factors"  (subject  to  limitations  men- 
tioned above) 

(1)  Process  largely  one  of  imitation  and  custom  modified  by  trial  and 
error,  with  competition  weeding  out  the  worst  mistakes 

(2)  Imitation  and  custom  strongest  in  small-scale  industries,  compe- 
tition weakest  with  small  local  producers  and  very  large-scale 
industries 

(3)  No  hard  and  fast  line  between  quantitative  changes  in  proportion 
of  factors  and  qualitative  changes  in  methods,  since  to  use  labor 
and  capital  efficiently  in  unfamiliar  proportions  capital  must  be 
put  into  unfamiliar  forms  and  labor  trained  to  unfamiliar  processes 

d)  Innovations 

(1)  Technical  innovations 

(a)  Results  largely  determinable  by  experiment 

(b)  If  the  process  cannot  be  used  by  all,  its  productive  efficiency 
is  limited 


g<8  INDUSTRIAL  SOCIETY 

(c)  If  the  process  must  be  granted  freely  to  all,  the  originator 
has  no  reward  and  other  possible  originators  no  incentive 

(d)  Patent  system:  Term  of  patent  not  proportional  to  life  of 
commercial  value  of  invention.  High  cost  of  protection 
against  infringement  may  lead  to  unduly  small  reward. 
Ownership  of  many  patents  may  deprive  public  of  advantage 
of  power  to  substitute  second-best  processes  and  so  lead  to 
unduly  large  reward.  Collective  research  on  salary  basis 
as  substitute.  Difficulty  of  determining  value  of  contribu- 
tion. Failures  contribute  to  knowledge  on  which  ultimate 
successes  are  built 

(2)  Innovations  in  commercial  and  business  organization 

(a)  Private  possession  of  resulting  gains  is  partly  secured  through 
business  reticence,  and  through  the  time  and  effort  necessary 
to  adapt  one  man's  methods  to  another  man's  business. 
Secrecy  seems  on  the  decrease  (commercial  associations  pro- 
mote frankness  and  realization  of  joint  interest) 

(b)  Experimenting  more  costly  since  not  confined  to  laboratory 
or  testing  department.  Hence  collective  research  a  pecu- 
liarly valuable  method  in  this  field.  If  every  producer  has 
to  care  for  his  own  industrial  researches,  small  producers  are 
at  a  much  greater  disadvantage  than  if  some  collective  system 
is  used.  Thus  in  critical  cases  the  establishment  of  a  good 
system  of  co-operative  or  public  research  may  prevent  the 
savings  of  large-scale  production  from  going  so  far  as  to  estab- 
lish a  "natural  monopoly" 

(c)  The  gain  or  loss  which  improvements  bring  to  society  include 
many  things  which  do  not  figure  in  the  financial  calculations 
of  the  business  men  who  make  the  improvements.  Technical 
revolutions  make  obsolete  many  business  customs,  legal  doc- 
trines, and  other  institutions.  Labor  contracts  become  com- 
plex because  they  must  specify  definitely  many  things  which 
might  otherwise  be  ignored  with  the  understanding  that  they 
would  be  settled  according  to  the  custom  of  the  trade. 
Laborers  must  delegate  specialists  to  care  for  these  increas- 
ingly complex  contracts,  and  this  is  expensive;  also  they  are 
forced  to  depend  upon  the  honesty  and  loyalty  of  their 
specialist-agents,  who  are  not  always  worthy  of  this  trust. 
Modern  manufacturing  methods  make  it  harder  for  the  con- 
sumer to  judge  the  quality  of  goods,  and  the  qualities  may 
change  so  imperceptibly,  yet  so  quickly,  that  consumers' 
habits  and  customs  of  consumption  cannot  be  relied  on. 
The  consumer  needs  expert  help  in  this  matter,  including  the 
services  of  scientific  laboratories,  and  this  is  a  heavy  expense. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  859 

Changed  methods  of  production  bring  changes  in  the  sanitary 
conditions  of  shops,  and  changes  in  the  character  of  the 
fatigue  and  nervous  wear  and  tear  on  the  workman.  These 
bring  with  them  possibilities  of  damage  to  physical  and  men- 
tal health  which  the  workman  himself  cannot  foresee  and  pro- 
vide against.  In  general,  with  the  industrial  change  carried 
on  by  scientific  specialists,  laborers  and  consumers  need  other 
scientific  specialists  to  help  them  protect  their  interests  in 
the  changed  conditions  created, 
e)  Judgment  of  efficiency  of  subordinates 

(1)  Value  and  limitations  of  formal  tests 

(2)  Methods  of  informal  judgment 

/)  The  corporation  as  an  economic  man.  If  corporation  is  to  act  with 
calculating  selfishness  as  a  corporation,  directors  and  officers  must  act 
with  perfect  loyalty  as  persons  in  the  roles  assigned  by  their  positions. 
In  proportion  as  corporations  dominate  business,  economics  becomes 
the  science,  not  of  self-interest  within  the  law,  but  of  loyalty  beyond 
what  the  penalties  of  law  can  enforce 

(1)  Development  of  codes  of  intra-corporate  honesty 

(2)  Competition  as  a  force  in  this  direction  weeding  out  the  badly 
managed  enterprises 

(3)  Types  of  business  affording  opportunities  for  profits  through  dis- 
loyalty 

(a)  The  very  profitable.  Will  stand  some  looting  without  going 
bankrupt 

(b)  The  very  unprofitable.  The  only  chance  for  a  big  personal 
profit  here  is  by  looting  the  corporation  while  there  is  still 
something  to  loot 

By  other  agencies  under  commercial  incentives 

a)  Internal  (see  cost-accounting  and  innovation,  above) :  routine  records 
versus  creative  work.  Information  of  value  only  to  one  entrepreneur 
versus  information  of  value  to  trade  as  a  whole — e.g.,  routine  account- 
ing. Though  a  form  of  guidance,  its  primary  value  is  inalienably 
private,  and  private  enterprise  secures  this  service  with  reasonable 
adequacy.  Contrast  the  devising  of  the  best  accounting  system  for 
small-scale  industry;  essentially  a  joint  or  public  interest 

b)  Specialists  in  new  services,  business  barometrics,  technical  and  com- 
mercial periodicals.  Value  limited  by  reticence  of  business  men  from 
whom  information  must  be  obtained 

c)  Advertising  and  selling  services:  since  the  entrepreneur  is  able  to 
take  care  of  his  own  interests  as  purchaser,  sellers  are  compelled 
to  rely  chiefly  on  verifiable  information,  hence  less  wasteful  than 
selling  to  consumers.  This  less  true  of  selling  to  small-scale 
producers 


goo  INDUSTRIAL  SOCIETY 

J)  Other  ways  of  attracting  customers 
(i)  Railroads'  industrial  departments 

(2)  Inducements  offered  by  local  bodies  to  attract  industries  to  their 
town 

3.  Informal  co-operation  of  entrepreneurs 

a)  Contact  in  trade  and  technical  associations 

b)  Codes  of  fair  dealing 

4.  Formal  co-operation  of  entrepreneurs 

a)  Exchanges  with  rules  of  trading,  etc. 

b)  Grading  of  goods  (also  done  under  public  control) 

c)  Information  services  of  co-operative  associations,  agricultural 
especially 

d)  Co-operative  buying,  chiefly  agricultural 

5.  Outside  non-commercial  agencies  chiefly  acting  from  civic  motives 

a)  Economic  and  industrial  research 

b)  Mediation  in  labor  disputes 

c)  Educative  effect  of  political  propaganda  in  attracting  attention  to 
unprotected  social  interests 

d)  Education  in  general:  its  best  service  in  this  matter  is  to  develop 
in  business  men  and  others  a  lively  sense  of  the  remote  effects  of  busi- 
ness policies,  and  a  bias  toward  treating  these  effects  as  they  would 
if  the  people  affected  were  acquaintances  and  the  effects  were  visible 
and  immediate 

e)  Public  agencies 

(1)  Fundamental  legal  institutions  (forms  of  restraint  rather  than 
guidance  of  free  choices) 

(2)  Services  of  value  to  employers  as  a  group  and  not  adequately 
cared  for  by  limited  resources  of  single  employers 

(a)  Experimental  and  publicity  work  in  agriculture 

(b)  Testing  done  by  Bureau  of  Standards 

(c)  Consular  service  and  possible  enlargements  of  such  functions 

(d)  Improving  conditions  in  which  buyer  and  seller  meet,  e.g., 
public  wholesale  markets 

(3)  Research  in  means  of  furthering  interests  which  single  employers 
do  not  have  adequate  financial  incentive  to  protect 

(a)  Safety  studies,  e.g.,  Bureau  of  Mines 

(b)  Unemployment  studies 

(c)  Studies  in  effects  of  adulterations 

(4)  Work  combining  features  of  (2)  and  (3).  Standardization  of 
methods  of  dealing  with  labor,  studies  of  causes  and  costs  of  labor 
turnover,  etc. 

(5)  Control  of  conditions  of  bargaining,  of  location  of  industries  (e.g., 
city  zoning  and  city  planning),  etc.  Forms  of  restraint  rather 
than  guidance  of  free  choices  but  made  necessary  by  blind  spots 
in  entrepreneur  guidance 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  86l 

328.    IS  THE  ENTREPRENEUR  ACTIVE  OR  PASSIVE?1 

The  elements  in  the  cost  of  a  product  are  primarily  determined  by 
conditions  over  which  the  employer  has  no  control. 

Interest  is  determined  by  equally  general  conditions  and  is  uni- 
form to  all  borrowers  who  furnish  equal  guaranties  for  the  certainty 
and  promptness  of  their  payments.  The  cost  of  raw  materials  is 
determined  in  a  market  that  is  somewhat  more  limited;  it  is  gauged 
by  the  transactions  that  take  place  between  the  industrial  group  that 
produces  it  and  the  several  groups  that  use  it.  This  market  is  broad 
enough  to  be  beyond  individual  control. 

The  cost  of  the  labor  of  management  is  subject  to  more  disturbing 
influences  than  almost  any  other  economic  element;  and  general 
statements  concerning  this  item  of  outlay  need  to  be  made  with 
adequate  reservations.  Personal  relations  may  make  a  particular 
salary  abnormal.  The  principle  that  tends  to  determine  the  wage  of 
business  management  may-  be  formulated,  and,  with  due  caution, 
applied;  it  is  fixed  in  a  general  market  for  labor  of  a  given  intellectual 
and  moral  quality. 

Rates  of  insurance  and  taxation  are  governed  by  impartial 
rules.  The  elements  that  constitute  the  cost  of  a  product  to  the 
man  who  is  to  own  and  sell  it  are  fixed  by  conditions  which  he 
cannot  change. 

His  returns  are  equally  beyond  his  control.  The  price  of  his 
product  is  adjusted  in  the  open  market  by  transactions  between  the 
group  to  which  he  belongs  and  the  various  groups  that  contain  his 
customers.  The  adjustment  is  similar  to  that  which  governs  the 
price  of  raw  materials.  Pure  profit  is  the  difference  between  this 
uncontrollable  amount  and  the  sum  of  the  equally  uncontrollable 
amounts  disbursed.  The  reward  of  the  entrepreneur  in  his  capacity 
as  owner  of  a  product  comes  to  him,  as  rain  from  the  clouds,  through 
the  action  of  forces  lying  beyond  the  range  of  his  dominant  influence. 
He  has  nothing  to  do  but  to  receive  it.  He  must  accept  what  comes 
into  his  treasury,  and  submit  to  what  goes  out  of  it;  the  difference, 
which  is  pure  profit  or  loss,  is  fixed  without  appeal. 

In  his  other  capacity,  that  of  manager,  the  entrepreneur  is  not  the 
helpless  creature  of  fate.  His  fortune  is  largely  in  his  own  hands. 
Moreover,  the  fortune  of  the  owner  is,  in  a  negative  way,  entrusted 
to  the  manager,  who  can  always  mar  it,  though  he  cannot  always 

1  Adapted  by  permission  from  J.  B.  Clark,  "Profits  under  Modern  Conditions," 
Political  Science  Quarterly,  II  (1887),  607-9. 


g62  INDUSTRIAL  SOCIETY 

make  it.  In  a  study  of  profits  it  needs  to  be  assumed  that  the  shop  is 
running  under  competent  direction;  otherwise,  under  modern  con- 
ditions, it  will  quickly  pass  from  the  industrial  field.  Materials 
must  be  well  selected,  the  working  force  well  handled,  and  the 
goods  rapidly  and  safely  marketed,  or  the  pure  profit  will  become 
a  negative  quantity,  and  the  business  will  be  terminated.  There 
are  transient  conditions  in  which  mediocrity  may  for  some  time 
hold  its  place;  but  the  sword  is  over  its  head  from  the  outset,  and 
will  fall  in  due  time.  

See  also      5.  How  the  Industrial  System  Works. 
100.  The  Enterpriser. 
104.  Some  Shortcomings  of  Self-Interest. 
199.  The  Entrepreneur  as  a  Risk  Taker. 
370.  Property  at  Its  Zenith. 

D.     The  Financier 
329.    THE  FUNCTION  OF  THE  BANKER1 

The  primary  function  of  the  commercial  banker  is  that  of  a  broker 
and  dealer  in  money.  It  is  his  mission  to  provide  money  for  those  who 
need  it — to  keep  it  for  hire,  just  as  a  livery  stable  keeper  keeps  horses 
and  carriages  for  hire.  The  fact  that  money  can  be  had  at  a  bank 
diminishes  the  necessity  that  an  individual  should  keep  it,  just  as  the 
fact  that  bread  can  be  bought  at  the  baker's  and  carriages  hired  at 
the  stable  obviates  the  necessity  that  every  individual  should  keep 
a  large  store  of  bread  and  his  own  carriage  to  guard  against  any 
possible  need  for  them. 

From  the  fundamental  function  of  the  banker  as  a  keeper  of 
money  on  hire  arises  his  auxiliary  function  of  gathering  up  the  money 
of  the  people  in  order  to  reduce  the  stock  of  idle  money  in  their  hands 
to  the  lowest  limits  and  to  thereby  insure  the  greatest  economy  in 
the  investment  of  the  capital  of  the  community  in  actual  currency. 
Hence  it  comes  that  the  banker  solicits  the  deposits  of  even  the 
smallest  owners  of  money,  that  he  may  combine  these  small  holdings 
into  amounts  large  enough  to  be  used  profitably  in  loans  for  carrying 
on  important  business  enterprises. 

It  is  in  distributing  between  depositors,  borrowers,  and  his  own 
vaults  the  money  entrusted  to  him  by  depositors  in  such  a  manner  that 

1  Adapted  by  permission  from  C.  A.  Conant,  "The  Function  of  the  Banker," 
Quarterly  Journal  0}  Economics,  XVII  (1902-3),  479-86. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  863 

he  shall  always  be  able  to  repay  it  according  to  his  promise,  that  the 
most  delicate  and  important  function  of  the  banker  arises.  It  is  in 
the  execution  of  this  function  that  the  modern  banker  has  become  the 
arbiter  of  the  direction  of  investment,  the  organization  of  industry, 
and  even  of  the  fate  of  nations.  Simple  as  the  process  is  by  which  the 
banker  transfers  to  others  the  stored  purchasing  power  which  he  has 
gathered  up  in  small  deposits  from  his  customers  who  have  acquired 
gold  or  the  right  to  command  gold,  it  is  his  selection  among  these 
borrowers  which  determines  the  entire  course  of  the  industrial  progress 
of  a  nation.  The  powerful  banker  has  acquired  not  only  the  command 
over  the  purchasing  power  of  others,  but  he  has  imparted  such  confi- 
dence everywhere  in  his  ability  to  fulfil  his  promises  to  pay  metallic 
money  on  demand  whenever  the  demand  is  made  upon  him  to  pay 
one  of  his  promises  that  his  mere  endorsement  of  a  promise  or  his 
mere  acceptance  of  some  other  person's  promise  becomes  as  potent 
in  his  hands  as  the  tender  of  gold  in  the  hands  of  others. 

Hence  it  comes  that  the  great  banker,  in  the  financing  of  impor- 
tant enterprises,  can  by  a  word  determine  whether  a  given  project 
shall  succeed  or  fail.  As  the  master  of  uninvested  capital,  he  is  the 
final  judge,  from  whose  decision  there  is  no  appeal,  of  the  direction 
in  which  capital  shall  be  applied  to  industry.  In  every  growing  com- 
munity much  of  the  real  burden  of  deciding  upon  the  course  of  its 
future  development,  much  of  the  real  credit  for  this  development, 
lies  with  the  banker. 

The  fertility  in  the  creation  of  new  enterprises  in  modern  eco- 
nomic society  is  one  of  the  natural  results  of  the  transferability  of 
capital  which  is  promoted  by  the  banking  system.  It  is  the  banker 
largely  who  determines  the  direction  of  industry  by  his  willingness 
to  make  loans  to  industries  which  are  profitable  because  they  are 
meeting  a  demand  and  by  his  withdrawal  of  loans  from  industries 
which  are  ceasing  to  be  profitable  because  of  overproduction  and 
diminished  demand. 

From  this  function  of  the  banker  in  the  use  of  credit  naturally 
opens  the  vista  of  the  great  power  which  he  exercises  under  modern 
conditions  in  the  consolidation  of  industries,  the  weeding  out  of  worn- 
out  institutions,  the  combinations  of  railways  and  steamship  lines, 
and  all  the  other  steps  which  have  been  taken  within  a  decade  to 

I  promote  the  economy  of  effort  and  the  efficiency  of  industry.  The 
banker's  has  in  some  of  these  cases  been  the  originating  and  pro- 
-—-—■— 


854  INDUSTRIAL  SOCIETY 

combinations  and  brought  together  the  discordant  elements  necessary 
to  make  them  succeed.  The  best  type  of  banker,  however,  does 
not  usually  act  directly  as  a  promoter.  He  leaves  it  to  others  to 
present  such  projects  for  his  consideration,  and  sits  in  impartial 
judgment  upon  their  value  in  the  economy  of  society. 


See  also  116.  The  R61e  of  Many  in  Economic  Organization. 

128.  Various  Services  of  Banks. 

129.  A  Classification  of  Banks  and  Types  of  Banking 

Operations. 

130.  Investment  Banking. 

131.  The  Services  of  Bond  Houses. 

330.    THE  UNDERWRITER1 

One  means  of  floating  an  issue  of  securities  is  to  dispose  of  them 
through  the  agency  of  banking  and  brokerage  houses.  In  such 
cases  the  financial  houses  may  not  merely  undertake  to  sell  the 
securities,  but  may  make  themselves  responsible  for  the  success  of 
the  sale.  One  method  of  so  doing  is  by  agreeing  to  take  for  them- 
selves, if  no  other  purchasers  are  found  within  a  specified  period,  all 
of  the  unsold  portion  of  the  issue  at  a  certain  agreed  price.  Thus  the 
issuing  corporation  is  relieved  of  part  of  its  risk  and  the  buyers  of  the 
securities  are  made  to  feel  that  well-informed  financiers  have  faith  in 
their  value.  This  process — modified  more  or  less,  as  described  later — 
is  known  as  underwriting. 

Advantages  of  underwriting  to  the  corporation. — There  are  several 
reasons  why  banking  and  brokerage  houses  may  properly  carry  on 
this  business  of  financial  underwriting  and  why  the  business  is  usually 
profitable  both  to  themselves  and  to  the  corporation  which  issues 
the  underwritten  securities.  In  the  first  place,  the  bankers  are 
presumably  experts  in  the  valuation  of  securities.  Their  judgment 
as  to  the  price  which  should  be  set  on  a  new  security  or  as  to  the 
terms  of  exchange,  if  the  new  security  results  from  a  conversion  of  an 
old  security,  is  a  valuable,  authoritative  judgment.  In  the  second 
place,  the  bankers  are  also  experts  in  selling  securities  and  each  house 
involved  in  the  underwriting  usually  has  an  established  clientele  to 

1  Adapted  by  permission  from  W.  H.  Lough,  Corporation  Finance,  pp.  256-66. 
(De  Bower-Elliot  Co.,  1909.    Author's  copyright,  19 17.) 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  865 

whom  it  may  readily  dispose  of  almost  any  securities  that  it  recom- 
mends. The  corporation,  on  the  other  hand,  has  no  facilities  what- 
ever for  selling  stocks  and  bonds;  its  activities  are  in  the  field  of 
transportation,  or  industry,  or  trade,  not  in  finance. 

Two  further  reasons  are  even  more  potent  in  inducing  corporation 
managers  to  have  new  security  issues  underwritten.  First,  even 
though  the  corporation  can  obtain  expert  financial  advice  and  is  reason- 
ably sure  to  make  a  success  ultimately  of  the  sale  of  any  securities 
it  puts  out,  yet  the  time  that  will  elapse  before  the  sale  is  com- 
pleted and  the  money  received  is  always  uncertain.  Now  the  cor- 
poration ordinarily  would  not  be  trying  to  sell  new  securities  if  it  did 
not  need  money  at  once  or  in  the  near  future.  It  is  disastrous  to  the 
success  of  many  industrial  or  commercial  operations  to  hold  them  in 
abeyance  until  the  tedious  process  of  selling  a  large  block  of  bonds 
or  stocks  is  completed;  yet  it  is  dangerous  to  go  ahead  so  long  as  the 
sale  is  incomplete.  The  second  reason  is  that  the  credit  of  a  corpora- 
tion is  seriously  affected  by  any  apparent  inability  to  market  its 
securities.  One  failure — or  even  a  success  that  is  too  hard- won — 
would  hamper  the  corporation  greatly  both  in  getting  loans  and  in 
making  future  sales  of  stock. 

Advantage  to  the  buyers  of  securities. — There  are  telling  advantages 
to  the  buyers  of  securities  also  in  having  them  underwritten.  Repu- 
table banking  houses  never  sell  securities  until  after  they  have  been 
satisfied  by  a  searching  investigation  that  the  securities  are  all  that 
they  are  represented  to  be. 

Another  advantage  to  the  buyer  is  that  he  may  be  sure  that  the 
whole  security  issue  has  been  sold  by  the  corporation.  A  half-sold 
issue  is  a  sign  of  weakness  and  a  hindrance  to  the  completion  of  the 
corporation's  plans  so  serious  as  to  reduce  the  value  usually  of  the 
portion  that  has  been  sold. 

A  third  advantage  to  the  buyer  is  that  any  reputable  banking 
house  will  watch  closely  any  security  that  it  has  underwritten,  and 
will  come  to  the  assistance  of  the  security-holders  in  case  the  corpora- 
tion later  gets  into  difficulties. 

When  is  underwriting  advisable  ?— -It  must  not  be  inferred  that 
every  new  stock  or  bond  issue  ought  to  be  underwritten.  Small 
issues,  say  $500,000  or  less,  can  usually  be  sold  to  a  comparatively 
small  number  of  investors  by  direct  solicitation  on  the  part  of  the 
corporation.    Then  again,  well-established,  successful  corporations 


866 


INDUSTRIAL  SOCIETY 


bargain  prices.  Ordinarily  there  is  no  risk  in  such  a  sale  and  conse- 
quently no  necessity  for  underwriting. 

Why  underwriting  syndicates  are  formed. — It  would  naturally  be 
expected  that  each  of  the  large  financial  houses  engaged  in  the  under- 
writing business  would  handle  on  its  own  responsibility  whatever 
business  comes  its  way,  and  that  rivalry  would  prevent  their  co- 
operating to  any  considerable  extent.  The  fact  is,  however,  that 
these  houses  have  long  since  learned  that  it  is  inadvisable  for  any 
one  of  them,  no  matter  how  powerful,  to  guarantee  the  success  of  a 
large  security  issue.  It  is  true  that  the  banker's  judgment  and 
experience  should  enable  him  to  avoid  heavy  risks;  yet  a  certain 
amount  of  risk  is  inevitable.  It  is  not  considered  conservative 
banking,  therefore,  for  any  one  house  or  even  any  two  or  three  houses 
to  underwrite  a  large  issue. 

Another  reason  for  co-operation  among  bankers  is  that  each 
house  desires  to  offer  a  variety  of  securities  to  its  clientele.  If  it 
specializes  too  much  or  offers  only  a  few  securities,  it  cannot  expect 
to  attract  and  hold  regular  customers. 

A  third  reason  for  co-operation  is  in  order  that  a  broad  geo- 
graphical distribution  may  be  obtained  and  the  sale  of  the  security 
issue  be  made  correspondingly  easy. 

Five  types  of  syndicates. — Originally  the  normal  arrangement  was 
to  have  the  syndicate  as  a  whole  guarantee  the  price  of  the  issue, 
and  let  the  corporation  attend  to  the  selling.  This  is  underwriting 
in  the  original  sense  of  the  word;  it  is  a  species  of  insurance.  Under 
such  a  plan  the  syndicate  would  have  two  sources  of  profit:  first,  a 
commission  on  the  portion  sold  to  the  public,  or  a  fixed  bonus;  and, 
second,  the  difference  between  the  wholesale  price  to  them  and 
the  retail  price  at  which  they  would  ultimately  dispose  of  the 
bonds. 

A  second  type,  also  rather  unusual,  is  a  syndicate  formed  to  take 
an  "underwriter's  option."  Under  this  plan  the  syndicate  takes  the 
block  of  bonds  or  stock  at  a  fixed  price,  payable  only  as  resold. 
As  fast  as  the  syndicate  disposes  of  the  bonds  it  turns  over  the  pro- 
ceeds to  the  corporation,  after  deducting  whatever  it  receives  above 
the  fixed  price.  The  corporation  pays  somewhat  less  for  this  service 
than  for  other  kinds  of  underwriting,  because  the  syndicate  takes  no 
risk;  on  the  other  hand,  as  the  corporation  cannot  be  certain  when 
it  will  get  its  money,  the  type  is  not  much  favored  by  conservative 
corporation  managers. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  867 

The  third  type  of  syndicate  comes  into  existence  when  a  large 
banking  house  has  bought  for  itself  a  big  security  issue  and  wishes  to 
distribute  the  risk.  In  such  a  case  the  original  underwriter  fre- 
quently calls  upon  other  banking  houses  and  upon  individuals  to 
ike  portions  of  the  issue  at  prices  low  enough  to  be  attractive. 

The  fourth  type  of  syndicate  acts  as  a  unit  in  making  a  contract 
for  the  purchase  of  an  issue  and  pools  the  sale  of  the  stock  or  bonds. 
The  chief  difference  between  the  third  and  fourth  types  lies  simply  in 
the  fact  that  the  syndicate  members  deal  directly  with  the  corpora- 
tion, not  with  a  banking  house.  They  thus  secure  for  themselves 
all  the  profits  of  the  underwriters.  Such  a  syndicate  is  always  man- 
aged by  some  one  house  or  individual  having  complete  authority. 

The  pooling  arrangement  above  described,  although  it  secures 
centralized  and  efficient  management,  is  apt  to  prove  unsatisfactory 
in  that  it  does  not  bring  into  play  the  whole  selling  machinery  of  the 
various  syndicate  members.  For  this  reason  it  has  become  more  and 
more  customary  of  late  years  to  distribute  the  security  issue  among 
the  members  of  the  syndicate.  This  is  the  fifth  type  of  an  under- 
writing syndicate.  Strictly  speaking,  of  course,  the  distribution  of 
securities  is  not  an  underwriting  in  any  sense,  but  a  sale.  It  is  a 
sale  at  a  special  price,  however,  made  under  certain  restrictions  and 
lesigned  to  serve  exactly  the  same  purpose  as  true  underwriting; 
Le  term  therefore  is  freely  applied  to  it  in  the  Street. 

331.    THE  PROMOTER1 

The  function  of  a  promoter. — A  promoter  is  a  man  who  organizes 
new  business  and  sets  it  going.    The  business  need  not  necessarily 
ike  the  form  of  a  corporation.    It  may  be  handled  as  a  partnership 
>r  a  joint-stock  company. 

The  promoter  is  necessary  because  the  great  mass  of  the  funds 

ised  in  larger  corporate  enterprises  is  passive;    that  is  to  say,  the 

)wners  of  investment  funds  are  not  primarily  engaged  in  buying  and 

indling  business  enterprises.    They  wait  until  a  good  proposition 

presented  to  them.    The  function  of  the  promoter,  therefore,  is  to 

>ring  his  proposition  to  the  attention  of  the  owners  of  funds  in  such  a 

lanner  as  to  arouse  their  interest  and  confidence  and  induce  them 

to  buy  the  securities  of  his  new  corporation. 

Adapted  by  permission  from  W.  H.  Lough,  Corporation  Finance,  pp.  154-58, 
[67-70.     (De  Bower  Elliot-Co.,  1909.     Author's  copyright,  1917.) 


868  INDUSTRIAL  SOCIETY 

"Discovery"  of  a  proposition.— A  promoter  in  handling  an  enter- 
prise has  three  separate  tasks  before  him.  First,  he  must  " discover" 
his  proposition;  second,  he  must  "assemble"  it;  third,  he  must 
"finance"  it. 

The  discovery  of  a  proposition  does  not  mean  simply  to  find  it, 
but  includes  a  thorough  investigation  into  all  the  surrounding  con- 
ditions, and  the  solution  in  advance  of  all  the  difficult  problems  that 
are  likely  to  arise  in  its  development.  Let  us  suppose,  for  instance, 
that  a  new  invention  which  looks  good  on  the  surface  is  brought  to  the 
attention  of  a  promoter.  If  he  understands  his  business  he  will 
first  of  all  examine  critically  every  point  that  points  toward  the 
invention's  success  or  failure.  He  will  find  out  whether  it  is  patented 
and  just  what  features  the  patent  covers.  Next,  he  will  consider 
whether  other  devices  are  in  use  which  perhaps  accomplish  the  same 
purpose  as  well  or  nearly  as  well  as  the  invention.  After  making 
sure  that  the  invention  is  what  it  purports  to  be,  he  will  consider  the 
possible  markets  for  the  article. 

Next,  the  promoter  takes  up  the  cost  of  manufacturing.  He  finds 
out  whether  new  and  specially  constructed  machinery  is  necessary 
in  manufacturing  the  invention,  and  whether  any  especial  skill  on 
the  part  of  laborers  is  required.  He  considers  the  amount  of  experi- 
ment that  will  be  necessary  in  order  to  perfect  the  invention  and 
in  addition  figures  a  large  amount  of  extra  cost  for  unforeseen 
contingencies. 

These  are  only  a  few  of  the  factors  that  the  promoter  would  investi- 
gate before  taking  any  further  action.  Their  number  is  sufficient  to 
indicate,  however,  that  any  promoter  who  has  a  reputation  to  make  or 
preserve  cannot  afford  to  jump  hastily  at  whatever  proposition  is 
presented  to  him.  The  process  of  discovery  may  take  a  long  time, 
perhaps  months  or  even  years. 

"Assembling"  a  proposition.— By  assembling  a  proposition  is 
meant  the  process  of  getting  temporary  control  into  the  hands  of 
the  promoter.  If  he  is  dealing  with  an  invention,  he  assembles  the 
proposition  by  getting  an  option  on  the  invention  or  by  making  an 
agreement  with  the  inventor  on  a  royalty  basis.  In  the  case  of  a 
consolidation  of  plants  or  railroads  into  a  new  corporation,  assem- 
bling is  frequently  much  more  complicated  and  difficult.  In  such  _. 
case  the  promoter  may  have  to  get  options  or  arrange  the  terms  of 
purchase  with  every  plant  and  perhaps  with  all  the  different  classes 
of  security-holders  involved. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  869 

Financing  a  proposition.— Now  we  come  to  the  most  difficult 
>art  of  the  promoter's  work,  his  financing  of  the  new  corporation. 
To  hard  and  fast  rules  can  be  laid  down  to  cover  the  promoter's 
>rocedure. 

We  may  classify  the  men  who  spend  a  considerable  amount  of  their 
le  and  energy  in  promotion  into  four  groups.  Let  it  be  clearly  under- 
stood, however,  that  this  classification  does  not  pretend  to  be  complete. 
First  come  the  professional  promoters,  the  men  who  really  do  make 
it  their  main,  and  almost  their  sole,  business  to  hunt  for  enterprises 
"lat  promise  profits  and  to  finance  those  enterprises.  This  type  is 
:ommon  in  fiction,  but  rare  in  real  life.  So  far  as  the  writer  recalls, 
le  has  met  only  one  man  who  could  be  put  in  this  class,  a  tall,  lank, 
jrvent  individual  with  a  persuasive  air. 

The  second  class  consists  of  lawyers  and  bankers  in  small  com- 

lunities.     Such  men  have  exceptional  opportunities  to  inform  them- 

jlves  as  to  local  conditions;  they  frequently  take  hold  of  some  local 

enterprise,  such  as  a  steam  or  street  railway,  secure  the  assistance 

)f  experts  for  investigation  and  carry  through  the  proposition  to 

iccess.     Still  more  frequently,  however,  so  far  as  the  writer  has 

observed,  such  men  underestimate  the  difficulties  of  the  problem; 

they  take  it  up  with  enthusiasm  but  are  forced  either  to  drop  it 

or  to  call  in  men  of  wider  experience. 

The  men  to  whom  they  generally  turn  constitute  the  third  class 
of  promoters,  namely  the  larger  bankers  and  brokers.  The  amount 
of  promotion  work  performed  by  such  men  is  limited  and  they  usually 
confine  their  active  participation — except  for  advice — to  the  financing 
of  such  enterprises  as  they  take  up.  Mr.  J.  Pierpont  Morgan  stands 
out  as  the  most  prominent  example  of  this  class. 

The  fourth  class — and  this  is  a  recent  important  development — 
consists  of  engineering  firms  engaged  in  construction  work  of  various 
kinds.  Certain  large  engineering  concerns  have  established  a  wide 
reputation  for  success  in  operating  street  railroads,  water  works, 
electric  lighting  plants,  and  so  on.  These  firms  naturally  have  built 
up  a  large  and  well-equipped  staff  of  experts  in  those  fields.  As 
the  staff  is  expensive,  it  becomes  a  pressing  problem  to  keep  them 
profitably  employed  all  the  time.  In  the  effort  to  solve  this  problem 
such  firms  have  drifted  into  the  custom  of  taking  up  new  enterprises  of 
merit  and  performing  the  work  of  promotion  themselves.  Their  prime 
object  in  so  doing  is  to  employ  their  own  engineering  talents  and  the 
abilities  of  their  staff  to  the  best  advantage.    Incidentally,  of  course, 


g70  INDUSTRIAL  SOCIETY 

they  have  no  objection  to  securing  some  of  the  other  returns  that 
naturally  follow  from  successful  promotion. 

See  also    133.  Functions  of  the  Stock  Exchange. 

135.  Life  Insurance  Companies  as  Investment  Institu- 
tions. 
295-96.  Control  of  Money  and  Credit. 

E.     Science  in  Management 
332.    A  TECHNICAL  EXPERT— THE  ACCOUNTANT1 

Science  in  management  is  largely  a  matter  of  control— control  and 
direction  of  the  various  factors  involved  in  the  conduct  of  a  business 
enterprise.  The  basis  of  control  is  information.  In  fact,  control  and 
hence  scientific  management  may  be  said  to  consist  of  the  proper 
application  of  information  correctly  interpreted. 

Business  methods  and  practices  are  changing  so  rapidly,  new  prob- 
lems are  arising  so  frequently,  and  conditions  vary  so  widely  in  differ- 
ent localities  and  different  lines  of  business  that  set  rules  cannot  be 
established.  It  is  true  that  there  are  certain  general  principles  which 
may  be  regarded  as  more  or  less  universally  applicable,  but  their  par- 
ticular application  in  each  specific  case  must  be  influenced  by  current 
information  in  regard  to  the  factors  involved.  It  is,  of  course,  untrue 
to  assume  that  the  business  executive  is  not  influenced  by  precedent 
or  that  his  acts  are  governed  entirely  by  present  expediency,  but  it  is 
important  to  realize  that  he  is  continually  revising  his  past  conclu- 
sions and  policies  in  the  light  of  present  information — information  in 
regard  to  the  past  and  information  in  regard  to  the  probable  future. 

When  business  organization  was  simple  and  the  business  enterprise 
small  and  its  activities  local,  the  owner,  who  was  also  the  manager, 
was  able  to  obtain  without  assistance  the  necessary  information  upon 
which  to  base  the  conduct  of  his  business.  This  is  still  true  in  some 
cases— for  instance,  the  village  storekeeper.  He  may  keep  his 
accounting  records,  plan  his  sales  campaigns,  determine  the  extent 
and  nature  of  the  advertising  to  be  done,  select  the  goods  to  be  pur- 
chased, secure  the  necessary  funds  from  sources  which  he  chooses,  and 
actively  direct  if  not  actually  perform  all  the  executive  operations  of 
the  business.  He  is  able  to  do  this  because  the  information  upon 
which  he  bases  his  actions  is  usually  obtained  in  the  daily  routine  of 

1  Taken  from  an  unpublished  manuscript  by  J.  O.  McKinsey. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  871 

msiness  or  if  not  is  obtained  without  material  effort  since  the  factors 
;oncerned  are  few  in  number,  simple  in  nature,  and  local  in  extent, 
[oreover  the  information  involved  is  sufficiently  simple  that  the 
owner  is  able  to  interpret  and  correlate  it  without  difficulty. 

Since  business  organization  has  become  more  complex,  it  is  impos- 
sible for  the  executive  manager  of  the  business  enterprise  of  material 
size  to  perform  all  the  functions  suggested  in  the  case  of  the  village 
storekeeper.  It  is  impossible  for  the  manager  of  a  large  department 
store,  for  instance,  actively  to  direct,  much  less  actually  perform  the 
work  necessary  to  obtain  all  the  information  which  it  is  necessary  to 
have  in  order  to  conduct  the  numerous  activities  of  such  a  business 
properly.  Moreover,  after  such  information  has  been  obtained,  it  is 
impossible  for  any  one  man  or  group  of  men,  without  special  training, 
to  interpret  such  a  mass  of  detailed  statistics  so  as  to  use  it  as  a  basis 
of  rational  administration  until  it  has  been  rearranged,  classified,  and 
presented  in  simplified  form.  As  a  consequence,  in  such  a  business 
the  management  must  rely  upon  various  specially  trained  individuals 
— technical  experts  we  call  them — to  provide  and  interpret  the  infor- 
mation upon  which  they  base  their  decisions  as  to  the  policies  to  be 
followed. 

To  illustrate  the  tendency  toward  the  employment  of  the  technical 
expert  and  his  function  in  a  modern  business  enterprise,  let  us  take 
a  manufacturing  concern  owned  and  operated  by  a  corporation.  The 
authority  for  the  conduct  and  control  of  such  a  business  is  vested  in 
the  stockholders,  but  they  will  find  it  expedient  to  delegate  this 
authority  to  a  board  of  directors,  who  by  training  and  experience  are 
more  expert  in  deciding  on  the  policies  to  be  followed.  The  directors, 
although  they  may  be  skilled  in  the  administration  of  certain  types 
of  business,  will  find  it  wise  to  delegate  their  authority  in  part  at  least 
to  certain  officials  who  are  expert  in  the  conduct  of  the  particular  line 
of  industry  concerned.  The  officers  in  turn  will  find  that  though 
they  are  competent  to  decide  upon  the  general  policies  to  be  followed 
it  is  necessary  for  them  to  employ  various  specially  trained  men,  who 
are  technical  experts  in  specific  phases  of  the  firm's  activities,  who 
will  provide  and  interpret  and  assist  in  the  application  of  information. 
For  instance,  they  will  employ  a  purchasing  agent  to  secure  the  raw 
materials  needed,  a  sales  manager  to  supervise  and  control  the  sales, 
a  production  manager  to  direct  the  manufacturing  operations,  an 
accountant  or  auditor  or  comptroller  to  supervise  the  accounting 
records,  a  credit  manager  to  guard  the  credits  of  the  firm,  a  collection 


872 


INDUSTRIAL  SOCIETY 


manager  to  handle  the  collection  of  accounts  due  the  firm,  and  as 
many  more  experts  as  the  circumstances  demand.  If  they  desire  to 
consolidate  with  another  firm  they  will  seek  the  advice  of  a  lawyer; 
if  they  desire  to  enlarge  their  factory  they  may  consult  an  architect 
and  an  engineer;  if  they  are  engaged  in  certain  lines  of  manufacturing 
operations  they  will  employ  a  chemist;  if  they  wish  to  borrow  money 
they  will  consult  a  banker;  if  they  wish  to  market  their  bonds  they 
will  consult  a  broker;  if  they  wish  to  secure  insurance  they  will  con- 
sult a  representative  of  the  insurance  company. 

In  some  cases  the  technical  expert  whose  services  are  required  is 
a  member  of  the  firm's  organization,  in  other  cases  the  professional 
expert— that  is  one  not  connected  with  any  particular  firm — is  con- 
sulted. The  function  of  the  expert  in  each  case,  however,  is  the  same 
— to  provide  information  which  will  serve  as  a  basis  of  action.  In 
some  cases  the  expert  acts  in  an  executive  capacity  but  this  is  not  his 
prime  function.  It  is  for  his  knowledge  of  what  should  be  done  rather 
than  for  its  execution  that  he  is  chiefly  valued. 

In  order  to  illustrate  more  specifically  the  function  of  the  technical 
expert,  a  particular  expert,  the  accountant,  may  be  taken.  The 
accountant  may  well  be  taken  for  the  purpose  of  illustration,  because 
of  the  almost  universal  necessity  for  his  services.  The  services  of 
many  of  the  technical  experts  mentioned  above  may  be  dispensed 
with  by  certain  firms,  but  every  firm  of  appreciable  size  in  every  line 
of  industrial  activity  must  have  accounting  records,  and  some  one 
must  be  responsible  for  them.  In  fact  the  services  of  the  accountant 
are  in  large  part  a  prerequisite  to  the  services  of  most  of  the  technical 
experts  mentioned  above. 

Accounting  records,  classifies,  and  presents  financial  facts.  Its 
function  is  to  provide  information  in  usable  form  in  regard  to  the 
financial  condition  and  operations  of  a  business.  As  a  result  of  the 
activities  of  the  other  technical  experts  mentioned  above  certain 
operations  take  place.  Accounting  records  the  results  of  these  opera- 
tions and  presents  these  results  to  those  who  desire  to  know  them  by 
means  of  reports.  By  a  study  and  interpretation  of  these  reports, 
technical  experts  obtain  certain  information  which,  taken  in  connec- 
tion with  other  information  which  is  not  reflected  in  the  data 
secured  through  accounting,  forms  the  basis  of  their  conclusions  as 
to  the  policy  to  be  pursued. 

To  illustrate  specifically  we  may  take  the  manufacturing  concer  n 
mentioned  above.    The  production  manager  before  he  can  plan  his 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  873 

>rogram  of  manufacturing  for  the  coming  fiscal  period  must  know  the 

jtimated  amount  of  sales  for  this  period  and  the  probable  seasonal 

iriation  of  those  sales.    He  will  expect  such  an  estimate  from  the 

sales  manager.     The 'latter  in  order  to  furnish  such  an  estimate  must 

M:onsult  the  accounting  record  to  determine  what  the  sales  have  been 
luring  the  past  period.  With  this  information  as  a  basis,  he  takes 
nto  consideration  such  factors  as  he  thinks  will  affect  the  sales  during 
the  following  period  and  makes  up  his  estimate.  It  will  be  seen  by 
this  illustration  that  the  sales  manager  is  acting  in  the  capacity  of  a 

I  technical  expert  as  defined  above;  he  is  furnishing  information  which 
acts  as  a  basis  of  control — in  this  case  the  control  of  production. 
When  the  production  manager  receives  the  estimated  sales  for  the 
following  period,  he  must  decide  as  to  the  quantity  of  finished  stock 
which  he  must  keep  on  hand  in  order  to  satisfy  the  demands  of  such 
a  sales  program.  He  will  be  materially  assisted  in  doing  this  by  con- 
sulting the  accounting  records  so  as  to  see  the  ratio  between  the 
finished  goods  on  hand  and  sales  during  the  past  period.  After  the 
quantity  of  production  has  been  decided  upon,  the  purchasing  depart- 
ment must  be  notified  so  the  purchasing  agent  can  plan  for  the  pur- 
chases of  raw  materials  to  be  made.  He  will  find  from  the  records 
the  length  of  time  necessary  to  obtain  each  kind  of  material  and  will 
govern  his  actions  accordingly.  Of  course,  the  stores  department  may 
)e  delegated  the  authority  of  initiating  orders,  but  the  principle  is  the 
ime — the  volume  of  sales  govern  the  volume  of  production  and  the 
ttter  governs  the  purchasing  of  raw  materials,  and  past  experience 
reflected  in  the  accounting  records  is  a  decisive  factor  in  controlling 
lese  operations.  When  the  quantity  of  production  for  the  next 
iriod  has  been  determined,  the  treasurer  must  be  notified  so  he  can 
>rovide  the  necessary  funds  to  finance  such  a  program.  He  again 
all  consult  the  accounting  records  to  see  the  ratio  between  the  funds 
squired  and  the  quantity  of  production  and  will  be  governed  in  his 
>lans  for  the  future  by  the  experience  of  the  past  as  reflected  in  the 
accounting  record. 

After  the  goods  are  produced  and  ready  for  sale  a  large  credit 
order  is  received.  The  credit  manager  is  asked  to  pass  upon  the 
applicant's  request  for  credit.  If  the  prospective  purchaser  is  one 
to  whom  the  firm  has  previously  sold,  the  credit  manager  will  imme- 
diately consult  the  accounting  records  to  see  if  he  has  paid  his  bills 
satisfactorily.  If  he  is  a  new  customer  he  may  seek  information 
through    certain    credit   associations   or   credit   agencies,   and    the 


8  74  INDUSTRIAL  SOCIETY 

information  which  he  thus  obtains  will  be  that  shown  by  the  account- 
ing records  of  the  member  firms  of  these  associations.  Thus  again  the 
information  afforded  by  the  accounting  record  is  of  prime  importance 
in  arriving  at  a  basis  of  action. 

To  give  more  obvious  illustrations  of  the  value  of  the  information 
provided  by  accounting,  the  collection  department  is  dependent  upon 
the  accounting  record  in  collecting  the  debts  due  the  firm,'  those  in 
charge  of  disbursements  are  dependent  on  it  in  the  payment  of  the 
debts  of  the  firm,  it  is  from  this  record  that  the  efficiency  of  different 
employees  and  the  profitableness  of  different  lines  of  goods  is  deter- 
mined. The  cost  of  goods  produced,  a  controlling  factor  in  arriving 
at  the  proper  prices  of  sales,  is  determined  from  the  cost  records,  and 
finally  the  financial  condition  of  the  firm  and  its  profitableness  or 
unprofitableness  as  reported  at  the  end  of  the  fiscal  period  to  the 
stockholders  is  determined  from  the  accounting  records.  The  con- 
trol of  the  future  policies  of  the  enterprise  as  determined  by  the 
directors  and  the  chief  officials  is  based  upon  the  information  which 
they  obtain  by  means  of  the  reports  submitted  by  the  various  tech- 
nical experts  mentioned  above,  and  these  reports  are  largely  made 
from  the  accounting  records. 

Many  more  illustrations  might  be  given  of  the  service  of  account- 
ing, hence  of  the  accountant,  in  the  scientific  administration  of  a  busi- 
ness enterprise,  but  the  above  should  be  sufficient  to  indicate  the 
function  of  accounting  as  an  instrument  of  control.  By  analogy  the 
value  of  the  technical  expert  in  general  as  a  factor  in  scientific  manage- 
ment can  be  easily  seen. 

See  also    66.  Calculation  and  Capitalism. 

198.  Knowledge  and  Information  in  Relation  to  Risk- 
Taking. 

33Z-  STAGES  IN  MANAGEMENT 
A1 
Scientific  Management  is  said  to  be  a  third  stage  in  the  develop- 
ment of  organization.  The  first  stage  was  represented  by  the  non- 
systematized  business,  of  which  there  are  to  be  found  survivals  among 
older  and  smaller  plants.  In  this  stage  the  management  grew  up  with 
the  plant,  was  inbred,  and  was  bound  by  traditions  handed  down  from 

'Taken  by  permission  from  H.  S.  Person,  "Scientific  Management,"  Tuck 
School  Conference,  pp.  4-5.     (Dartmouth  College,  191 2.) 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  875 

mager  to  manager.     There  were,  of  course,  in  the  period  of  non- 
rstematized  business  general  improvement  and  brilliant  examples  of 
le  development  of  new  methods,  but  the  period  was  one  of  high 
>rofits  and  of  little  incentive  to  improvement,  and  new  methods  came 
fortuitously  and  spread  only  by  imitation. 

The  second  stage  of  organization  is  represented  by  the  systema- 
tized business,  characteristic  of  the  last  two  decades.  During  the 
period  following  the  Civil  War  improvements  in  transportation 
destroyed  isolated  markets,  brought  more  intense  competition,  and 
reduced  the  margin  between  raw-material  cost  and  selling  price.  This 
situation  compelled  many  managers,  who  might  otherwise  have 
remained  bound  by  tradition,  to  seek  by  improved  methods  and 
organization  a  reduction  of  the  costs  of  manufacturing  processes. 
Chemistry  was  called  in  to  make  salable  products  of  what  had  been 
waste;  blank  forms  of  great  variety  were  devised  to  keep  account  of 
materials  and  of  labor  that  there  might  be  no  misapplication  and 
waste  of  these;  as  units  of  business  became  larger,  printed  and 
written  directions  came  to  replace  personal  oversight  and  instruction 
by  the  manager,  and  systems  were  devised  to  effect  the  smooth  work- 
ing of  routine.  Cost  accounting,  the  sextant  and  compass  of  the 
business  man,  was  more  highly  developed  and  more  generally  adopted 
and  this  required  the  systematization  of  processes. 

Systematized  management  is  not  Scientific  Management,  say  the 
advocates  of  the  latter.  Under  the  former,  tradition  remains  domi- 
nant; improved  methods  are  acquired  by  experiment,  it  is  true,  but 
not  by  the  precise  laboratory  method  of  the  observation  and  measure- 
ment of  a  large  number  of  units;  new  methods  become  known  by 
imitation  rather  than  by  teaching;  and  the  reduction  of  a  cost  once 
accomplished,  it  is  common  to  accept  the  result  as  final  because  the 
solution  of  an  immediate  problem,  rather  than  as  a  step  only  toward 
greater  improvement. 

The  third  stage  in  the  development  of  organization  and  manage- 
ment, they  say,  is  that  of  Scientific  Management. 


B 


All  types  of  management  seem  to  fall  into  three  general  classes, 
which  for  want  of  a  better  terminology  we  shall  call  (1)  unsystema- 
tized, (2)  systematized,  and  (3)  scientific. 

1  Adapted  by  permission  from  H.  P.  Kendall,  "Systematized  and  Scientific 
Management,"  Journal  0}  Political  Economy,  XXI  (1913).  593-°H- 


876  INDUSTRIAL  SOCIETY 

Let  us  look  briefly  at  the  five  important  features  of  every  manu- 
facturing plant,  excluding  designing,  advertising,  and  selling.  These 
are:  (i)  accounting  and  costs;  (2)  purchasing;  (3)  storage  of  mate- 
rials; (4)  execution  of  the  work;  and  (5)  efficiency  of  the  worker. 
[This  selection  will  be  confined  to  the  discussion  of  the  execution  of 
the  work.— Ed.] 

Execution  of  work. — Orders  in  the  unsystematized  shop  are 
recorded  in  a  simple  manner,  sometimes  even  received  and  trans- 
mitted orally  by  the  salesman.  These  are  described  in  part  orally 
to  the  superintendent,  who  may  further  enlighten  the  foreman  on  any 
of  the  details  of  such  orders.  It  is  assumed  that  the  superintendent 
knows  his  business,  that  the  foremen  know  theirs,  and  a  workman  is 
expected  to  sense  what  is  wanted  and  to  ask  questions  when  he  is 
not  sure.  In  this  way  an  attempt  is  made  to  fill  in  the  exact  and 
accurate  information  which  the  selling  end  either  has  not  secured  or 
has  not  transmitted  in  writing. 

The  "single  foremanship"  plan  prevails  where  one  foreman 
handles  as  many  men  as  he  can.  The  number  of  men  and  the  amount 
of  work  he  can  look  out  for  is  limited  by  the  amount  of  detail  he  can 
carry  in  his  head  and  by  his  physical  and  nervous  endurance.  He 
gives  work  to  each  workman  when  the  latter  has  finished  his  last  job, 
and  depends  largely  on  the  worker's  knowledge  of  what  to  do  and 
how  to  do  it.  As  questions  arise  in  the  progress  of  the  work,  or  where 
the  written  order  is  incomplete,  the  workman  goes  to  the  foreman  who 
in  turn  goes  to  the  office  for  instructions.  Meanwhile  progress  on 
the  work  stops. 

The  workman  goes  for  and  selects  his  tools  and  appliances,  and 
does  his  work  in  the  way  in  which  he  is  accustomed  to  do  that  par- 
ticular kind  of  work.  A  difference  in  method  of  doing  the  same  kind 
of  work  by  different  workmen  and  in  different  shops  is  often  quite 
marked. 

In  the  systematized  plant,  this  crude  rule-of-thumb  method  has 
been  changed.  A  complete  set  of  order-cards  for  recording  and  trans- 
mitting orders  is  in  use.  The  worker  receives  a  written  order  for  the 
work  he  is  to  do.  But  this  seldom  takes  the  form  of  an  instruction 
card  giving  him  complete  information  for  every  move  and  every  tool. 
It  is  likely  to  say  what  the  work  is,  assuming  that  he  will  do  it  in  a 
satisfactory  manner.  Workers  almost  always  record  their  time  for 
each  job  on  a  card,  which  registers  the  labor  cost  accurately.  They 
do  not  always  register  the  time  lost  in  securing  tools,  materials,  and 


l 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  877 

further  instructions.  The  planning  of  a  job,  except  in  plants  where 
the  work  is  very  largely  repetition,  is  likely  to  be  done  as  the  work 
proceeds.  Piecework  is  used  wherever  possible  and  is  considered  the 
most  economical  way  of  performing  a  given  operation.  It  is  the  aim 
f  most  systematized  plants  to  secure  as  much  piecework  as  possible. 
This  may  be  unfair  for  different  kinds  of  work  to  both  employees  and 
employer. 

Systematized  management  keeps  things  running  smoothly,  avoids 
most  of  the  mistakes  due  to  the  lax  methods  of  unsystematized  man- 
agement, and  turns  out  a  good  product.  But  a  lack  of  centralized 
planning  and  centralized  control  of  the  workers  causes  loss  of  effi- 
ciency. This  is  especially  true  in  rush  times,  or  when  certain  parts 
of  a  factory  are  congested.  It  is  impossible,  then,  with  the  means 
at  hand,  so  to  plan  the  work  as  to  get  it  out  to  the  best  advantage; 
for  with  the  foreman  of  one  room  or  department  planning  his  work, 
and  another  his,  the  two  can  seldom  be  made  to  interlock  perfectly. 

The  theory  of  the  proper  execution  of  work  under  scientific  man- 
agement is  that  it  should  be  planned  completely  before  a  single  move 
is  made— that  a  route-sheet  which  will  show  the  names  and  order  of 
all  the  operations  which  are  to  be  performed  should  be  made  out  and 
that  instruction  cards  should  be  clearly  written  for  each  operation. 
Requisitions  on  the  stores  department  showing  the  kind  and  quality 
of  the  materials  and  where  they  should  be  moved,  and  lists  of  proper 
tools  for  doing  the  work  in  the  best  way,  should  be  made  up  for  each 
operation.  Then,  by  time-study  the  very  best  methods  and  appara- 
tus for  performing  each  operation  is  determined  in  advance,  and 
becomes  a  part  of  the  instruction  cards. 

By  this  means  the  order  and  assignment  of  all  work,  or  routing 
as  it  is  called,  should  be  conducted  by  the  central  planning  or  routing 
department.  This  brings  the  control  of  all  operations  in  the  plant, 
the  progress  and  order  of  the  work,  back  to  the  central  point.  Infor- 
mation which,  even  in  the  systematized  plant  is  supposed  to  be  fur- 
nished by  the  knowledge  of  the  workman  or  the  gang-boss  or  foreman 
is  brought  back  to  the  planning  room  and  becomes  a  part  of  the 
instruction  card. 

Under  scientific  management  the  efficiency  of  the  worker  and 
machine  depends  on  five  other  conditions,  after  assuming  that  the 
parts  of  the  management  which  have  to  do  with  purchasing,  storage 
of  materials,  etc.,  are  well  performed.  These  conditions  are :  (1)  analy- 
sis and  synthesis  of  the  elements  of  operation;  (2)  scientific  selection 


878  INDUSTRIAL  SOCIETY 

of  the  worker;  (3)  training  of  the  worker;  (4)  proper  tools  and  equip- 
ment; (5)  proper  incentive.  All  these  conditions  it  is  the  duty  of 
the  management  to  provide. 

334.  SCIENTIFIC  MANAGEMENT1 
Mr.  Taylor  insists  that  the  general  principles,  or  philosophy,  of 
Scientific  Management  should  not  be  confused  with  the  mechanism, 
which  is  merely  incidental.  He  emphasizes  four  fundamental  prin- 
ciples. First,  the  method  of  Scientific  Management  is  the  method  of  a 
true  science.  The  organizing  engineer  "objectifies"  a  plant  to  be  or- 
ganized; he  enters  as  an  "outsider,"  bound  by  no  traditions  and  prej- 
udices of  its  management,  holds  it,  so  to  speak,  at  arm's  length,  studies 
it  by  departments  and  as  a  whole,  compares  it  with  other  similar 
plants  of  his  experience  and  observes  defects  that  the  "insider"  does 
not  see.  In  this  process  the  truly  scientific  method  of  analysis  into 
units  and  experimental  recombination  of  them  is  followed,  not  super- 
ficially but  exhaustively,  until  enough  data  are  collected  from  which 
trustworthy  laws  may  be  derived.  There  is  one  case  of  experimenting 
by  Mr.  Taylor  in  which  nearly  50,000  experiments  were  carefully 
recorded,  classified,  and  studied,  800,000  pounds  of  steel  and  iron 
were  cut  up  into  chips,  and  nearly  $200,000  were  expended.  This 
observation  is  not  confined  to  machinery  and  material  only,  it  is 
applied  also  to  men  and,  for  illustration,  laws  of  fatigue  and  recovery 
from  fatigue  are  discovered.  In  accordance  with  laws  thus  derived, 
standards  of  productivity  are  established  and  the  methods  of  their 
attainment  set  forth  in  rules.  In  this  observation  and  experiment 
and  in  the  derivation  of  laws  there  is  no  assumption  of  finality.  The 
organizing  engineer  does  not  stop  when  a  reduction  in  cost  is  effected; 
he  assumes  that  there  is  always  the  probability  of  further  important 
discovery  of  new  laws,  and  observation  and  experiment  do  not  cease. 
This  attitude  of  mind  and  these  methods,  says  Mr.  Taylor,  justify 
the  claim  that  the  new  management  is  a  science. 

A  second  general  principle  of  Scientific  Management  is  that  there 
should  be,  and  as  a  result  of  the  laws  derived  by  observation  and 
experiment  may  be,  a  scientific  selection  of  machines,  material,  and 
workmen. 

The  third  principle  of  the  new  management  is  that  a  workman 
once  discovered  and  assigned  to  the  performance  of  the  function  to 

1  Adapted  by  permission  from  H.  S.  Person,  "Scientific  Management,"  Tuck 
School  Conference,  pp.  4-5.     (Dartmouth  College,  1912.) 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  879 

rhich  he  is  adapted,  the  management  should  provide  continuous 
istruction  for  him.  From  this  point  of  view  the  factory  should 
)ecome  a  school;  the  workman  should  be  instructed  how  to  use  the 
tost  efficient  method  with  the  greatest  skill. 

The  fourth  of  Mr.  Taylor's  principles  of  Scientific  Management 
is  that  there  should  be  intimate  co-operation  between  management 
and  men  and  a  redistribution  of  responsibilities.  The  workability 
of  the  new  management,  says  Mr.  Taylor,  depends  upon  such  sym- 
pathetic co-operation.  There  must  be  mutual  recognition  of  the 
possibility  of  mutual  helpfulness.  This  recognized,  there  must  be  a 
readjustment  of  duties,  for  under  present  systems  of  management 
there '  is  required  of  a  workman  so  much  as  to  make  impossible 
his  highest  efficiency.  The  manager,  under  the  present  system, 
requires  of  the  workman  simply  the  accomplishment  of  a  certain 
result.  To  the  workman  is  left  the  determination  of  the  method 
as  well  as  the  actual  performance.  Under  Scientific  Management 
the  experts  in  the  planning  room  determine  the  method  and 
leave  to  the  workman  freedom  to  apply  all  his  energy  to  actual 
performance. 

These  four  general  principles  constitute,  according  to  Mr.  Taylor, 
the  philosophy  of  Scientific  Management.  The  devices  employed  to 
give  effect  to  these  principles  constitute  the  mechanism.  The  phi- 
losophy and  any  particular  mechanism  are  not  to  be  considered  equally 
important.  But  certain  parts  of  the  mechanism  now  advocated  by 
the  organizing  engineers  are  of  great  importance  because  they  seem 
to  be  necessary  to  the  application  of  the  principles  and  because  one 
of  them  in  particular  is  opposed  by  many  employees  as  competent, 
in  their  judgment,  to  produce  indirect  results  harmful  to  their  pro- 
ductive group. 

Scientific  Management  aims  to  produce  at  least  five  results,  all 
of  which  must  be  produced  before  such  management  can  be  said  to 
be  established,  and  for  their  production  specific  devices  must  be 
employed. 

1.  Industrial  processes  must  be  reduced  to  units  before  scientific 
observation  and  experiment  are  possible.  The  most  important  de- 
vice for  this  purpose,  the  time-study,  aims  to  reduce  the  operations  of 
workmen  to  fundamental  motions  and  to  ascertain,  for  example,  the 
shortest,  longest,  and  average  time  required  for  each  motion.  From 
experiments  with  these  data  a  standard  time  for  the  performance  of 
each  operation  is  derived. 


38q  INDUSTRIAL  SOCIETY 

2.  This  standard  time  in  which  a  given  operation  is  to  be  per- 
formed having  been  ascertained,  it  must  be  set  before  the  workman 
as  something  to  strive  for. 

3.  The  workman  must  be  instructed  how  to  achieve  this  standard. 
He  must  have  at  hand  a  sympathetic,  expert  director  who  is  teacher 
rather  than  boss.  The  device  of  functional  foremanship  is  intended 
to  effect  this.  The  functional  foreman  teaches  all  the  workmen  who 
have  to  perform  a  given  function — e.g.,  set  a  tool  in  a  lathe — exactly 
how  to  perform  that  and  no  other  function.  He  is  an  expert  work- 
man become  teacher.  The  foremanship  of  Scientific  Management, 
therefore,  requires  in  a  given  plant  as  many  foremen  as  there  are 
functions  to  be  performed  there. 

4.  Scientific  Management  aims  to  relieve  the  workmen  of  respon- 
sibility for  determining  how  a  process  is  to  be  performed,  especially 
if  the  method  is  one  which  may  be  exactly,  i.e.,  scientifically,  deter- 
mined, and  to  leave  him  free  for  the  development  of  manual  dexterity. 
This  is  accomplished  by  the  planning  and  routing  room,  a  managerial 
department  which  works  out  and  sends  with  each  production  order 
precise  specifications  for  the  operation.  If  it  be  an  assembling  job, 
for  instance,  the  parts  to  be  assembled,  their  relative  positions  around 
the  workman  at  the  beginning  of  the  job,  the  order  in  which  they 
should  be  brought  together,  etc.,  are  specified.  The  workman  does 
not  need  to  plan;  he  proceeds  at  once  to  performance. 

5.  The  workman  must  be  inspired  to  accept  the  new  methods; 
to  strive  to  acquire  dexterity  in  carrying  out  specifications  sent  him. 
Workmen,  like  managers,  like  any  other  large  body  of  men,  have  fixed 
habits  from  which  it  is  difficult  to  turn  them.  How  inspire  the  work- 
man to  make  the  change  ?  The  result  is  accomplished  by  a  differen- 
tial wage  system,  a  share  of  the  increased  productivity,  instead  of 
compelling  him  to  wait  for  the  slower,  less  obvious,  redistribution  of 
shares  which  would  work  out  under  the  usual  system  of  payment  by 
the  hour  or  day.  These  differential  wage  systems  vary,  although  they 
are  in  principle  the  same,  primarily  according  to  the  proportion  of  the 
increased  productivity  apportioned  to  the  workman. 

It  is  neither  the  philosophy  nor  the  interesting  mechanism  of 
Scientific  Management  which  has  aroused  such  widespread  interest; 
it  is  the  story  of  its  astonishing  results. 


See  also  144.  Specialization  in  Management. 

316.  Impersonal  Laws  of  Management. 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  881 

335-    THE  NEW  INDUSTRIAL  LEADERSHIP 

If  we  consider  the  industrial  history  of  the  United  States,  for  the 
span  of  a  long  generation,  dating  backward  from  this  year  of  grace 
to  about  1840,  we  can  distinguish  at  least  three  great  movements 
which  have  occupied  the  minds  of  men  in  industry. 

The  first  period  was  still  engaged  in  the  process  of  settling  the 
country,  as  previous  decades  had  been.  In  section  after  section  of  the 
newly  opened  West  there  was  required  that  basic  equipment  which 
is  the  foundation  of  modern  civilized  life.  Our  nation's  first  industrial 
task  was  the  stupendous  one  of  clearing  the  farms,  and  of  building 
the  common  roads,  and  of  establishing  villages  and  cities,  and  of 
opening  outlets  for  the  marketing  of  surplus  products.  The  victory 
was  not  to  mere  parsimony  and  patience,  and  the  weaker  economic 
virtues,  but  to  industry  animated  with  boldness,  planning  touched 
with  imagination,  and  sacrifice  sustained  by  a  vision  of  a  new  State 
and  a  fairer  civilization. 

The  second  industrial  movement  of  the  period  we  are  consider- 
ing centered  upon  the  task  of  providing  an  adequate  mechanical 
equipment.  Its  characteristic  achievement  was  to  develop  inanimate 
sources  of  power,  and  apply  them  in  a  thousand  new  ways  to  lift  the 
burden  of  physical  toil  from  human  shoulders.  Accordingly,  the 
second  act  transfers  the  scene  of  chief  significance  from  the  field  to 
the  factory.  The  first  billet  of  Bessemer  steel  was  produced  in 
America  in  a  little  furnace  at  Wyandotte,  near  Detroit,  in  1864.  The 
first  band-saw  was  brought  from  Paris  to  New  York  in  1869.  The 
first  middlings  purifier  essential  to  the  modern  milling  process  was 
built  in  Minneapolis  in  1870.  The  twine-binder, was  invented  in  1874. 
In  the  wonderful  Centennial  year  of  1876,  there  was  given  to  the 
country  the  telephone,  the  incandescent  light,  the  typewriter,  and 
the  first  steel-frame  building.  In  the  middle  years  of  the  seventies 
the  hermetical  sealing  and  the  refrigeration  of  fruits  and  meats  was 
achieved,  so  that  a  great  additional  range  was  possible  for  the  dietary 
of  the  nation.  • 

And  now  that  these  achievements  are  no  longer  in  their  origins, 
and  that  the  issues  called  up  by  them  are  recognized  as  virtually 
settled,  and  as  there  is  no  longer  any  threatening  opposition  to 
try  men's  souls  in  the  process  of  establishing  and  defending 
them,    a    third    industrial   problem   can    be   seen   to  emerge  and 

Adapted  by  permission  from  E.  D.  Jones,  The  Business  Administrator, 
pp.  1-21.     (The  Engineering  Magazine  Co.,  1914.) 


882  INDUSTRIAL  SOCIETY 

become  the  center  of  interest.    This  is  the  question  of  business 
administration. 

This  administrative  phase  of  our  industrial  evolution  has,  of 
course,  already  a  history  of  value;  and  this  history  is  concerned  with 
the  doings  of  a  very  interesting  generation  of  men.  For  years  the 
United  States,  with  its  enormous  domestic  market,  its  ample  capital, 
its  freedom  from  tradition,  and  its  colossal  daring,  has  been  perhaps 
the  most  favorable  spot  in  the  world  for  trying  out  new  ideas  of 
organization  and  management.  The  executives  who  first  took 
advantage  of  these  conditions  were,  for  the  most  part,  self-made 
men.  We  often  refer  to  the  more  noted  of  them  as  Captains  of 
Industry.  The  majority  were  individuals  of  pronounced  motor 
temperament  and  endowed  with  exceptional  talents;  men  capable 
of  fighting  their  way  upward  and  of  gaining  the  advantage  in  a  rough- 
and-ready  struggle  for  the  survival  of  the  fittest. 

These  men  seized  leadership  by  right  of  ability,  but,  technically 
speaking,  they  secured  it  as  the  perquisite  or  privilege  arising  from 
the  ownership  of  great  fortunes.  They  lived  in  a  day  when  men 
generally  managed  their  own  capital.  In  many  cases  they  were  the 
first  to  build  up  institutions  of  great  size  in  the  lines  of  industry  with 
which  they  were  connected.  Their  policies  were  like  those  of  most 
conquerors — direct,  simple,  and  intensely  personal.  Living  in  a 
highly  individualistic  and  self-confident  society,  they  worked  out  rules 
of  action,  each  man  for  himself.  As  the  attention  of  a  new  community 
naturally  centers  strongly  upon  the  process  of  growth,  many  of  them 
were  builders  rather  than  administrators;  more  comfortable  with 
tests  of  excellence  which  were  physical  rather  than  intellectual,  private 
rather  than  social.  As  their  communities  had  broken  sharply  with 
European  traditions,  and  had  as  yet  little  applicable  history  of  their 
own,  they  entertained  a  poor  opinion  of  lessons  drawn  from  the  past. 
As  they  were  devoted  to  little  else  than  industry,  they  saw  few  analo- 
gies between  the  administration  of  business  affairs  and  the  adminis- 
tration of  other  forms  of  social  action. 

Being  so  much  in  a  world  of  their  own  creation,  they  looked  upon 
the  administration  of  industrial  enterprises  purely  as  a  process  of 
each  man  minding  his  own  business.  Their  organizations  were, 
therefore,  mere  extensions  of  themselves,  usually  bearing  their  names 
and  ruled  as  their  households  might  be.  Enterprises  so  conceived 
were  incapable  of  serving  as  a  rallying-point  for  the  loyalty  of  the 
various  classes  of  persons  who  might  become  connected  with  them. 
The  owner  alone  was  fully  energized.    He  carried  staggering  loads 


I 


INDIVIDUAL  GUIDANCE  OF  ECONOMIC  ACTIVITY  883 

of  responsibility,  driving  affairs  forward  by  individual  energy  rather 
than  by  the  true  administrative  process  of  evoking  and  guiding  the 
energies  of  others. 

Whatever  reservations  have  to  be  made  in  praise,  the  courage 
and  independence  of  these  men  must  be  recognized  as  splendid .  They 
possessed  a  thorough  mastery  of  details,  as  a  result  of  the  small 
beginnings  from  which  they  started.  They  had  the  ease  and  speed 
of  decision  due  to  technical  mastery  and  early  imposed  responsibility. 
They  were  preserved  from  errors  of  theory  by  a  wholesome  and  inti- 
mate sense  of  reality.  The  names  of  the  leaders  of  this  generation  of 
giants  will  long  remain  household  words  in  America. 

Since  the  ranks  of  the  first  generation  of  administrators  have 
begun  to  be  seriously  thinned  by  death,  a  notable  change  has  been 
taking  place  in  the  character  of  our  industrial  leadership,  and  in  the 
conditions  under  which  it  is  exercised.  The  growth  of  business 
into  units  embracing,  under  a  single  administration,  hundreds  and 
even  thousands  of  stockholders  and  employees  and  uniting  many 
minds  in  operations  which  require  long  periods  of  time  for  their  com- 
pletion, call  for  searching  tests  of  performance,  and  exact  and  just 
methods  of  apportioning  rewards,  so  that  the  wills  of  many  persons  can 
be  brought  into  energetic  concurrence.  These  changes  are  transform- 
ing the  business  administrator  from  a  mere  owner  of  private  property 
into  a  responsible  agent,  exercising  delegated  authority.  They  increase 
the  element  of  trust  or  responsibility  or  service,  for  the  measurement 
and  valuation  of  which  a  new  outfit  of  standards  is  urgently  needed. 

There  are  various  helps  destined  to  play  an  increasing  role  as  the 
handmaids  of  the  new  administration.  In  the  first  place,  the  physical 
sciences  are  being  applied  in  industrial  operations  in  a  new  way. 
Formerly  thought  of  as  the  source  of  mechanism  for  supplementing 
or  relieving  the  operative,  they  are  now  the  source  of  agencies  for 
supplementing  and  relieving  the  executive  as  well.  They  assist  in  the 
testing  of  materials,  the  refining  of  productive  processes,  the  preserva- 
tion of  the  operatives'  health,  the  sharpening  of  technical  standards, 
the  separate  measurement  of  the  essential  elements  of  performance, 
and  the  provision  of  new  forces  and  instrumentalities  generally. 

A  second  class  of  aids  includes  greatly  improved  systems  of 
accounting  and  cost  accounting,  and  a  rapidly  developing  theory 
of  valuation,  which  concerns  itself  with  the  more  subtle  and  immaterial 
forms  of  property.  These  are  the  administrator's  chief  instru- 
ments of  precision,,  where  problems  of  value  rather  than  problems 
of  physical  processes  or  of  human  nature  are  concerned. 


884  INDUSTRIAL  SOCIETY 

A  third  aid  is  the  swiftly  forming  science  of  psychology  which 
now  enters,  supplementing  experience,  dissolving  the  ancient  antag- 
onism between  humanity  and  efficiency,  and  making  it  possible 
for  industry  to  respond  intelligently,  and  even  profitably,  to  the 
demands  of  a  more  enlightened  public  conscience. 

A  fourth  aid  is  what  is  commonly  called  "system":  a  somewhat 
indefinite  mass  of  rules  of  procedure,  together  with  appropriate 
equipments,  relating  particularly  to  office  work,  and  representing 
the  accumulated  experience  of  innumerable  official  minds. 

The  first  tentative  synthesis  of  these  various  Hilfswissenschaften 
into  a  code  of  rules  for  the  business  executive  is  involved  in  the  move- 
ment known  as  "scientific  management."  This  manifestation  of  a 
new  order  of  accurate  and  systematic  thinking  in  industry,  so  signifi- 
cant of  the  times,  took  its  rise  as  a  philosophy  of  the  shop,  but  has 
culminated  in  the  enunciation  of  a  group  of  principles  constituting  an 
encouraging  earnest  of  a  forthcoming  more  fully  developed  science 
of  administration. 

The  occupant  of  this  position  will  be  the  central  pivot  upon  which 
a  vast  number  of  human  relationships  will  turn.  Upon  these  men 
will  rest  a  sort  of  trusteeship  to  preserve  the  property  intrusted  to 
them,  and  a  demand  of  leadership  to  guide  and  guard  their  employees. 
Upon  them  will  also  rest  a  general  responsibility  to  the  public  to  help 
this  day  to  live  its  life,  and  this  generation  to  make  its  contribution 
to  progress.  The  whole  situation  conspires  to  create  an  opportunity 
for  a  new  race  of  executives,  which  shall  justly  appreciate  the  various 
classes  of  responsibility  resting  upon  it. 

The  old  ambition  to  build  up  big  business  units,  and  to  accumulate 
great  fortunes,  is  now  no  longer  so  fresh  and  full  of  zest  as  it  once  was. 
It  does  not  get  the  response,  and  call  out  the  best  men,  as  in  the  old 
dramatic,  careless,  buccaneering  days.  To  simply  repeat  what  the 
last  generation  did  in  the  way  of  piling  up  fortunes,  and  to  do  it  on 
the  same  intellectual  and  aesthetic  and  ethical  plane,  but  without  the 
novelty  of  being  the  first  to  do  it,  nor  the  excuse  that  first  comes 
bread  and  then  the  higher  things  of  life,  and  without  even  the  freedom 
of  action  and  the  general  applause  of  the  days  of  laissez  faire,  is  not 
to  set  forth  a  very  moving  aim.  The  hungry  intelligence  of  industry 
is  asking  for  great  new  objectives  worthy  of  great  efforts.  It  asks 
for  tasks  as  noble  for  us  now  as  the  opening  of  the  continent  or  the 
building  of  the  railroads  was  for  a  past  generation.  A  new  and  larger 
conception  of  the  function  of  industrial  leadership  is  called  for. 


See  also  65.  The  Social  History  of  Capitalism. 


CHAPTER  XIII 

COMPETITION 
A.     Problems  at  Issue 

What  is  competition?  Everybody  knows;  nobody  knows.  To 
a  person  with  one  intellectual  background  it  means  one  thing;  to 
another  with  a  different  background  it  clearly  means  another.  The 
widely  divergent  definitions  and  characterizations  current  make  one 
inquire  whether  the  persons  concerned  are  talking  of  the  same  thing. 
If  they  are,  they  seem  to  have  very  different  points  of  view  or  very 

■different  purposes  in  making  their  analyses. 
Perhaps  we  do  not  need  to  strive  for  an  exact  definition  at  the 
outset.  Perhaps  we  shall  be  able  to  consider  the  subject  intelligently 
without  ever  formulating  a  precise  definition.  We  could  scarcely 
define  life,  and  yet  we  live  and  talk  with  some  intelligence  concerning 
life.    The  same  situation  may  obtain  for  competition. 

It  is  clear  that  we  are  not  primarily  interested  in  competition  as 
a  philosophical-biological  concept.  We  are  concerned  with  economic 
competition.  Further,  since  we  are  studying  the  structure  and  func- 
tioning of  industrial  society,  we  are  justified  in  considering  economic 
competition  primarily  in  its  organizing  capacity. 

There  can  be  no  doubt  that  in  a  very  real  sense  competition, 
pecuniary  competition,  is  an  organizing  agency  in  our  industrial 
society.  It  assigns  persons  to  their  parts;  determines  what  forms  of 
organization  shall  survive;  designates  what  ranges  of  industries  and 
what  plants  within  an  industry  shall  come  to  the  front;  accounts  for 
the  rise  and  decline  in  economic  importance  of  territories,  cities,  and 
markets;  decides  what  technical  processes  and  what  marketing 
methods  shall  live;  all  this  and  more.  Perhaps  its  main  medium  in 
working  out  these  matters  is  price,  using  that  term  in  a  very  broad 
sense,  although  in  certain  cases  quality  and  service  has  been  empha- 
sized. 

Certain  points  in  connection  with  the  foregoing  statements  should 
be  brought  clearly  into  consciousness,  (i)  It  is  not  alleged  that  com- 
petition, especially  pecuniary  competition,  is  an  organizing  force 

885 


886  INDUSTRIAL  SOCIETY 

properly  applicable  in  all  conditions  and  circumstances.  On  the  con- 
trary, there  are  clearly  considerable  areas  in  our  industrial  relations 
where  some  other  organizing  force,  possibly  that  of  authority,  should 
be  used.  (2)  Even  where  competition  does  act  as  an  organizing  force 
it  cannot  be  maintained  that  it  is  the  only  possible  one.  Custom, 
also,  to  cite  but  one  case,  is  an  organizing  force.  (3)  No  one  should 
claim  that  competition  works  perfectly  even  in  its  own  proper  field. 
It  involves  blunders  both  numerous  and  costly.  This  is  to  be  expected. 
After  all  economic  competition  is  a  recent  device  and  many  forces 
have  contributed  to  cause  it  to  operate  under  unfavorable  conditions. 
(4)  Economic  competition  is  a  term  with  varying  content  in  different 
periods  of  history.  It  should  not  be  regarded  as  a  self-sufficing,  self- 
regulating,  self-operating  device.  It  is  subject  to  social  control.  We 
may  have  laissez-faire  competition  or  regulated  competition. 

It  has  become  the  fashion  in  some  quarters  to  say  that  competi- 
tion has  " broken  down " ;  that  it  has  "failed."  This  must  be  looked 
into.  Has  it  broken  down  in  all  its  organizing  operations  ?  Is  it  a 
failure  of  competition  if  changed  industrial  and  social  conditions  find 
competition  operating  on  its  old  plane  in  an  unsatisfactory  way  in  a 
certain  area  or  in  a  certain  case  ?  Should  we  in  the  nature  of  the  case 
expect  competition  to  yield  to  other  organizing  forces  in  certain 
situations  and  to  supplant  them  in  others  ?  In  some  instances  is  it 
competition  which  has  "failed"  or  a  certain  kind  of  competition? 
Would  another  kind  have  operated  well  ? 

We  hear  much  of  "fair"  and  "unfair"  competition.  Indeed  a 
large  part  of  our  "trust  problem"  and  of  our  "railroad  problem"  is 
made  up  of  this  matter  of  "unfair"  (sometimes  called  "socially 
unwise  ")  competition.  To  say  that  a  policy  is  fair  or  unfair  involves 
a  standard  of  judgment.  How  do  we  get  our  standards  of  judgment 
on  such  matters  ?  Shall  we  have  to  wait  for  such  a  standard  to  emerge 
before  we  can  attack  the  trust  problem  ?  Do  such  standards  change  ? 
May  a  practice  that  is  fair  competition  in  a  given  time  or  circum- 
stance be  unfair  under  changed  conditions  ? 

QUESTIONS 

1.  "The  chief  forms  of  competition  are  five  in  number:  commodity  com- 
petition, individual  competition,  market  competition,  class  competition, 
and  race  competition."  What  is  meant  by  each  of  these  kinds  of  com- 
petition ? 

2.  "There  are  three  forms  of  economic  competition— competitive  pro- 
duction,   competitive    bargaining,    and    competitive    consumption." 


COMPETITION 


887 


Explain  what  is  meant  by  each  of  these  three  forms,  and  indicate  the 
social  worth  of  each  form. 

3.  In  which  kind  of  the  following  three  forms  of  competition  are  most 
people  interested:  (a)  competition  in  price,  (b)  competition  in  quality, 
(c)  competition  in  service  ?    Are  the  other  forms  unimportant  ? 

4.  How  do  you  explain  the  fact  that  some  writers  discuss  competition  as 
a  subhead  of  freedom  ? 

5.  "The  main  forms  of  freedom  are:  freedom  of  marriage  and  divorce, 
freedom  of  movement,  freedom  of  occupation,  freedom  of  association, 
freedom  of  consumption,  freedom  of  production,  and  freedom  of  trade." 
Explain  what  is  meant  by  each  form  of  freedom. 

6.  In  some  of  the  readings  there  is  much  talk  of  "rights."  What  consti- 
tutes a  "right"  ?     How  does  it  emerge  ? 

7.  Make  a  list  of  the  elements  that  must  be  present  if  competition  is  to 
be  "free." 

8.  "For  many  generations  past  the  struggle  has  been  to  secure  political 
democracy  or  political  freedom.  For  the  next  group  of  generations  it 
will  be  a  struggle  to  secure  economic  democracy  or  economic  freedom." 
What  does  this  mean  ? 

9.  "Competition  is  not  law  but  lawlessness.  Carried  to  its  logical  out- 
come, it  is  anarchy  or  the  absence  of  law."  What  does  "logical 
outcome  "  mean  in  this  quotation  ?  Does  it  mean  unrestricted  compe- 
tition ?  Has  competition  ever  been  unrestricted  ?  Does  the  believer  in 
competition  necessarily  believe  in  unrestricted  competition  ? 

10.  "  Competition  determines  who  and  what  is  fit,  it  tries  the  available  pegs 
in  the  available  holes  and  uses  the  ones  that  go  in  best."  If  so,  how  ? 
How  does  it  compare  with  status  as  a  device  for  apportioning  individ- 
uals to  tasks  ? 

11.  " Competition  determines  the  fate  of  industries."    Just  how? 

12.  "Competition  determines  what  firm  shall  survive  within  an  industry." 
Just  how  ? 

13.  "Competition  determines  what  industrial  methods  shall  survive." 
How  ?     Can  you  cite  instances  where  competition  has  determined  this  ? 

14.  "Competition  determines  what  marketing  methods  shall  survive." 
How  ?     Can  you  cite  instances  ? 

15.  It  has  been  said  that  competition  is  a  flexible  organizing  force.  Is  it 
more  flexible  than  custom  ?  than  government  control  ?  Is  it  a  matter 
of  significance  to  have  a  flexible  organizing  force  ? 

16.  What  is  meant  by  saying  that  "competition  sets  in  motion  an  auto- 
matic mechanism  which  apportions  human  effort  among  the  forms  of 
production."  Would  it  be  contradictory  to  say  that  the  market  sets 
in  motion  this  mechanism  ? 

17.  Is  it  a  contradiction  to  say  (1)  competition  apportions  productive  energy 
and  (2)  price  levels  and  margins  of  profit  apportion  productive  energy  ? 


8gg  INDUSTRIAL  SOCIETY 

1 8.  Is  it  a  contradiction  to  say  that  (i)  competition  has  extended  markets, 
and  (2)  the  pecuniary  organization  of  society  has  extended  markets  ? 

19.  "  Competition  determines  the  survival  of  forms  of  organization."  What 
does  this  mean  ?    Just  how  does  it  determine  this  survival  ? 

20.  Is  there  any  competition  between  the  engineer  and  the  lawyer?  the 
hod-carrier  and  the  scavenger  ?  moving  pictures  and  ice  cream  ?  a  warm 
dinner  and  a  new  lace  collar  ?  a  piano  and  a  trip  to  Europe  ?  hats  and 
shoes  ? 

21.  Is  there  any  competition  within  a  public  business,  such  as  an  educa- 
tional institution  ?  within  a  monopoly  ?  Would  there  be  competition 
within  a  business  under  socialism  ?  between  businesses  ?  In  which  of 
these  cases  would  competition  be  pecuniary  ?  non-pecuniary  ? 

22.  Discuss  the  contribution  of  the  pecuniary  organization  of  society  in 
facilitating  competition. 

23.  Few  people  deny  the  compelling  force  that  competition  lends  to  our 
present  industrial  organization.  If  this  force  were  destroyed,  what  do 
you  think  could  be  used  as  a  substitute  ? 

24.  "It  is  not  alleged  that  pecuniary  competition  is  an  organizing  force 
properly  applicable  in  all  conditions  and  circumstances.  There  are 
considerable  areas  where  some  other  organizing  force  should  be  used." 
What  are  these  areas  ?  Why  is  competition  unsuited  to  them  ?  Are 
all  manifestations  of  competition  or  only  certain  ones  unsuited  to  these 
areas  ?  Do  you  know  of  any  "  area  "  where  personal  competition  should 
not  be  used  ? 

25.  "Competition  does  not  work  perfectly  even  in  its  own  proper  field." 
Why  not  ?    What  is  its  "own  proper  field"  ? 

26.  What  is  meant  by  saying  that  unguarded  competition  tends  to  lower 
the  moral  sense  of  a  business  community  ?  Is  this  true  occasionally  ? 
always  ?    What  can  be  done  about  it  ? 

27.  What  relationship,  if  any,  exists  between  the  mediaeval  doctrine  of 
"just  price"  and  the  modern  doctrine  of  "fair  price"  ? 

28.  How  did  it  come  about  that  so  many  "customary"  or  "right"  prices 
were  maintained  for  long  periods  during  the  Middle  Ages  ?  Did  the 
stability  of  economic  conditions  have  anything  to  do  with  it  ? 

29.  Cite  as  many  examples  as  you  can  of  prices  fixed  by  custom  or  authority. 
How  are  these  to  be  explained?  How  does  a  monopoly  manage  to 
maintain  prices  ?  With  what  classes  of  commodities,  by  what  devices, 
and  within  what  limits  may  we  consciously  "fix  prices"  ? 

30.  "  Competition  has  ceased  to  control  prices."    Is  this  a  true  statement  ? 

31.  When  one  talks  of  unfair  methods  of  competition,  how  does  he  arrive 
at  a  standard  of  fairness  ?  Is  that  standard  an  unchanging  standard  ? 
Name  some  forms  of  unfair  competition. 

32.  Is  legal  regulation  the  only  agency  by  which  competition  can  be  made 
fair  ?    If  there  are  other  agencies,  name  them. 


COMPETITION 


889 


con- 


cerning  the  social  wisdom  of  that  business  policy  known  as  price  main 
tenance.  Enumerate  the  things  they  should  know  in  order  to  arrive 
at  a  sound  judgment. 

34.  In  regulating  competition  is  the  state  restricting  self-interest  ? 

35.  Some  economists  maintain,  on  abstract  grounds  as  well  as  on  grounds 
of  experience,  that  under  modern  conditions  continued  competition  is 
impossible  in  certain  fields  of  industry.  In  what  fields  ?  What  is  the 
argument  back  of  this  position  ? 

36.  The  socialists  have  a  vigorous  indictment  of  competitive  society.  Is  it 
really  an  indictment  of  competition  or  of  a  certain  standard  or  level 
of  competition?  If  the  latter,  what  is  their  device  to  raise  the 
level  ? 

37.  If  competition  is  regulated  in  any  way,  is  it  really  competition?  If 
you  answer  in  the  affirmative,  can  you  not  then  say  that  socialism  is 
a  form  of  competition— a  highly  regulated  competition  ? 

38.  State  the  logical  premises  of  laissez-faire  competition.  State  those  of 
regulated  competition.  Prove  both  historically  and  logically  that 
laissez  faire  and  competition  are  not  necessarily  synonymous. 

39.  How  true  is  it  that  under  competition  only  those  survive  who  use  their 
strength  in  service  to  society  ? 

40.  "  Prior  to  the  modern  industrial  system,  competition  served  as  an  organ- 
izing force  subject  in  the  main  to  informal,  unconscious  social  control. 
Speaking  in  general  terms  we  are  today  asking  it  to  operate  in  a  very 

»  different  industrial  environment,  subject  to  this  same  form  of  control. 
This  spells  mistakes.  Our  problem  is  to  substitute  a  satisfactory  formal, 
conscious  control  for  the  old  unconscious  control.  When  we  under- 
stand sufficiently  clearly  the  structure  and  operations  of  industrial  so- 
ciety we  may  solve  the  problem,  but  it  will  be  a  slow  process."  Does 
this  seem  to  you  true  ? 

41 .  " Competition  is  not  given  a  fair  hearing.  It  is  assumed  that  competition 
means  laissez-faire  competition  and  then  it  is  promptly  forgotten  that 
competition  is  hindered  from  having  an  open  field  and  that  sufficient 
time  has  not  elapsed  to  give  competition  a  fair  chance  to  show  what 
it  could  do,  be  the  field  open  or  closed."    Is  this  true? 

42.  "One  trouble  is  that  impossible  demands  are  made  upon  competition. 
The  case  is  somewhat  similar  to  that  of  a  financial  panic  when  unusual 
burdens  are  placed  upon  money  as  a  means  of  payment."  What  does 
this  mean? 

43.  "What  is  the  matter  with  existing  competition?  I  should  say  the 
matter  is  simply  that  existing  competition  shares  in  the  prevailing  dis- 

t  integration  of  social  structures."  Explain.  What  social  structures  are 
disintegrating?  Are  you  sure  that  you  know  what  you  are  talking 
about  ? 


Sgo  INDUSTRIAL  SOCIETY 

"Competition  in  one  form  or  another  is  inevitable."    Do  you  accept 
this  statement  ?    Justify  your  answer. 

"We  are  likely  to  compete  with  the  very  persons  with  whom  we  co- 
operate."   What  does  this  mean  ? 

"Our  insufficient  knowledge  of  the  world's  markets  is  a  very  limiting 
factor  to  competition."    Is  this  true  ? 

"Competition  promotes  individuality,  self-reliance,  and  earnestness." 
Can  you  defend  this  proposition  ? 

How  do  you  account  for  the  fact  that  some  people  seem  to  use  the  words 
"capitalism"  and  "competition"  as  synonymous? 
Which  are  you  going  to  believe  on  the  whole,  (i)  that  competition  has 
served  its  purpose  well  but  should  be  largely  supplanted  by  regulated 
monopoly,  or  (2)  that  competition  will  for  a  long  time  be  the  best 
method  of  organizing  society  ? 

50.  Show,  by  citing  a  concrete  example,  say  that  of  the  minimum  wage, 
that  price-fixing  is  a  regulation  of  production,  distribution,  and  con- 
sumption. 

51.  "It  is  only  through  competition  that  price  can  cause  the  limited 
resources  of  society  to  be  used  in  such  a  way  as  to  produce  goods  of 
proper  kinds  and  in  proper  quantities  to  afford  society  Ihe  maximum 
of  utilities."    Make  this  intelligible.    Do  you  believe  it  ? 

52.  How  is  it  possible  for  thinking  men  to  differ  so  radically  concerning  the 
worth  of  competition  ? 

B.     The  Meaning  of  Economic  Competition 

336.    SOME  DEFINITIONS  AND  CHARACTERIZATIONS 

"Competition  is  not  law,  but  lawlessness.  Carried  to  its  logical 
outcome  it  is  anarchy  or  the  absence  of  law.  Man  is  a  moral,  spiritual, 
and  social  being,  not  dominated  by  animal  law.  There  can  be  no  such 
thing  as  a  harmonized  society  with  any  competitive  elements  in  it,  and 
Christianity  is  impossible.  Every  man  owes  the  world  his  life,  and 
must  live  to  have  a  life  to  give.  In  competitive  conditions,  not  char- 
acter, but  cunning,  survives.  The  gospel  of  success  is  the  great 
insanity  of  modern  materialism,  absorbing  the  best  brain,  thought,  and 
life  of  the  race;  we  have  been  feeding  our  children  to  this  great  Moloch 
of  success,  but  as  a  result  we  have  been  warping  the  intellect  and 
making  moral  idiots."1 

"Sweet  competition !    Heavenly  maid !  ....  Nowadays  hymned 
alike  by  penny-a-liners  and  philosophers  as  the  ground  of  all  society 
1  Cleveland  Citizen,  March  14, 1896.    Attributed  to  George  D.  Herron. 


I 


COMPETITION  891 

.  the  only  real  preserver  of  the  earth!  Why  not  of  Heaven, 
too  ?  Perhaps  there  is  competition  among  the  angels,  and  Gabriel 
and  Raphael  have  won  their  rank  by  doing  the  maximum  of  worship 
on  the  minimum  of  grace.  We  shall  know  some  day.  In  the  mean- 
while 'these  are  thy  works,  thou  parent  of  all  good !'  Man  eating  man, 
man  eaten  by  man,  in  every  variety  of  degree  and  method !  Why  does 
not  some  enthusiastic  political  economist  write  an  epic  on  'The  Con- 
secration of  Cannibalism'?"1 

"The  competition  of  economics  is  not  the  so-called  competition  of 
our  great  centres,  where  men  strive  to  drive  men  to  the  wall,  but  the 
competition  which  leaves  each  in  full  possession  of  that  productive 
power  which  best  unites  his  labor  with  the  labor  of  others.  Competi- 
tion is  no  more  trespass  than  it  is  theft.  It  is  the  reconciliation  of  men 
in  those  productive  processes  which  issue  in  the  largest  aggregate 
of  wealth.  It  is  not  crowding  men  off  their  feet,  but  a  means  of  plant- 
ing them  upon  their  feet."2 

"Competition  was  the  gigantic  motor  that  caused  nearly  every- 
body during  the  first  nineteen  centuries  of  Christian  civilization  to  use 
all  his  mental  and  physical  powers  to  get  ahead.  The  best  efforts 
of  humanity,  stimulated  by  competition  ....  have  lifted  our  race 
to  a  standard  where  the  mode  of  living  of  common  laborers  is  more 
comfortable  and  desirable  than  the  everyday  existence  of  the  kings 
of  whom  Homer  sings."3 

"Competition  signifies  the  operation  of  individual  self-interest 
among  the  buyers  and  sellers  of  any  article  in  any  market.  It  implies 
that  each  man  is  acting  for  himself  solely,  by  himself  solely,  in 
exchange,  to  get  the  most  he  can  from  others,  and  to  give  the  least 
he  must  himself. 

"1.  The  idea  of  competition  is  opposed  to  combination.  Men 
in  this  state  act  as  freely  and  as  independently  as  the  minute  particles 
of  some  fine,  dry  powder  absolutely  destitute  of  cohesion. 

"  2.  Competition  is  also  opposed  to  custom. 

1  Taken  by  permission  from  Charles  Kingsley,  "Cheap  Clothes  and  Nasty," 
Preface  to  Alton  Locke,  pp.  lxviii-ix.     (The  Macmillan  Co.,  1889.) 

a  John  Bascom  on  the  "Moral  Discipline  of  Business,"  The  Kingdom,  Minne- 
apolis, May,  1896. 

3  Richard  Michaelis,  Looking  Further  Forward,  1890. 


892 


INDUSTRIAL  SOCIETY 


"3.  Competition  is  opposed  to  sentiment.  Whenever  any  eco- 
nomic agent  does  or  forbears  anything  under  the  influence  of  any 
sentiment  other  than  the  desire  of  giving  the  least  and  gaining  the 
most  he  can  in  exchange,  be  that  sentiment  patriotism,  or  gratitude, 
or  charity,  or  vanity,  leading  to  do  any  otherwise  than  as  self-interest 
would  prompt,  in  that  case,  also,  the  rule  of  competition  is  departed 
from."1 

"The  strict  meaning  of  competition  seems  to  be  the  racing  of  one 
person  against  another,  with  special  reference  to  bidding  for  the  sale 
or  purchase  of  anything.  This  kind  of  racing  is  no  doubt  both  more 
intense  and  more  widely  extended  than  it  used  to  be :  but  it  is  only  a 
secondary,  and  one  might  say  an  accidental,  consequence  from  the 

fundamental  characteristics  of  modern  industrial  life These 

characteristics  are  a  certain  independence  and  habit  of  choosing  one's 
own  course  for  oneself,  a  self-reliance;  a  deliberation  and  yet  a  prompt- 
ness of  choice  and  judgment,  and  a  habit  of  forecasting  the  future  and 
of  shaping  one's  course  with  reference  to  distant  aims.  They  may 
and  often  do  cause  people  to  compete  with  one  another;  but,  on  the 
other  hand,  they  may  tend,  and  just  now  indeed  they  are  tending,  in 
the  direction  of  co-operation  and  combination  of  all  kinds  good  and 
evil. 

"The  term  'competition'  has  gathered  about  it  evil  savour, 
and  has  come  to  imply  a  certain  selfishness  and  indifference  to  the 
well-being  of  others.  Now  it  is  true  that  there  is  less  deliberate 
selfishness  in  early  than  in  modern  forms  of  industry;  but  there  is  also 
less  deliberate  unselfishness.  It  is  deliberateness  and  not  selfishness 
that  is  the  characteristic  of  the  modern  age."2 

"The  word  competition  contains,  in  fact,  two  quite  separate 
ideas,  though  these,  as  a  rule,  are  not  distinguished: 

"One  is  that  of  the  freedom  of  labour,  or  the  liberty  for  every  man 
to  follow  the  line  which  he  prefers.  In  France  it  dates  from  the 
Revolution  of  1789. 

"The  other  is  that  of  the  struggle  for  life;  a  chance  for  every  man 
to  arrive  first  if  he  can.  This  second  idea  did  not  appear  till  much 
later  under  the  influence  of  Spencer  and  Darwin. 

,tt  '  A(JaPted  by  Permission  from  F.  A.  Walker,  Political  Economy,  pp.  91-02. 
(Henry  Holt  &  Co.,  1888.) 

'  ^daP/^d  h*  Permission  from  Alfred  Marshall,  Principles  of  Economics, 
pp.  5-6-     (Macmillan  and  Co.,  Ltd.,  1912.) 


COMPETITION 


893 


"Under  the  first  aspect,  competition,  although  it  has  not  all  the 
irtues  attributed  to  it,  cannot  but  win  approval.  Under  the  second, 
lowever,  it  has  more  dangers  than  virtues  and  needs  to  be  carefully 
ttntrolled."1 

"Its  opponents  have  rarely  done  it  full  justice.    They  have 
>een  so  impressed  by  certain  incidental  evils  connected  with  the  sys- 
tem—smaller capitalists  pushed  to  the  wall  by  larger  capitalists; 
itelligent  workmen  thrown  out  of  employment  by  -the  process  of 
industrial  readjustment  to  make  room  for  those  cheaper  and  less 
skilled— that  they  have  shut  their  eyes  to  its  essential  excellences. 
They  have  said  that  competition  was  nothing  but  a  new  name  for 
ie  Darwinian  struggle  for  existence  as  applied  in  modern  business; 
lat  it  was  a  glorification  of  the  principle  of  survival  of  the  strongest, 
'his  is  a  very  imperfect  view  of  the  case.    Competition  is  something 
>sentially  different  in  character  from  the  struggle  for  existence  among 
ie  lower  animals.    It  is  a  struggle  so  ordered  that  outside  parties  reap 
a  benefit  instead  of  suffering  an  injury.    This  is  its  conspicuous  and 
distinctive  feature.    If  cats  are  struggling  to  get  the  same  bird, 
and  bosses  are  struggling  to  get  the  same  workmen,  the  relation 
of  the  cats  to  one  another  bears  some  analogy  to  the  relation  of 
the  bosses  to  one  another.      But  there  is  this  radical  difference 
the  whole  transaction :  that  the  more  cats  there  are,  the  worse  for 
ie  bird;  while  the  more  bosses  there  are,  the  better  for  the  work- 
len.     Competition  is  what  its  name  implies — aconcurrent  petition; 
effort  on  the  part  of  different  people  to  do  the  best  they  can  for 
somebody  else,  in  order  to  induce  him  to  enter  into  dealings  with 
\em. 

Unfortunately,  it  is  not  only  the  opponents  of  competition  who 
fail  to  recognize  this  as  its  essential  feature.  The  advocates  of  the 
system  are  prone  to  make  a  somewhat  similar  mistake.  They  go  so 
far  as  to  assume  that  any  adjustment  which  is  the  result  of  free  play 
among  a  mixture  of  conflicting  social  elements,  strong  and  weak,  is 
presumably  right,  and  should  be  interfered  with  only  when  the  result- 
ing evils  are  so  clear  as  to  furnish  the  most  obvious  grounds  for  state 
action."2 

1  Taken  by  permission  from  Charles  Gide,  Political  Economy,  pp.  137-38. 
Note.     (D.  C.  Heath  &  Co.,  1913.) 

2  Adapted  by  permission  from  A.  T.  Hadley,  Freedom  and  Responsibility, 
pp.  121-23.     (Charles  Scribner's  Sons,  1903.    Author's  copyright.) 


g94  INDUSTRIAL  SOCIETY 

337.    THE  FORMS  OF  ECONOMIC  COMPETITION 
A1 
The  chief  forms  of  competition  are  five  in  number— commodity 
competition,  individual  competition,  market  competition,  class  com- 
petition, and  race  competition. 

1.  By  commodity  competition  is  meant  the  competition  due  to 
the  existence  of  social  choices.  Every  individual  is  continually  debat- 
ing with  himself  whether  to  purchase  one  commodity  in  preference 
to  another.  Where  he  is  on  the  margin  of  doubt  or  of  indifference 
the  slightest  alteration  in  the  price  will  cause  him  to  substitute  some- 
thing else.  The  principle  involved  is  hence  called  the  principle  of 
substitution.  The  vendor  must  constantly  be  on  the  watch  lest  any 
increase  of  price  cause  the  disappearance  of  his  sales.  We  substitute, 
however,  not  only  one  thing  for  another,  but  also  one  agency  of  pro- 
duction for  another:  in  the  crucible  of  economic  wants  everything  is 
finally  tested  by  its  capacity  to  afford  the  greatest  satisfaction.  Not 
only  will  the  consumer  choose  now  this  and  now  that  commodity,  but 
the  employer  will  increase  now  his  labor  force,  now  his  stock  of  ma- 
chinery, so  as  to  secure  the  best  results.  The  least  change  in  the  rate 
of  wages  or  of  interest  may  lead  him  to  substitute  the  one  for  the 
other.  It  is  only  by  replacing  the  less  efficient  by  the  more  efficient 
factor  that  the  producer  is  able  to  induce  the  consumer  to  select  one 
commodity  in  preference  to  another.  Competition  of  factors  of  pro- 
duction is  thus  really  an  adjunct  to  commodity  competition.  Com- 
petition through  substitution  is  hence  important  in  that  it  fixes  a 
maximum  limit  beyond  which  prices  cannot  go.  Every  economic 
factor,  like  every  economic  good,  may  be  in  either  actual  or  potential 
competition  with  another.  The  existence  of  competition,  however, 
implies  the  mobility  or  free  interchange  of  the  factors  of  production 
from  enterprise  to  enterprise  and  from  commodity  to  commodity. 
When  the  fluidity  of  capital  and  the  transferability  of  labor  are  com- 
plete, the  competition  is  absolutely  free.  When  there  are  hindrances 
to  this  mobility,  we  speak  of  economic  friction.  The  substitution 
of  one  commodity  for  another  may  be  hindered  by  legal,  social,  or 
economic  causes.  Under  normal  conditions,  however,  the  compe- 
tition is  real  and  effective. 

2.  The  competition  of  individuals  with  each  other  denotes  a 
rivalry,  not  between  the  producers  of  different  commodities  or  between 

1  Adapted  by  permission  from  E.  R.  A.  Seligman,  Principles  of  Economics, 
pp.  141-45-     (Longmans,  Green  &  Co.,  1905.) 


COMPETITION 


895 


the  different  factors  of  production,  but  between  the  producers  of  the 
same  commodity  or  the  same  factors  of  production.  Under  normal 
conditions  competition  here  puts  everyone  on  his  mettle,  and  success 
is  a  measure  of  the  contribution  to  the  social  fund.  The  more  a 
laborer  produces,  the  higher  his  wages  will  be;  the  larger  the  output 
of  a  particular  cotton  mill  and  the  lower  the  cost  at  which  it  can 
market  its  goods,  the  greater  will  be  the  benefit  to  the  consumer  as  well 
as  the  advantage  to  the  particular  producer.  Competition  between 
individuals  is  in  its  results  a  struggle  to  enhance  efficiency,  to  increase 
faculty,  to  multiply  productive  power,  to  augment  ingenuity,  in  short, 
to  develop  economic  personality.  The  more  potent  the  personality' 
the  greater  will  be  the  command  over  powers  of  nature,  the  more 
rapid  will  be  the  development  of  the  wealth  which,  although  owned  by 
individuals,  yet  inevitably  ministers  to  the  welfare  of  society. 

3.  By  market  competition  we  mean,  not  the  competition  of  indi- 

Ividuals  in  the  market,  but  the  competition  of  markets  with  each  other. 
Market  competition  includes,  indeed,  both  commodity  competition 
and  individual  competition  in  the  sense  that  in  every  market  indi- 
viduals as  well  as  commodities  compete  with  each  other;  but  it  is 
something  over  and  above  these.  Every  great  city  is  continually 
striving  to  develop  as  a  centre  of  distribution  and  exchange  in  the  well- 
founded  hope  that  the  wealth  thus  amassed  will  lead  to  productive 
I  efficiency  in  other  lines.  Here  again  market  competition  leads  to  re- 
duced cost,  and  the  struggle  for  market  supremacy  can  be  fought 
to  a  successful  issue  only  through  more  effective  service. 

4.  Class  competition  is  the  result  of  the  differentiation  of  modern 
society  into  groups  of  producers.  We  have,  not  only  the  great 
division  into  laborers  and  capitalists,  but  the  further  separation  of  the 
latter  into  the  owners  of  agricultural,  commercial,  and  industrial  capi- 
tal—that is,  landowners,  merchants,  and  factory  owners — and  the  still 
further  subdivision  of  each  class  into  minor  groups.  Class  competi- 
tion, while  as  inevitable  as  the  other  forms  of  competition,  is  within 
proper  bounds  just  as  beneficial.  Whether  the. moneyed  interest  or 
the  landed  interest  is  more  prosperous  depends  at  bottom  upon  their 
success  in  making  converts  among  the  consumers,  and  the  extent  of 
conversion  depends  on  what  they  can  offer  in  the  way  of  lower  prices 
or  better  products.  The  laborers  and  the  capitalists  again  represent 
competing  interests,  but  the  share  of  each  in  wages  and  profits 
depends  ultimately  on  their  relative  contribution  to  the  common 
product. 


896  INDUSTRIAL  SOCIETY 

5.  Race  or  national  competition  in  its  economic  aspects  is  the 
final  form  of  the  modern  struggle.  The  most  marked  characteristic 
of  recent  progress  is  the  gradual  substitution  of  peaceful  rivalry  of 
commerce  for  the  sanguinary  clash  of  arms.  The  modern  weapon  is 
not  the  javelin  or  the  rifle  but  the  enterprise  of  the  domestic  producer 
aided  by  the  exporter.  Every  nation  that  has  reached  commercial  or 
industrial  maturity  endeavors  to  seek  in  the  foreign  market  a  profit- 
able outlet  for  its  own  surplus  production.  This_attempt  to  secure 
a  market  is  indeed  responsible  for  an  occasional  war.  In  thelnain, 
however,  the  struggle  today  is  one  for  cheapness,  and  in  the  end  it  is 
not  the  large  army  or  navy  but  the  most  efficient  producer  that 
permanently  retains  the  neutral  market.  It  is  not  to  be  denied  that 
both  a  large  army  and  a  large  navy  may  be  needed  to  protect  the  com- 
mercial or  other  national  interests;  but  the  foundation  of  military 
greatness  in  modern  times  is  primarily  economic,  and  when  economic 
efficiency  has  disappeared,  military  strength  must  also  disintegrate. 
Here,  again,  national  competition  is  salutary.  The  fundamental 
error  of  the  old  mercantilistic  doctrine  was  the  belief  that  what  one 
nation  gains  in  trade,  the  other  necessarily  loses.  The  modern  doc- 
trine is  that  every  nation  is  helped  by  the  prosperity  of  its  neighbor, 
on  the  principle  that  the  more  wealthy  the  customer,  the  greater  will 
be  his  purchases.  Both  nations  may  gain,  although  one  may  gain 
more  than  the  other. 

B1 

Of  all  forms  of  human  conflict,  economic  competition  is  the  high- 
est. In  no  other  form  of  conflict  does  success  depend  so  much  upon 
production  or  service  and  so  little  upon  destruction  or  deception. 
There  are  three  forms  of  economic  competition:  competitive  pro- 
duction, competitive  bargaining,  and  competitive  consumption. 
Competitive  production  always  works  well;  competitive  bargaining 
sometimes  works  well  and  sometimes  badly;  competitive  consumption 
always  works  badly. 

Of  the  three  forms  of  economic  competition  the  most  advantageous 
and  least  harmful  is  that  of  competitive  production.  Production  is 
service.  Competitive  production  is,  therefore,  rivalry  in  the  per- 
formance of  service.  In  competitive  bargaining  we  have  more 
opportunities  for  harm  because  there  are  so  many  opportunities  for 

'Adapted  by  permission  from  T.  N.  Carver,  Essays  in  Social  Justice,  pp.  91- 
93.    (Harvard  University  Press,  19 15.) 


COMPETITION  897 

leception  and  fraud.  Most  of  the  charges  brought  against  the 
competitive  system  apply  to  competitive  bargaining  rather  than  com- 
petitive production.  However,  a  mutual  exchange  of  service  or  com- 
modities on  a  fair  and  equitable  basis  is  a  highly  useful  operation.  If 
A  has  something  which  he  does  not  want  but  B  does,  and  B  likewise 
has  something  which  he  does  not  want  but  A  does,  it  is  obviously  to 
the  advantage  of  both  to  effect  an  exchange.  However,  in  the  actual 
process  of  exchange  we  may  normally  expect  both  A  and  B  to  higgle 
for  an  advantage,  and  both  are  under  temptation  to  deceive,  and 
deception  is  always  immoral.  Because  of  the  persistence  of  this 
lptation,  a  great  deal  of  our  law  and  legal  procedure  is  concerned 
dth  the  task  of  preventing  deception  without  interfering  with  legiti- 
me exchange.  It  is  a  difficult  problem;  but  because  a  thing  is 
icult  is  no  reason  for  not  doing  it. 

When  we  come  to  the  field  of  competitive  consumption,  however, 
?re  is  little  that  can  be  said  in  defence  of  it.  It  is  the  result  of  the 
lowest  and  least  defendable  quality  in  human  nature.  It  is  the  result 
of  the  desire  to  outshine  our  neighbors,  or  to  avoid  being  outshone 
by  them.  The  desire  to  show  off,  to  attract  notice,  and  all  the  other 
tendencies  which  are  summed  up  under  the  one  word  "vanity"  are 
at  work  here. 

While  this  is  by  far  the  worst  form  of  economic  competition, 
producing  more  evils  than  any  other,  having  less  that  can  possibly  be 
said  in  its  defence,  it  is  a  striking  fact  that  comparatively  few  of  our 
modern  social  reformers  have  given  any  attention  to  it  whatever. 
They  have  attacked  business  competition,  competition  in  production, 
competition  in  exchange,  but  are  singularly  silent  on  competition  in 
consumption. 

338.    COMPETITION  AND  ECONOMIC  FREEDOM1 

1.  The  first  and  most  obvious  form  of  freedom  is  that  of  marriage 
and  divorce.  Marriage  indeed  is  far  more  than  an  economic  con- 
trivance, even  though  the  historical  forms  of  marriage  have  been 
influenced  by  economic  forces  to  a  greater  extent  than  is  commonly 
recognized.  Freedom  of  marriage  especially  is  a  product  of  the 
modern  economic  life.  Freedom  of  divorce,  on  the  other  hand, 
existed  in  early  society,  but  was  at  first  based  on  inequality.    After 

1  Adapted  by  permission  from  E.  R.  A.  Seligman,  Principles  of  Economics, 
pp.  165-70.     (Longmans,  Green  &  Co.,  1905.) 


898 


INDUSTRIAL  SOCIETY 


the  patriarchal  and  modern  family  had  been  constituted,  the  husband 
could  divorce  the  wife,  but  not  vice  versa.  The  newer  right  of  divorce 
which  rests  on  equality  is  in  large  measure  the  result  of  the  economic 
emancipation  of  woman.  Into  the  wider  ethical  and  religious  aspects 
of  this  great  problem  the  present  is  not  the  place  to  enter. 

2.  Next  we  have  freedom  of  movement.  In  the  Middle  Ages  the 
right  of  internal  migration  was  often  restricted.  Under  the  settlement 
laws  in  England,  for  instance,  it  was  virtually  impossible  for  a  work- 
man to  leave  his  native  parish.  In  modern  times  the  growth  of 
freedom  has  brought  the  right,  not  only  of  internal,  but  of  international 
migration.  The  restrictions  on  emigration  still  existing  in  Russia,  for 
instance,  are  a  relic  of  mediaevalism.  On  the  other  hand,  the  pro- 
hibition of  immigration  which  is  sometimes  found  in  modern  coun- 
tries must  be  judged  in  the  light  of  liberty  in  the  positive  sense. 
Chinese  immigration  into  the  United  States,  for  instance,  is  forbidden. 
Freedom  of  immigration,  which  in  this  case  means  prosperity  for  the 
employer  and  comparative  comfort  for  the  immigrant,  implies 
permanent  degeneration  for  the  American  workman  and  thus  ulti- 
mate economic  decay.  It  is  a  specious  liberty,  because  based  on 
inequality. 

3.  We  come  next  to  the  freedom  of  occupation.  The  right  of 
choosing  one's  profession  was  in  former  times  hedged  in  by  all  manner 
of  barriers.  At  its  worst  the  system  of  caste  and  custom  prevented 
progress  because  it  put  men  into  vocations  for  which  they  were  not 
fitted.  Freedom  of  occupation  insures  as  far  as  possible  the  right 
man  for  the  right  place,  and  this  leads  to  enhanced  production  and 
better  distribution.  The  only  restriction  which  modern  society  per- 
mits is  the  evidence  of  fitness,  in  those  occupations  where  incompe- 
tence would  imply  irresponsibility  and  involve  injury  to  others  as 
well  as  to  oneself.  The  certificates  required  from  doctors,  dentists, 
engineers,  plumbers,  pilots,  and  the  like  are  not  a  hindrance,  but  an 
aid,  to  true  liberty.  The  apprenticeship  regulations  of  the  trade 
unions,  however,  are  sometimes  good,  sometimes  bad.  Where  they 
are  designed  to  insure  good  work,  or  even  to  prevent  the  degradation 
of  wages  and  the  workman's  standard  of  life  through  the  irruption 
of  large  numbers  of  underpaid  apprentices,  there  is  much  to  be  said 
for  the  practice.  But  when  the  object  is  simply  to  keep  out  com- 
petent workmen  and  to  erect  a  monopolistic  closed  corporation,  as 
in  the  late  stage  of  the  guild  system,  the  limitation  is  clearly 
indefensible. 


COMPETITION  899 

4.  Another  kind  of  freedom  is  the  freedom  of  association.    The 
lief  forms  of  association  for  economic  purposes  are  combinations  of 

>r  and  combinations  of  capital.  In  classic  Rome,  as  in  modern 
issia,  where  both  political  and  economic  aims  were  sought,  we  find 
stern  repression  of  labor  associations.  Even  after  the  right  of 
>litical  and  religious  association  had  been  won,  however,  combina- 
ms  of  labor  were  prohibited.  Under  the- modern  factory  system, 
;h  combinations  have  assumed  the  form  of  trade  unions.  It  was 
>t  until  1824  in  England  and  considerably  later  in  America  and 
mtinental  Europe  that  the  prohibition  was  removed.  The  legiti- 
of  union,  as  such,  is  now  accepted  because  it  is  recognized  that 
tends  to  secure  the  real  freedom  of  the  laborer.  The  individual 
workman  in  a  large  factory  is  at  a  clear  disadvantage  in  dealing  with 
the  employer;  the  union  restores  the  equality  by  securing  the  right  of 
collective  bargaining.  In  the  same  way  the  right  of  free  association 
of  capital  in  the  form  of  corporations  and  other  combinations  has  been 
acquired  chiefly  in  the  past  half-century.  Here  again,  however, 
when  the  nominal  liberty  of  association  results  in  a  "restraint  of 
trade"  or  virtual  monopoly  inimical  to  the  general  interests,  the  com- 
munity is  justified  in  curbing  its  excesses  whenever  the  contest  involves 
a  crass  inequality  or  is  conducted  without  any  sense  of  social  responsi- 
bility. The  greatest  care,  however,  must  be  observed  in  the  analysis 
before  the  infringement  of  the  right  of  association  can  be  conceded. 
To  abandon  liberty  because  of  a  mere  apprehended  but  imaginary 
inequality  would  be  to  sacrifice  both  liberty  and  equality.  A  clear 
case  must  be  made  out  before  the  law  should  be  invoked  against  the 
combinations  of  either  labor  or  capital. 

5.  The  fifth  category,  freedom  of  consumption,  needs  only  a  word 
in  this  place.  The  sumptuary  laws  of  old  which  prescribed  in  detail 
what  should  be  eaten  or  worn  were  sometimes  well-intentioned,  but 
always  mistaken.  By  restricting  the  expansion  of  wants,  they  really 
checked  economic  progress.  Modern  society  has  abandoned  such  a 
system  completely,  and  where  it  becomes  desirable  in  the  interests 
of  the  public  health  or  safety  to  prohibit  the  use  of  certain  com- 
modities, like  over-ripe  fruit,  or  infected  meat,  or  opium,  the  end  is 
attained  far  better  by  a  prohibition  of  sale,  under  the  police  power 
of  the  state,  than  by  a  restriction  of  consumption. 

6.  We  come,  sixthly,  to  freedom  of  production,  including  freedom 
of  contract  and  enterprise.  Here,  again,  the  emphasis  has  been  shifted 
in  modern  times.    The  world  has  outgrown  the  time-worn  conception 


poo  INDUSTRIAL  SOCIETY 

of  the  citizens  as  the  children  of  an  all-wise  and  benevolent  paternal 
government.  It  has  been  realized  that  governments  are  not  always 
benevolent  and  never  all-wise,  and  that  with  the  growth  of  capital 
and  competition  better  results  can  be  secured  by  the  repeal  of  the 
complicated  and  often  contradictory  provisions  which  throttle  pro- 
duction and  check  individual  initiative.  It  was  this  that  the  French 
manufacturers  meant  when  they  told  Colbert  laissez  nous  faire  and 
thus  introduced  a  celebrated  phrase.  That  was  indeed  the  necessary 
destructive  process  of  pulling  down  the  barriers  which  impeded 
progress  because  they  checked  equal  opportunity.  It  has  been  found 
requisite,  however,  in  recent  times  to  modify  both  the  theory  and  the 
practice  of  laissez-faire  in  order  to  safeguard  the  interests  of  various 
classes  of  society.  The  complex  requirements  of  modern  life  have 
necessitated  a  governmental  regulation  of  many  business  enterprises 
in  behalf  of  producers,  of  consumers,  of  investors,  or  of  the  general 
public.  The  difference  between  mediaeval  and  modern  interference 
is  to  be  found  chiefly  in  the  fact  that  the  one  sought  to  prevent  com- 
petition while  the  other  endeavors  to  enlarge  its  domain  and  to  raise  its 
level. 

7.  Finally,  we  have  freedom  of  trade.  This  is  virtually  included 
under  the  last  head,  since  trade  is  a  species  of  production.  It  forms, 
however,  so  important  a  part  of  the  subject  that  it  has  generally  been 
treated  separately.  The  modern  age  has  seen  the  emancipation  of 
internal  commerce  from  mediaeval  restrictions  of  all  kinds.  The  great 
controversy  today  centres  about  international  trade.  Here,  again, 
the  general  hypothesis  must  be  in  favor  of  freedom.  Free  trade, 
however,  is  not  necessarily  and  always  beneficent.  If  the  relative 
inequality  of  two  countries  in  the  production  of  a  certain  commodity 
is  great,  free  trade  may  hinder  in  the  weaker  country  the  growth  of 
an  industry  which  might  become  relatively  profitable  or  even  highly 
necessary.  Under  such  conditions  protection,  by  building  up  the 
industry  to  the  point  where  there  will  be  a  domestic  competition,  may 
help  in  creating  that  relative  equality  between  the  domestic  and  the 
foreign  producer  which  will  ultimately  redound  to  the  interests  of  the 
consumer  as  well.  Such  a  policy  is  defensible  only  when  protection 
actually  increases  real  productive  efficiency,  and  when  the  undoubted 
intermediate  economic  loss  does  not  outweigh  the  ultimate  advantage. 
Only  in  such  a  case  is  interference  with  freedom  legitimate,  because 
only  then  is  it  in  the  interests  of  a  more  real  and  beneficent  ultimate 
freedom. 


COMPETITION 

339.    SOME  INTERPRETATIONS  OF  THE  CONTENT  OF 
FREEDOM 


901 


Two  senses  of  freedom. — In  its  external  aspect,  freedom  is  negative 
and  formal.  It  signifies  freedom  from  subjection  to  the  will  and 
control  of  others;  exemption  from  bondage;  release  from  servitude; 
capacity  to  act  without  being  exposed  to  direct  obstructions  or 
interferences  from  others.  It  means  a  clear  road,  cleared  of  impedi- 
ments, for  action.  It  contrasts  with  the  limitations  of  prisoner,  slave, 
and  serf  who  have  to  carry  out  the  will  of  others. 

Exemption  from  restraint  and  from  interference  with  overt 
action  is  only  a  condition,  though  an  absolutely  indispensable  one, 
of  effective  freedom.  The  latter  requires  (1)  positive  control  of  the, 
resources  necessary  to  carry  purposes  into  effect,  possession  of  the 
means  to  satisfy  desires;  and  (2)  mental  equipment  with  the  trained 
powers  of  initiative  and  reflection  requisite  for  free  preference  and 
for  circumspect  and  far-seeing  desires.  The  freedom  of  an  agent 
who  is  merely  released  from  direct  external  obstructions  is  formal 
and  empty.  If  he  is  without  resources  of  personal  skill,  without  control 
of  tools  of  achievement,  he  must  inevitably  lend  himself  to  carrying 
out  the  directions  and  ideas  of  others.  If  he  has  not  powers  of 
deliberation  and  invention,  he  must  pick  up  his  ideas  casually  and 
superficially  from  the  suggestions  of  his  environment  and  appropriate 
the  notions  which  the  interests  of  some  class  insinuate  into  his  mind. 
If  he  have  not  powers  of  intelligent  self-control,  he  will  be  in  bondage 
to  appetite,  enslaved  to  routine — imprisoned  within  the  monotonous 
round  of  an  imagery  flowing  from  illiberal  interests,  broken  only  by 
wild  forays  into  the  illicit. 


Seen  from  this  angle,  " liberty"  takes  on  a  new  and  greater  mean- 
ing. Freedom  from  disease,  from  the  handicap  of  inefficiency  and 
illiteracy,  from  overcrowded  and  indecent  dwellings,  and  uncleanli- 
ness,  are  incalculably  more  important  to  us  than  the  old  legal  freedom 
of  contract  which  once  occupied  the  center  of  the  stage.     In  order 

1  Taken  by  permission  from  John  Dewey  and  J.  H.  Tufts,  Ethics,  pp.  437"38. 
(Henry  Holt  &  Co.,  1910.) 

3  Taken  by  permission  from  J.  T.  Young,  The  New  American  Government  and 
Its  Work,  pp.  497-98.     (The  Macmillan  Co.,  1915-) 


902 


INDUSTRIAL  SOCIETY 


to  contrast  the  older,  more  formal  ideal  with  this  new  substantial 
liberty,  let  us  place  the  two  side  by  side  in  parallel  columns. 


The  Older  Constitutional  Rights 

i.  Right  to  the  equal  protection  of 
the  laws. 


2.  Right  of  persons  accused  of  crime 
to  be  safeguarded  in  criminal 
procedure. 


3.  Freedom   of  speech,   press   and 
religion. 


4.  No  person  shall  be  deprived  of  life 
without  due  process  of  law. 


New  Economic  and  Social  Rights 

i.  Equal  opportunities  for  all  in  the 
open  market. 

a)  The  equal  use  of  public  faci 
ties  such  as  railways,  cam 
terminals,   ware  houses, 
wharves,  etc. 

b)  Freedom  from  unfair  and  cor- 
rupt methods  of  business 
competition,  fraud,  misrepre- 
sentation, combinations  to 
destroy  a  competitor,  exclu- 
sive contracts  to  stifle  com- 
petition, etc. 

2.  Right  to  real  protection  against 
criminals.  Cheaper  and  quicker 
justice. 

a)  A  simplified,  less  technical 
procedure  in  both  civil  and 
criminal  suits. 

b)  A  more  complete,  efficient 
and  thorough  police  system 
in  both  city  and  country 
districts. 

c)  A  more  careful  sifting  of  the 
chance  offender  from  the 
habitual  criminal. 

3.  The  freedom  of  the  consumer 
from  extortionate  and  oppressive 
charges  in  all  articles  of  com- 
mon use,  meats,  foods,  drugs, 
beverages,  shoes,  clothing,  coal, 
tobacco,  sugar,  oil,  express  and 
transportation  charges. 

4.  No  person  shall  be  deprived  of 
the  opportunities  of  improve- 
ment, education,  and  recreation, 
even  with  due  process  of  law. 


COMPETITION 


903 


The  Older  Constitutional  Rights 

Freedom  from  compulsory  quar- 
tering of  soldiers  in  time  of  peace; 
freedom  from  searches  and  seiz- 
ures in  homes  and  dwellings. 

No  person  shall  be  deprived  of 
liberty  or  property  without  due 
process  of  law. 


Right  to  bear  arms. 


New  Economic  and  Social  Rights 

Freedom  from  overcrowded  un- 
sanitary houses,  factories,  and 
stores;  right  to  tenement  and 
factory  inspection  and  regula- 
tion. 

Right  to  full  participation  in 
economic  progress  and  a  salary 
or  wage  payment  that  will  sup- 
port a  reasonable  standard  of 
living. 

Right  to  aesthetic  and  other 
higher  enjoyments  of  civiliza- 
tion. 


We  must  see  clearly  that  the  old  legal  freedom  was  a  means  to  an 
id.  When  men  were  fighting  a  tyrant  king  or  a  selfish  mother 
mntry  they  wanted  "liberty"  to  pursue  " happiness"  or  "freedom  of 
speech,"  both  of  which  were  denied  them.  When  their  business  is 
assailed  by  a  combination,  or  their  own  and  their  children's  chances 
of  advancement  are  blocked  by  one  or  another  cause,  they  demand 
greater  "freedom  of  business  opportunity."  The  obstacles  to  pro- 
gress are  different,  the  meaning  of  "liberty"  changes.     \ 

See  also    62.  Individual  Enterprise  under  Feudalism. 
112.  What  Mobility  Really  Involves. 
226.  Freedom  of  Contract  and  Labor. 
228.  A  Program  of  Reform. 
392.  The  Development  of  Individualism. 


34o. 


C.     Competition  as  an  Organizing  Agency 

GENERAL  STATEMENT  OF  THE  SERVICES  OF 
COMPETITION 


What  services  are  they  which  we  look  to  competition  to  perform  ? 
The  first  of  them  is  the  determination  of  prices.  By  this  deter- 
mination of  prices  it  regulates,  in  the  second  place,  the  amount  of 

1  Adapted  by  permission  from  John  Bascom,  Social  Theory:  A  Grouping  of 
Social  Fads  and  Principles,  pp.  148-51-     (Thomas  Y.  Crowell  &  Co.,  1895.) 


qo^  INDUSTRIAL  SOCIETY 

production.    In  the  third  place,  by  the  same  means,  it  adapts  productioi 
to  the  wants  of  men,  and,  in  the  fourth  place,  improves  it  in  quality. 

Competition  determines  prices.  We  wish  the  most  skilful  pro- 
duction, we  wish  the  low  prices  incident  to  it,  and  these  we  secure  by 
the  sifting  processes  of  an  active  market.  Yet  this  regulation  is  not 
perfect.  There  are  most  undesirable  and  extreme  fluctuations  in 
prices,  and  adventitious  forces  find  their  way  freely  into  them.  The 
work  is  done;  not  perfectly,  but  we  do  not  as  yet  see  how  it  can  be 
better  done. 

The  rise  and  fall  of  prices  determine  the  activity  we  can  wisely 
direct  to  each  branch  of  business.  The  automatic  mechanism  which 
apportions  human  effort  among  the  innumerable  forms  of  production 
is  set  in  motion  by  competition.  Here  again  we  make  bad  mistakes, 
and  suffer  the  evils  of  over-production;  but  we  can  conceive  of  no 
oversight  which  would  take  the  place  of  the  eager,  interested,  universal 
watchfulness  called  out  by  competition.  The  man  who  makes  a 
mistake  is  immediately  punished,  and  he  who  is  alert  and  astute  is  as 
quickly  rewarded. 

Competition  is  also  constantly  operative  in  adapting  commodities 
to  the  wants  and  tastes  of  men.  The  increasing  suitableness  of 
products  is  one  of  the  conspicuous  gains  of  civilization,  and  is  due 
almost  wholly  to  that  eager  competition  which  is  on  the  alert  to  dis- 
cover and  call  out  a  new  demand.  This  impulse  has  also  its  evil  side. 
Desires  are  evoked  in  a  mischievous,  as  well  as  in  a  desirable,  form, 
and  trade,  seeking  immediate  profit,  proceeds  in  oversight  of  greater 
ultimate  good.  Yet  the  more  substantial  gains  are  usually  found 
with  the  more  sound  and  comprehensive  purposes. 

Akin  to  this  improvement  in  kind  is  the  improvement  in  the 
quality  of  goods.  Great  successes  are  often  achieved  in  this  direction. 
The  enterprise  that  shows  itself  in  superior  quality  of  production  unites 
at  once  personal  and  general  welfare.  Nor  can  we  otherwise  give 
equal  vigor  to  this  spirit  of  improvement.  Yet  here,  as  elsewhere, 
our  gains  are  accompanied  with  corresponding  losses.  Competition 
is  responsible  for  those  imitations  and  imperceptible  changes  which 
cheapen  products  without  an  equivalent  reduction  of  prices.  Each 
advance  gives  occasion  to  a  regression  by  which  our  gains  are  in  part 
stolen  from  us. 

Competition,  through  its  service  in  settling  price,  quantity,  adap- 
tation, and  quality,  becomes  the  chief  instrument  in  distribution. 
While  we  are  by  no  means  satisfied  with  the  way  in  which  products 


COMPETITION  905 

are  divided  among  producers,  we  are  at  a  loss  to  discover  any  more 
just  principle  than  that  involved  in  competition,  or  any  practical 
method  of  distribution  promoting  more  effectively  the  general  purpose 
of  social  discipline. 

B. 

The  peculiar  claims  urged  in  favor  of  a  society  organized  on  the 
competitive  basis  are  familiar  to  all.  Perhaps  the  most  important 
of  these  is  that  men  are  in  this  manner  guaranteed  full  enjoyment  of 
the  fruits  of  their  labor,  and  on  this  account  will  be  zealous  in  its 
application.  Competitive  society  also  provides  for  ease  of  movement 
from  one  grade  of  labor  to  another,  or  from  one  business  to  another, 
and  thus  ensures  elasticity  in  thought  and  expansion  of  purpose  as  the 
result  of  the  manner  in  which  motives  are  applied  to  individual  con- 
duct. Under  such  conditions  it  is  the  future  and  not  the  past  that 
claims  the  attention  of  men.  It  is  hope  and  ambition,  rather  than 
fear  and  apprehension,  that  move  the  energies  of  men.  We  should 
not  forget  that  the  material  progress  of  the  nineteenth  century  is  in 
large  measure  due  to  the  mobility  of  action  which  the  idea  of  equal 
rights  before  the  law  brought  into  modern  life.  It  may,  however, 
be  remarked  in  passing  that  the  energy  displayed  in  modern  society 
is  due  to  the  openness  of  opportunity  in  all  forms  of  industry.  Each 
competitor  imagines  himself  the  successful  runner  for  the  prize  he 
seeks;  but  should  the  practical  difficulties  of  attaining  success  ever 
come  to  be  so  great  as  to  restrict  the  number  of  contestants,  the 
healthful  activity  which  now  follows  high  anticipations  would  be  re- 
placed by  the  lethargy  of  hopelessness.  It  is  a  mistake  to  conclude 
that  equal  opportunities  are  surely  maintained  by  granting  equality 
before  the  law. 


341.    COMPETITION  AND  THE  SURVIVAL  OF  FORMS  OF 
ORGANIZATION 


A* 

On  markets  naturally  restricted  by  the  absence  or  imperfection 
of  the  means  of  communication  and  the  guaranties  of  security  the 
multiplication  and  development  of  industrial  undertakings  have  been 

1  Taken  by  permission  from  H.  C.  Adams,  "The  Relation  of  the  State  to 
Industrial  Action,"  Publications  of  the  American  Economic  Association,  I  (1886-87), 
500-501. 

2  Taken  by  permission  from  G.  de  Molinari,  The  Society  of  Tomorrow,  pp.  98- 
99.     (G.  P.  Putnam's  Sons,  1904.) 


, 


906  INDUSTRIAL  SOCIETY 

hindered  from  the  earliest  times.  The  forces  and  resources  of  a  family, 
often  of  a  single  individual,  have  sufficed  to  found  a  business,  and 
even  to  carry  it  on.  These  businesses,  or  "firms" — as  they  were 
named  on  attaining  any  real  importance — were  directed  by  a  pro- 
prietor possessed  of  the  necessary  capital.  In  certain  cases  he  bor- 
rowed this  capital  at  a  fixed  rate  of  interest,  or  on  guaranteeing  a 
certain  share  in  prospective  profits.  The  actual  worker  or  labourer 
was  usually  remunerated  according  to  a  fixed,  assured,  and  prepaid  rate 
known  as  "wages."  Private  enterprises  of  this  kind  differed  in  no 
way  from  political  associations  or  houses,  in  so  far  as  the  continuation 
or  failure  of  both  depended  upon  the  more  or  less  perfect  conformity 
of  their  constitution  and  conduct  to  the  law  of  the  economy  of  power. 
Most  industrial  undertakings  have  been  hitherto  established  on  this 
basis.  Competition  has  extended  markets  and  improved  machinery 
until  this  system  proves  inadequate  to  the  needs  of  the  more  advanced 
industries.  It  is  doomed  to  disappear,  certainly  to  fill  a  quite  second- 
ary and  progressively  diminishing  place  in  the  mighty  organism  of 
production.  Private  firms  are  already  vanishing  to  make  room  for 
associations  or  companies. 


A  better  mode  of  industrial  organization  replaces  a  worse,  as  a 
better  mechanical  process  replaces  an  inferior  one,  by  enabling  those 
who  use  it  to  undersell  their  competitors.  The  immediate  effect  of  the 
adoption  of  profit-sharing  by  a  few  establishments  is  to  increase  the 
reward  of  the  laborers  employed  in  them.  This,  of  itself,  is  a  powerful 
incentive  to  other  workmen  in  the  same  occupation  to  strive  to  secure 
a  like  increase.  If  this  leads  to  strikes,  it  gives  to  the  profit-sharing 
establishment  a  relative  advantage  in  addition  to  that  which  is 
inherent  in  the  plan  itself.  An  employer  whose  working  force  may 
always  be  depended  on  may  undersell  one  whose  men  are  watching 
for  opportunities  to  increase  their  wages  by  a  strike.  Under  present 
conditions  profit-sharing  must,  in  order  to  survive  in  the  struggle  of 
systems,  prove  superior,  not  to  competition  working  smoothly  and 
successfully,  but  to  competition  essentially  vitiated  and  subject  to 
incessant  friction. 

If  a  corporation  were  to  adopt  the  share  system  in  dealing  with  its 
employees,  and  were  to  pay  the  amount  given  to  them,  in  excess 

1  Adapted  by  permission  from  J.  B.  Clark,  The  Philosophy  of  Wealth,  pp.  187- 
89.     (Ginn  &  Co.,  1886.) 


COMPETITION  907 

)f  daily  wages,  in  the  form  of  stock,  the  effect  would  be  gradually 
to  transmute  the  partial  co-operation  into  the  complete  form.  New 
establishments  started  on  this  plan  have,  as  a  rule,  perished  in  their 
infancy. 

The  survival  of  full  co-operation,  in  the  long  rivalry  of  systems, 
lepends  on  its  power  to  excel  other  systems  in  the  results  which  it 
Itimately  yields.     Failures  at  the  outset  may  deter  experiments 
this  direction  and  make  the  introduction  of  this  method  proceed 
slowly,  but  they  do  not  change  the  law  of  survival.    That  is  a  ques- 
tion, not  of  initial  risk,  but  of  results  gained  by  the  successful  experi- 
Iment.    If  one  cotton  mill  run  on  the  co-operative  plan  shall  ever 
surpass  other  mills  in  economy  of  production  to  an  extent  that  will 
enable  it  to  undersell  their  product  in  the  market,  it  may  ultimately 
compel  them  to  adopt  this  method,  though  a  score  of  earlier  experi- 
ments have  failed. 

The  new  political  economy  must  recognize  as  one  of  its  prin- 
ciples this  special  and  higher  competition  by  which  systems  are 
tested. 

342.    TERRITORIAL  COMPETITION1 

The  competitive  features  in  the  western  movement  of  grain  to 
primary  points  is  shown  by  the  aid  of  the  map  indicating  the  relation 
between  different  productive  areas  and  primary  markets  which  com- 
pete through  the  railroads  reaching  these  areas.  The  entire  north- 
western and  western  situation  is  thus  presented  at  a  glance.  It 
reveals  the  fact  that  a  given  area  may  today  be  commercially  tributary 
to  Chicago,  tomorrow  to  St.  Louis,  and  next  day  to  Kansas  City.  In 
other  words,  while,  as  a  general  thing,  grain  goes  to  a  particular  market 
there  is  no  considerable  territory  that  does  not  have  the  choice  of 
two  or  more  primary  markets.  A  cent  or  two  difference  will  turn  the 
tide  from  hundreds  of  shipping  points  to  other  markets. 

EXPLANATIONS   OF  NUMBERS   ON  MAP 

No.  i.  Tributary,  as  a  general  rule,  to  Minneapolis  and  Duluth.  If  at 
times  the  Chicago  market  is  manipulated,  or  extraordinary  demand  exists, 
wheat  from  this  territory  will  move  to  Chicago. 

No.  2.  Wheat  from  this  location  moves  either  to  Chicago  or  Mil- 
waukee.   At  times,  however,  the  western  portion  will  go  to  Minneapolis  or 

xFrom  the  Report  of  the  Industrial  Commission,  1900,  VI,  47- 


908 


INDUSTRIAL  SOCIETY 


Duluth.    A  portion  of  the  territory  is  extremely  close,  and  a  slight  varia- 
tion will  take  it  away  from  one  market  to  another. 


No.  3.  Wheat  from  this  location  is  naturally  tributary  to  Milwaukee, 
Ashland,  Manitowoc,  or  Green  Bay. 

No.  4.  Wheat  from  this  location  is  tributary  to  Kansas  City,  St.  Louis, 
or  Chicago.  A  slight  variation  in  prices  will  take  it  away  from  one  market 
to  another. 


COMPETITION 


909 


No.  5.  Territory  is  either  tributary  to  Chicago  or  St.  Louis.  Any 
slight  variations  in  the  market  will  pull  from  one  to  another. 

No.  6.  This  territory  tributary  to  St.  Louis,  unless  Chicago  markets 
are  being  manipulated  or  are  badly  out  of  line. 

No.  2A.  Wheat  from  this  section  moves  primarily  to  Chicago  or  Mil- 
waukee, but  is  also  quite  likely  to  go  to  other  markets  north  or  south. 

No.  4  or  5.  Wheat  from  this  section  moves  primarily  to  Kansas  City, 
St.  Louis,  or  Chicago,  but  may  go  to  other  markets. 

343.     COMPETITION  OF  CITIES  AND  MARKETS 
A1 

The  history  of  the  distribution  of  the  surplus  grain  from  the  in- 
terior markets  at  which  it  has  been  accumulated  to  the  centers  of 
consumption  eastward  and  southward  is  summed  up  in  one  word — 
competition.  During  the  past  century  the  main  lines  of  distribution 
have  shifted  several  times:  first,  the  grain  went  south  by  way  of  the 
Ohio  and  the  Mississippi  rivers,  from  Cincinnati  and  St.  Louis  to  New 
Orleans,  thence  to  the  east  by  coastwise  ships;  secondly,  the  opening 
of  the  Erie  Canal  (1825)  turned  the  cereal  movement  eastward  to  New 
York;  thirdly,  the  railroads  and  the  lakes  competed  for  the  grain 
traffic  (1860-70);  fourthly,  the  railroads  and  the  Erie  Canal  kept 
up  a  competitive  struggle  for  ten  years,  and,  fifthly,  the  rise  of  the 
southern  movement  of  grain  traffic  by  rail  to  the  Gulf  became  a 
permanent  factor  again. 

The  internal  distribution  of  cereals  is  an  eastern  and  southern 
movement  from  the  interior  centers  of  primary  supply.  The  rate  of 
the  movement  depends  on  several  factors.  The  demands  of  domestic 
consumption  are  the  first  factor  in  importance;  the  requirements 
of  the  export  trade  the  second  factor.  Much  of  the  cereal  surplus 
reaching  primary  markets  in  the  interior,  however,  is  consumed  there, 
and  never  enters  into  the  distributive  movement  as  cereals  again. 
The  concentration  of  the  brewing  and  malting  business  closer  to  the 
western  sources  of  supply  has,  for  example,  greatly  reduced  the  east- 
ward movement  of  barley.  The  malting  " trusts"  policy  thus  affects 
distribution.  The  ascendancy  of  milling  interests  at  primary  markets 
likewise  reduces  the  volume  of  internal  distribution  of  grain.  Minne- 
apolis grinds  65,000,000  bushels  of  wheat  annually.  The  growth  of 
stock-feeding  interests  in  Texas  has  so  stimulated  the  local  production 
of  corn  as  to  close  to  Kansas  a  once  important  southern  market. 

1  Adapted  from  the  Report  of  the  Industrial  Commission,  1900,  VI,  m-14,  "4« 


9IO  INDUSTRIAL  SOCIETY 

Such  changes  are  constantly  taking  place,  which  change  the  volume, 
the  course,  and  the  character  of  the  cereal  movement. 

Besides  the  competition  of  railroads  with  waterways  in  the  dis- 
tribution of  grain  and  the  competition  of  railroads  with  one  another,  a 
third  factor  of  equal  importance  enters  into  this  movement— that  is, 
the  competition  of  the  seaboard  cities  for  the  control  of  the  cereal 
movement. 

On  the  Atlantic  seaboard  there  are  five  ports  connected  by  rail- 
way lines  with  the  primary  grain  markets  of  the  interior,  either  by  rail 
or  by  water  and  rail  routes.  The  shortest  rail  line  had  formerly  been 
regarded  as  in  the  best  position  to  get  this  traffic  from  the  eastern  lake 
ports  to  the  seaports.  This  favored  carrier  was  the  New  York 
Central;  and  New  York  City,  by  virtue  of  the  Erie  Canal,  was 
regarded  as  naturally  entitled  to  the  lion's  share  of  the  grain  traffic 
to  the  East  and  for  export.  While  this  position  was  conceded  by 
other  carriers,  it  was  not  accepted  as  the  end  of  the  matter.  Other 
roads,  naturally  less  favored,  found  in  reckless  competition  a  means 
of  wresting  concessions  from  the  Central  in  the  form  of  a  differential. 
This  differential  was  an  attempt  to  equalize  the  opportunities  for 
getting  eastward  traffic  among  the  trunk  lines,  by  maintaining  lower 
rates  for  less  favored  roads  in  proportion  to  the  disadvantage  of  extra 
rail  distance  above  that  of  the  Central.  The  differentials  granted 
at  first  to  Boston,  Philadelphia,  and  Baltimore  covered  disadvantages 
in  exportation  also  from  these  ports.  Later,  this  differential  was 
extended  to  Newport  News,  as  a  means  of  setting  limits  to  the  competi- 
tive struggle  for  a  division  of  traffic  among  the  trunk  lines  concerned. 
This  arrangement,  as  a  working  basis  among  competing  grain  lines, 
began  in  1876,  and  has,  not  since  been  successfully  attacked  in  prin- 
ciple, though  there  have  been  reductions  in  the  amount  of  the 
differential.  Such  seems  to  be  the  state  of  the  question  as  far  as  it 
concerns  the  grain  movement  to  the  seaboard  cities  of  the  United 
States. 

From  the  standpoint  of  the  interior  cities,  competition  is  quite 
as  keen  as  it  is  among  the  seaboard  cities  in  the  distribution  of  grain. 

It  seems  clear,  then,  that  the  existing  system  of  distribution  of  the 
visible  supply  of  grain  involves  three  main  commercial  interests:  first, 
that  of  the  grain-carrying  transportation  lines;  secondly,  that  of  the 
competitive  interior  markets  at  which  the  movement  begins;  and, 
thirdly,  that  of  the  seaboard  cities  at  which  internal  distribution 
ends.    All  of  these  interests  act  and  react  one  upon  another,  and  the 


COMPETITION  911 

existing  system  has  been  wrought  out  under  the  impact  of  their 
>werful  influences. 

B1 

A  disturbing  factor  of  the  first  magnitude  arose  through  the  revival 
in  recent  years  by  the  railroads  leading  to  ports  on  the  Gulf,  of  the 
carrying  of  grain  for  export  to  those  ports.  Many  years  ago  attempts 
were  made  to  take  grain  to  New  Orleans  by  boat  down  the  Mississippi 
River,  but  in  the  warm  climate  it  became  saturated  with  moisture  in 
the  vessels'  holds.  The  endeavor  of  the  railroads  extending  to  the 
Gulf  to  build  up  their  traffic  in  grain  began  anew  with  the  large 
crops  of  1900,  and  made  considerable  progress  during  the  two  or 
three  subsequent  years.  At  first  these  railroads  made  rates  far 
below  those  in  effect  to  the  Atlantic  seaports.  The  railroads  serving 
the  Atlantic  seaports  retaliated,  and  in  natural  course  there  were 
rate  wars  disastrous  to  the  revenues  of  the  railroads  and  unsettling  to 
the  grain  business.  After  a  test  of  strength  by  the  fighting  railroads, 
the  subject  of  an  equitable  differential  between  the  ports  of  the  Atlantic 
and  those  of  the  Gulf  was  taken  up  for  mutual  serious  consideration 
and  discussion.  The  Gulf  railroads  claimed  that  because  of  the 
shorter  distance  to  their  ports  from  the  grain  fields,  their  low-grade 
lines,  upon  which  the  expense  of  handling  was  not  so  great;  because 
of  the  moisture  that  accumulated  in  the  grain,  impairing  its  quality 
so  that  it  brought  lower  prices  in  the  European  markets;  small 
elevator  facilities;  the  longer  water  route  to  Europe  and  higher  vessel 
rates;  irregular  and  less  efficient  vessel  service,  and  higher  marine 
insurance,  they  should  have  a  differential  of  from  6  to  8  cents  per  100 
pounds  under  the  Atlantic  rates.  The  Atlantic  railroads  replied  that 
by  means  of  recent  inventions  the  Gulf  grain  can  be  thoroughly  dried 
at  little  expense;  they  produced  certificates  from  European  dealers 
that  grain  from  the  Gulf  ports  averages  as  high  in  quality  as  that  from 
the  Atlantic  ports;  claimed  that  the  difference  in  time  between  a 
trans-Atlantic  voyage  from  the  Gulf  ports  and  from  the  Atlantic 
ports  was  not  of  great  importance;  that  while  the  regular  steamship 
sailings  are  not  so  frequent,  the  Gulf  ports  are  well  supplied  with 
tramp  vessels;  and  on  account  .of  these  and  other  considerations 
urged  that  the  differential  should  not  exceed  3  cents  under  Baltimore, 
which  would  be  equivalent  to  4  cents  under  Philadelphia  and  4-J  cents 
under  New  York.    There  was  finally  a  compromise. 

«  Taken  by  permission  from  L.  G.  McPherson,  Railroad  Freight  Rates,  pp.  122- 
23.     (Henry  Holt  &  Co.,  1909.) 


9I2  INDUSTRIAL  SOCIETY 

344.    COMPETITION  AND  THE  FATE  OF  INDUSTRIES* 

Suppose  that  the  market  price  of  iron,  as  fixed  by  supply  and 
demand,  is  insufficient  to  cover  the  expense  of  producing  it.  No 
investor  seeking  a  business  opening  is  likely  to  go  into  the  production 
of  iron,  nor  will  those  already  engaged  in  the  business  increase  their 
plant  or  even  renew  it  when  it  wears  out.  If  at  the  same  time  there 
is  another  article,  for  instance,  copper,  whose  market  price,  as  fixed 
by  supply  and  demand,  affords  a  large  excess  over  the  expense  of 
production,  new  investors  will  seek  to  produce  copper,  while  those 
already  engaged  in  the  business  will  extend  their  plant  and  keep  it  up  to 
the  highest  standard  of  efficiency.  We  shall  see  a  diminution  of  the 
output  of  iron  and  an  increase  of  the  output  of  copper,  by  a  process 
which,  though  not  generally  involving  actual  transfer  of  capital  from 
one  industry  to  another,  amounts  to  the  same  thing  in  its  effect  on  the 
community.  The  permanent  supply  of  iron  being  diminished,  while 
the  conditions  of  demand  remain  the  same,  the  producers  will  be 
able  to  charge  a  higher  price  and  yet  dispose  of  the  total  product; 
while,  conversely,  the  permanent  supply  of  copper  being  increased,  the 
producers  will  be  forced  to  charge  a  lower  price  in  order  to  call  forth  a 
corresponding  demand.  This  process  will  go  on  until  the  profit  in  the 
production  of  copper  is  no  greater  than  that  in  the  production  of  iron. 

This  adjustment  actually  takes  place  among  the  industries  of  the 
country  as  a  whole.  There  is  a  constant  supply  of  free  capital  and 
labor  seeking  investment  in  localities  and  industries  where  the  higher 
profits  are  to  be  obtained,  and  not  entering  those  where  the  profits  are 
lower.  This  process  tends  to  force  down  the  prices  of  products  in  lines 
where  they  have  been  unfairly  high,  and  to  maintain  or  increase  them 
in  those  where  they  have  been  disproportionately  low. 

Under  the  modern  industrial  system  there  is  first  a  temporary 
adjustment  of  the  demand  to  the  supply  by  the  commercial  competi- 
tion of  merchants,  which  lowers  (or  in  the  converse  case  raises) 
the  price  to  make  it  correspond  to  the  marginal  utility.  This 
temporary  adjustment  results  in  market  price.  Then  there  is  a 
more  permanent,  though  less  accurate  and  universal,  adjustment  of 
the  supply  to  the  demand  by  the  industrial  competition  of  investors, 
which  lowers  (or  in  the  converse  case  raises)  the  price  (and  the 
marginal  utility)  until  it  becomes  proportionate  to  expense  of  produc- 
tion. 

1  Adapted  by  permission  from  A.  T.  Hadley,  Economics,  pp.  86-87.  (G.  P. 
Putnam's  Sons,  1899.) 


COMPETITION  913 

345.  WHAT  FIRM  SHALL  SURVIVE  WITHIN  AN  INDUSTRY  ?' 
The  factors  of  competing  strength  can  be  arranged  as  follows: 
First,  there  is  involved  what  may  be  called  the  "productive  efficiency" 
of  the  firm.  Productive  efficiency  depends  on  organization;  on  the 
competence  with  which  the  actual  process  of  transforming  raw 
material  into  finished  products  is  carried  out;  on  the  economies  made 
in  skill,  time,  and  material.  Business  management  is  the  vital  ques- 
tion to  decide  on  in  this  respect. 

Second,  there  is  the  element  of  risk.  In  a  complete  study  of  pro- 
ductive efficiency  this  might  claim  to  be  included;  but  it  is  important 
enough  to  be  considered  apart.  The  internal  organization  of  a  firm 
is  a  different  thing  from  the  relations  in  which  it  sets  itself  to  the  con- 
sumer or  to  other  firms.  There  may  be  very  great  efficiency  in  the 
production  of  goods  that  are  not  wanted.  A  firm,  which  is  to  be 
strong  in  respect  of  risk,  must  know  how  to  make  the  risks  that  must 
be  made,  and  that  are  inseparable  from  enterprise;  how  to  take  the 
risks  that  are  given  by  conditions  of  the  market  over  which  it  has  no 
direct  control;  and  how  to  bear  the  losses  which  are  incidental  to  the 
less  calculable  fluctuations  of  a  wide  market.  This  is  a  question  which 
depends  largely  on  the  personal  qualities  of  those  who  are  in  com- 
mand; a  strong  ship  will  be  steered  badly  if  the  captain  either  does 
not  know  his  chart  and  the  signs  of  the  weather,  or  does  not  inspire 
harmony  and  confidence  in  his  crew. 

Third,  competing  power  involves  bargaining  strength.  This 
largely  determines  the  conditions  on  which  a  firm  can  obtain  its  own 
supplies  or  dispose  of  its  own  products.  We  exclude  from  considera- 
tion all  bargains  made  by  a  firm  with  its  rivals  on  the  same  industrial 
level  with  regard,  for  instance,  to  partitioning  the  market;  bargains 
of  this  sort  are  usually  regarded  as  forms  of  industrial  combination. 
We  take  account  of  the  relations  of  a  firm  to  those  from  whom  it  buys 
or  to  whom  it  sells;  for  these  affect  its  strength  as  a  competitor  with 
other  firms  on  its  own  level;  and  it  is  of  competing  power  that  our 
analysis  is  being  made.  Bargaining  is  then  of  two  forms.  What  is 
called  the  "higgling  of  the  market"  is  a  process  having  reference  to 
the  terms  of  a  particular  transaction,  as  well  as  to  the  bargaining 
parties  alone.  It  affects  the  competing  power  of  either  firm  against 
its  rivals ;  but  it  has  no  direct  reference  to  the  rivals  of  either.  On  the 
other  hand,  bargaining  may  be  of  a  form  which  extends  beyond  the 
'  Adapted  by  permission  from  D.  H.  MacGregor,  Industrial  Combination, 
pp.  13-15.    (G,  Bell  &  Sons,  Ltd.,  1906.) 


9I4  INDUSTRIAL  SOCIETY 

particular  transaction  or  the  particular  parties  involved;  any  exchange 
of  goods  is  made  on  conditions  that  are  determined  by  a  wide  contract, 
which  gives  their,  whole  validity  to  the  conditions  of  a  particular 
transaction;  and  the  contract  is  directly  aimed  at  the  rivals  of  the 
bargaining  parties.     Such  are  the  boycott  and  the  rebate. 

Fourth,  there  is  a  factor  which  it  seems  best  to  describe  as  "re- 
source." It  includes  all  those  forms  of  industrial  strategy  and  tactics 
which  a  firm  employs  to  enhance  its  competing  power^  but  employs 
solely  by  its  own  exertions,  and  not  through  bargains.  A  firm  which 
negotiates  for  a  cheap  supply  of  coal  is  using  its  bargaining  strength; 
if  it  buys  its  own  coal  mine  it  is  using  a  method  of  resource.  The 
forms  of  resource  are  as  incalculable  as  opportunity;  the  discrimina- 
tion of  price  is,  as  yet,  the  best  known  of  them. 

The  factors  of  the  competing  strength  of  a  representative  organi- 
zation are  bound  up  with  each  other.  Any  separation  of  them  is  pro- 
visional and  ideal,  in  order  to  facilitate  their  study. 

346.    COMPETITION    AND    THE    SURVIVAL    OF    INDUSTRIAL 

METHODS1 

When  the  handicraftsman  begins  to  find  his  product  undersold  by 
the  machine-made  article,  his  first  instinct  is  to  engage  in  a  desperate 
competition  with  the  new  process,  lowering  his  rate  for  hand  labor  to 
keep  pace  with  the  diminished  cost  of  the  machine  product.  This  is 
obviously  the  "line  of  least  resistance."  No  newly  devised  machine, 
worked  by  novices,  and  not  yet  perfectly  adapted  to  the  process,  can 
convince  a  skilled  handworker  that  it  will  ever  succeed  in  turning 
out  as  good  an  article  as  he  can  make,  or  that  the  saving  of  time  will 
be  at  all  considerable.  The  very  fact  that  a  lad  or  a  girl  at  ten  or 
fifteen  shillings  a  week  can  perform  the  new  process  with  ease  only 
confirms  him  in  his  attitude  of  disparagement  and  incredulity.  In 
such  a  mood  a  man  does  not  throw  away  the  skill  which  is  his  property 
and  staff  of  life,  to  consent  to  become  either  a  machine-minder  at  one- 
half  or  one-third  of  his  accustomed  wages,  or  else  begin  life  afresh 
in  some  entirely  new  occupation.  He  confidently  pits  his  consum- 
mate skill  against  the  first  clumsy  attempts  of  the  undeveloped 
machine,  and  finds  that  a  slight  reduction  in  the  Standard  Rate  for 
hand  labor  is  all  that  seems  required  to  leave  his  handicraft  in  full 
command  of  the  market.  His  well-intentioned  friends,  the  clergyman 
and  the  district  visitor,  the  newspaper  economist  and  the  benevolent 

1  Taken  by  permission  from  Sidney  and  Beatrice  Webb,  Industrial  Democracy, 
pp.  414-16.     (Longmans,  Green  &  Co.,  1902.) 


COMPETITION  9I5 

employer,  combine  to  assure  him  that  this— the  Policy  of  Lowering  the 
Dyke— is  what  he  ought  to  adopt.  But,  unfortunately,  this  is  to 
enter  on  a  downward  course  to  which  there  is  no  end.  The  machine 
product  steadily  improves  in  quality  and  falls  in  price,  as  the  new 
operatives  become  more  skilled,  and  as  the  speed  of  working  is  in- 
creased. Every  step  in  this  evolution  means  a  further  reduction  of 
rates  to  the  struggling  handworker,  who  can  only  make  up  his  former 
earnings  by  hurrying  his  work  and  lengthening  his  hours.  Inevitably 
this  hurry  and  overwork  deteriorate  the  old  quality  and  character  of 
his  product.  The  attempt  to  maintain  his  family  in  its  old  position 
compels  him  to  sacrifice  everything  to  the  utmost  possible  rapidity 
of  execution.  His  wife  and  children  are  pressed  into  his  service,  and 
a  rough  and  ready  division  of  labor  serves  to  economize  the  use  of  the 
old  thought  and  skill.  The  work  insidiously  drops  its  artistic  quality 
and  individual  character.  In  the  losing  race  with  the  steam  engine, 
the  handwork  becomes  itself  mechanical,  without  acquiring  either  that 
uniform  excellence  or  accurate  finish  which  is  the  outcome  of  the 
perfected  machine.  Presently,  the  degraded  hand  product  will  sell 
only  at  a  lower  price  than  the  machine-made  article.  The  worse  the 
work  becomes  the  more  irregular  grows  the  demand.  Those  select 
customers  who  have  remained  faithful  to  the  hand  product  find,  by 
degrees,  that  its  former  qualities  have  departed,  and  they  one  by  one 
accept  the  modern  substitute.  And  thus  we  reach  the  vicious  circle 
of  the  sweated  industries,  in  which  the  gradual  beating  down  of  the 
rate  of  remuneration  produces  an  inevitable  deterioration  in  the 
quality  of  the  work,  whilst  the  inferiority  of  the  product  itself  makes 
it  unsalable  except  at  prices  which  compel  the  payment  of  pro- 
gressively lower  rates.  The  handworker,  who  at  the  beginning 
justifiably  felt  himself  on  a  higher  level  than  the  mechanical  -minder 
of  the  machine,  ends  by  sinking,  in  physique  and  dexterity  alike,  far 
below  the  level  of  the  highly  strung  factory  operative.  There  is  now 
no  question  of  his  taking  to  the  new  process,  which  has  risen  quite 
beyond  his  capacity.  He  passes  through  the  long-drawn-out  agony 
of  a  dying  trade. 

347.    WHAT  MARKETING  METHODS  SHALL  SURVIVE?1 

What  is  the  trouble  ? 

Ask  this  question  of  the  manufacturer,  the  jobber,  and  the  retailer 
successively  and  you  ascertain  that  the  "other  fellow  is  to  blame." 

1  Adapted  by  permission  from  P.  T.  Cherington,  Advertising  as  a  Business 
Force,  pp.  30-35,  157-204.  (Doubleday,  Page  &  Co.,  1913.  Copyright  by 
Associated  Advertising  Clubs  of  America.) 


916 


INDUSTRIAL  SOCIETY 


"If,"  says  the  manufacturer,  "Jones,  the  jobber,  hadn't  put 
out  his  private  brand  in  competition  with  mine,  I  wouldn't  have 
had  any  fault  to  find.  He's  pushing  his  own  goods  and  at  the 
same  time  handling  mine.  He  won't  let  me  know  where  my  own 
goods  are  for  sale,  for  fear  I'll  go  over  his  head  to  the  retailers. 
Consequently,  between  inability  to  stimulate  and  help  my  dealers, 
and  the  jobber  naturally  pushing  his  own  brand  in  preference,  I'm 
up  a  tree,  and  I'll  go  direct  to  the  retailer,  if  he  doesn't  come  to 
time." 

"If,"  says  the  jobber,  "Martin,  the  manufacturer,  hadn't  cut 
me  out  and  gone  over  my  head  direct  to  the  retailer,  I  wouldn't  have 
put  out  my  private  brand." 

"If,"  says  the  retailer,  "Jones,  the  jobber,  hadn't  gone  also  into 
the  retailing  business,  I'd  not  have  accepted  the  direct  prices  of  the 
manufacturer  and  wouldn't  have  gone  into  the  field  of  wholesaling, 
too." 

The  jobber,  the  manufacturer,  and  the  retailer  are  interchanging 
functions.  Park  &  Tilford  are  retailers,  with  a  chain  of  stores,  as 
well  as  jobbers.  Francis  H.  Leggett  &  Co.,  of  New  York,  are  becom- 
ing advertising  manufacturers  of  Premier  products,  as  well  as  jobbers. 
Here  are  two  jobbers  reaching  both  ways,  causing  dissatisfaction 
to  the  manufacturer  and  the  retailer  alike. 

The  manufacturer,  in  order  to  have  a  finger  in  the  messing  up  of 
the  situation,  has  been  known,  not  only  to  go  over  the  jobber  to  the 
retailer,  but  also  to  jump  at  once  to  the  consumer.  An  example  is 
Browning,  King  &  Co.,  clothing  manufacturers  and  retailers,  in 
fifteen  cities. 

Of  course,  the  retailer  couldn't  stand  all  of  this  meekly.  So  we 
see  in-  the  James  Butler  string  of  grocery  stores  a  retailer  who 
demands  jobbers'  prices  of  the  manufacturer  and  who  is  even  doing 
some  of  his  own  manufacturing.  Marshall  Field  &  Co.,  of  Chicago, 
do  a  large  jobbing  business.  Wanamaker's,  of  New  York,  has 
just  organized  a  wholesale  department.  All  these  were  at  first 
retailers. 

If  James  Butler  can  buy  groceries  direct  from  the  manufacturer 
at  jobber's  discounts,  how  can  the  little  retailer  on  the  corner,  who 
is  strictly  minding  his  own  business  as  retailer,  possibly  compete? 
Butler  can  sell  his  goods  at  prices  that  are  "cost"  to  the  little  fellow. 
And  the  little  fellow  must  live.  He,  therefore,  is  doing  his  part  in 
stirring  up  the  dust,  and  by  association  with  other  little  fellows, 


COMPETITION  .        9I7 

putting  himself  on  even  buying  terms  with  Butler.  Those  depart- 
ment stores  that  get  jobbers'  discounts  are  also  regarded  as  just  as  full 
of  threat  to  the  retailers'  business. 

For  their  part  such  enterprises  as  those  of  Butler  grit  their  teeth, 
and  mutter  something  about  " competition  of  jobbers"  and  "survival 
of  the  fittest."  Indeed,  the  department  stores,  Butler,  et  al.,  insist 
that  they  must  have  the  jobbers'  discount  or  they  can't  do  business 
in  competition  with  the  retailing  jobber.  Macy's,  or  Saks's,  or 
Marshall  Field's,  or  the  May  department  stores  seem  to  have  some 
justification  in  their  explanation  in  view  of  the  invasion  of  the  retail 
field  by  the  powerful  H.  B.  Claflin  interests. 

It  is  a  battle  of  giants,  and  the  little  fellow,  buying  without  any 
discount,  can  only  sense  the  lump  in  his  throat  and  grab  at  the  crumbs 
of  patronage  that  are  thrown  his  way.  If  it  is  going  to  be  his  fate  to 
be  blotted  out,  he  must  get  such  comfort  as  he  can  from  the  fact  that 
he  went  down  in  a  pitifully  unequal  conflict,  not  with  men,  but  with 
natural  economic  forces  that  tend  to  crush  their  path  to  the  con- 
sumer by  the  shortest  and  the  cheapest  route. 

And  above  all  looms  the  manufacturer.  Altogether  he  is  the 
strongest  factor  in  the  fight.  If  he  is  an  advertising  manufacturer 
(and  it  is  the  advertising  manufacturer  we  are  considering)  he  rules 
the  situation,  in  the  last  analysis.  He  has  made  his  goods  known, 
through  their  trade-mark,  to  the  consumers.  He  is  the  maker  of  the 
things  which  this  country  eats,  wears,  sleeps  on,  plays  with,  and  works 
with.  Demand  is  the  voice  to  which  all  listen,  and  substitution  can 
only  make  a  feeble  effort  to  resist  or  modify  it. 

The  manufacturer  in  many  cases  is  acting  the  jobber  for  himself. 
Heinz's  57  Varieties  don't  get  onto  pantry  shelves  by  the  jobber  road. 
They  go  from  manufacturer  to  storekeeper.  So  with  Kirkman's 
soaps,  so  with  much  trade-marked  clothing,  so  with  National  Biscuit; 
so,  to  some  extent,  with  Armour  &  Co.  and  their  canned  goods.  And 
these  are  only  a  few. 

But,  as  a  rule,  it  is  certain  that  most  manufacturers  would  prefer  to 
sell  through  the  jobber  to  any  other  method.  It  saves  them  having 
direct  relations  with  thousands  of  retailers. 

The  whole  mix-up  has  been  caused  by  the  attempt  of  some  manu- 
facturer or  wholesaler  to  cut  out  one  or  more  steps  in  the  old-time 
distributive  process,  which  was  from  manufacturer  to  jobber,  to 
retailer,  to  consumer.  The  consumer  holds  the  key— he  will  buy 
where  he  can  get  the  best  goods  cheapest.    While  this  tendency  is  one 


918 


INDUSTRIAL  SOCIETY 


of  the  most  natural  in  the  world,  it  has  developed  strife  and  ill-feeling 
to  a  remarkable  degree.  Caught  in  the  swirl  of  changing  trade  cur- 
rents, every  factor  concerned  has  at  times  turned  upon  another, 
accusing  it  of  being  at  the  bottom  of  the  whole  trouble. 

Having  thus  discussed  some  phases  of  the  place  of  the  "old" 
or  "regular"  type  of  retailer,  let  us  turn  to  an  examination  of  some 
of  the  various  forms  of  retailer  of  more  recent  development.  The 
department  store,  the  chain  store,  mail-order  retailer,  and  the 
co-operative  commercial  enterprises  are  of  comparatively  recent 
growth  and  each  of  these  as  well  as  the  various  other  types  of 
concentrated  or  modified  retailing  method  introduces  new  prob- 
lems. 

A  list-preparing  company  in  New  York  offers  for  sale  a  prepared 
list  of  3,836  department  stores,  while  a  St.  Louis  addressing  company 
offers  to  sell  a  list  containing  the  names  of  3,912  such  concerns  in 
the  United  States.  From  this  it  would  appear  that  there  are  at  least 
3,800  stores  in  the  United  States  which  rank  themselves  as  department 
stores,  although,  of  course,  by  no  means  all  of  these  are  stores  of  any 
very  great  size. 

Chain-store  systems  can  hardly  help  following  the  common  course 
of  business.  They  will  grow,  compete  with  each  other,  and  begin  to 
combine.  And  in  the  course  of  competition  they  will  exhaust  every 
expedient  to  make  and  save  profits.  They  will  make  the  fullest 
use  of  the  advantage  given  them  by  their  large  buying  power  in 
dealing  with  individual  manufacturers,  both  those  who  advertise  and 
those  who  do  not. 

Manufacturers,  in  fact,  are  nearly  up  against  the  stark  logic  of  the 
situation:  the  battle  for  markets  is  going  to  be  fought  out  in  the  retail 
store,  and  the  competition  of  the  next  half-decade  is  going  to  be  not  so 
much  between  individual  manufacturers  as  between  manufacturers 
who  are  seeking  retail  outlets,  and  the  retailers  who  are  growing  up 
into  imperious  competitors  with  retail  outlets  assured. 

For  a  time  the  growth  of  the  mail-order  business  was  so  rapid  as 
to  cause  alarm  to  the  jobber  and  the  small  wholesaler,  but  of  recent 
years,  while  the  growth  has  continued  in  the  case  of  a  few  of  the  better- 
organized  mail-order  houses,  the  great  flock  of  less  well-organized 
institutions,  which  threatened  to  take  over  a  great  part  of  that  portion 
of  the  retail  business  of  the  country  which  could  be  done  by  mail, 
have  become  less  conspicuous.  It  now  seems  probable  that  while 
the  few  big  houses  will  grow  normally  and  perhaps  even  phenomenally, 


COMPETITION  gig 

the  mail-order  business  has  distinct  limitations  which  will  prevent 
this  type  of  retailing  from  cutting  much  more  heavily  than  it  already 
has  done  into  the  retail  business  of  the  country  as  a  whole. 

One  of  the  most  important  effects  of  the  development  of  the  mail- 
order house  is  the  fact  that  their  success  has  driven  department  stores 
and  even  wholesalers,  not  only  to  do  a  larger  mail  business,  but  to 
conduct  their  mail  business  much  more  satisfactorily  than  they  ever 
did  conduct  it  before. 

Co-operation  between  the  successive  steps  in  the  distribution 
system  is  of  very  recent  origin  in  this  country,  although  it  has  been 
successfully  employed  in  England  and  on  the  Continent  for  a  number 
of  years.  It  has  assumed  various  forms  in  this  country,  some  of  the 
co-operative  enterprises  being  between  one  set  of  selling  factors, 
while  other  forms  attempt  to  unite  entirely  different  factors. 

Another  form  of  co-operation,  which  is  found  in  various  parts  of  the 
country,  is  that  in  which  the  retail  concerns  have  joint  control  over  the 
wholesale  house. 

This  organization  goes  one  step  further  than  the  various  buyer's 
exchanges  or  associations  which  have  grown  popular  in  the  grocery 
trade  of  New  York,  Philadelphia,  and  other  Eastern  cities.  In  these 
associations  the  retailers  aim  to  combine  their  buying  capacity  in 
order  to  secure  jobbers'  rates.  What  is  really  done  is  to  set  up  a 
co-operative  organization  which  virtually  serves  the  purpose  of  a 
jobbing  house  for  them. 

Another  form  of  co-operation  is  that  illustrated  by  the  United 
Store  Association,  which  designs  to  take  over  for  a  series  of  retail 
stores  in  various  lines  some  of  their  common  functions,  performing 
them  on  a  co-operative  basis,  and,  presumably,  more  cheaply  and 
more  satisfactorily  than  they  can  be  performed  by  the  individual  stores. 

Still  another  form  of  co-operation,  which  already  has  been  men- 
tioned, is  that  in  which  the  consumer  shares  in  the  profits  of  the 
retail  concern,  gradually  extending  its  operations  backward  from  the 
retailer  through  successive  steps  of  distribution  or  even  into  the  pro- 
duction. This  form  of  co-operation,  which  is  so  well  known  in  con- 
nection with  various  European  enterprises  and  particularly  with 
enterprises  in  Great  Britain,  has  not  gone  very  far  in  this  country.  It 
is  in  this  field  that  we  may  look  for  very  important  developments 
within  a  comparatively  few  years. 

The  chain  store,  the  mail-order  house,  and  the  co-operative 
enterprise  have  not  yet  shown  what  position  they  are  to  occupy  in  the 


020  INDUSTRIAL  SOCIETY 

retail  distribution  system  of  the  United  States.  As  nearly  as  one 
can  judge  from  present  conditions  and  methods,  it  seems  probable 
that  all  three  have  only  begun  their  growth,  and  it  seems  to  be  a  safe 
forecast  that  at  least  the  chain  store  and  some  forms  of  co-operative 
enterprise  will  very  soon  become  extremely  important  competitors  of 
the  "regular"  retailing  system. 

See  also  254.  Concentration  in  Marketing. 

348.    COMPETITION  AND  FAIR  PRICE1 

The  old  theory  of  value  was  that  every  article  had  a  just  price; 
that  the  buyer  would  naturally  try  to  pay  less  than  that  price,  the 
seller  to  exact  more;  that  whichever  man  succeeded  gained  a  slight 
earthly  advantage  at  corresponding  peril  to  his  soul — this  peril  being 
especially  great  in  the  case  of  the  seller,  because  he  was  usually  more 
skilful  than  the  buyer  and  was  likely  to  make  this  unfair  gain  a  means 
of  livelihood.  For  the  double  purpose  of  protecting  the  buyer  against 
dangers  in  this  life  and  the  seller  against  dangers  in  the  life  to  come, 
it  was  habitual  for  the  authorities  to  fix  prices  on  many  of  the  articles 
of  common  use,  and  to  exact  severe  penalties  for  any  variation  from 
these  prices.  If  the  authorities  thought  that  a  loaf  of  bread  ought 
to  cost  two  pence,  they  set  the  price  accordingly  and  cut  off  the 
ears  of  the  offending  baker  who  should  undertake  to  charge  more. 
Of  course  the  result  of  this  was  to  fix  the  price  at  two  pence.  No 
baker  was  going  to  jeopardize  his  soul's  salvation  and  his  ears  at  the 
same  time.  The  effect  of  this  low  price  was  that  the  consumers  used 
bread  as  freely  as  before,  instead  of  economizing  it;  and  after  a  few 
weeks  in  place  of  the  slight  deficiency  of  supply  which  was  tending 
to  cause  the  increase  in  price,  the  community  found  itself  face  to  face 
with  an  actual  scarcity  of  the  necessaries  of  life.  The  artificial 
system  of  price  regulation  had  intensified  the  very  evil  that  it  was 
intended  to  prevent. 

This  experience  with  sales  and  prices  was  the  basis  of  the  principle 
of  competition,  which  has  taken  such  a  hold  on  modern  industrial  life. 
If  the  goods  are  scarce,  we  let  the  buyers  bid  against  one  another; 
holding  that  by  this  process  of  selection  we  shall  put  such  supplies  as 
we  have  in  the  place  where  they  are  most  urgently  needed,  and  shall 

1  Adapted  by  permission  from  A.  T.  Hadley,  Freedom  and  Responsibility, 
pp.  1 1 7-2 1.     (Charles  Scribner's  Sons,  1903.    Author's  copyright.) 


COMPETITION  92i 

stimulate  real  economy  in  the  use  of  the  article  by  the  temporary 
increase  in  its  price.  If  the  seller  thus  obtains  a  considerable  gain, 
we  regard  this  gain  as  fairly  due  to  his  forethought  in  providing  the 
market  with  a  supply  of  goods  which  would  otherwise  have  been 
absent;  and  we  interfere  only  when,  by  some  combination  or  mo- 
nopoly, he  has  produced  an  artificial  scarcity  instead  of  helping  to 
meet  one  which  already  existed  from  natural  causes.  We  believe  also 
that  the  best  remedy  for  a  scarcity  is  to  stimulate  competition  on  the 
part  of  other  producers  who  will  devote  their  energies  toward  bringing 
new  supplies  to  market;  and  who,  if  the  scarcity  is  widespread  or  long 
continued,  will  invest  new  capital  in  the  production  of  the  goods  thus 
urgently  needed.  We  believe  that  the  exceptional  profit  which  these 
producers  obtain  until  the  deficiency  of  supply  has  been  made  good 
is  but  a  natural  and  normal  means  of  stimulating  them  to  the  utmost 
exertions  in  making  good  the  deficiency  and  of  rewarding  them  for 
their  foresight  in  doing  it  rightly. 

There  can,  I  think,  be  no  reasonable  doubt  that  the  world  is  far 
better  served  under  this  competitive  system  than  under  any  other 
system  of  industrial  regulation  which  has  hitherto  been  tried.  The 
effect  has  been  so  marked  that  modern  law — the  English  first  and  the 
continental  afterward — has  gradually  adjusted  itself  to  the  con- 
ception that  prices  should  be  let  alone  wherever  competition  can 
regulate  them;  that  a  price  obtained  in  open  market,  without  fraud 
or  artificial  monopoly,  is  ipso  facto  a  fair  price;  and  that  a  man  does 
no  wrong  to  those  with  whom  he  deals  if  he  buys  as  cheaply  as  he  can 
and  sells  as  dearly  as  he  can.  These  legal  principles  have  been  re- 
flected in  our  ethical  conceptions.  We  assume  that  a  competitive 
price  is  a  morally  just  price;  that  what  a  man  can  obtain  for  an  article 
in  open  market  at  the  moment  represents  its  present  value;  and  that 
the  average  price  which  he  can  obtain  in  the  long  run  represents  its 
true  or  permanent  value.  We  believe  that  under  ordinary  conditions 
the  business  man  does  his  duty  by  the  community  if  he  observes  the 
rules  of  the  game  of  competition,  as  thus  laid  down;  because  by  a 
general  adoption  of  these  rules  the  collective  interest  of  the  industrial 
community  has  been  well  served. 


I 


See  also  102.  Competition  Places  the  Individual. 

249.  Inheritance  and  Competition. 

402.  Defense  of  Laissez-faire. 

403.  Criticisms  of  Laissez-faire. 


022  INDUSTRIAL  SOCIETY 

D.    An  Estimate  of  the  Worth  of  Competition 
349.    COMPETITION  DOES  NOT  WORK  PERFECTLY* 
Formerly  it  was  the  rule  in  treatises  on  Political  Economy  to  attrib- 
ute the  following  virtues  to  competition: 

1.  Competition  adapted  production  to  consumption,  and  thus 
maintained  the  economic  equilibrium. 

2.  It  stimulated  progress  by  the  emulation  to  which  it  gave  rise 
among  competing  industries,  the  unfit  being  ruined  and  thus  elimi- 
nated. 

3.  It  caused  a  steady  lowering  of  prices,  thus  resulting  in  cheapness, 
to  the  great  advantage  of  all,  especially  the  poorer  classes. 

4.  It  gradually  equalised  conditions,  reducing  profits  and  wages 
to  practically  the  same  level  in  all  industries. 

Today  this  enthusiasm  has  slightly  cooled  down .  Closer  observa- 
tion of  facts,  and  the  actual  results  of  freedom  have  not  justified  this 
optimistic  faith.  We  have  come  to  realize  that  the  system  of  com- 
petition is  no  more,  as  it  is  no  less,  natural  and  spontaneous  than  many 
other  forms  of  organization  which  preceded  it — family  industry,  for 
example,  or  the  caste,  or  the  guild  system — for  these,  also,  were  the 
natural  outcome  of  historical  evolution.  As  for  its  beneficent  effects, 
they  are  somewhat  questionable.     We  recognize,  on  the  contrary: 

1.  That  so  far  as  the  equilibrium  between  production  and  wants  is 
concerned,  competition  ensures  it  only  in  a  very  irregular  manner,  if 
it  does  not  even  at  times  imperil  it. 

2.  That  if  free  competition  as  a  rule  stimulates  producers  by  the 
spirit  of  emulation  which  it  maintains  among  them,  it  hampers  them 
in  other  ways — e.g.,  as  regards  the  quality  of  the  goods. 

3.  That  free  competition  does  not  always  ensure  cheapness  and 
sometimes  may  even  provoke  a  rise  in  prices.  True,  wherever  com- 
petion  has  free  play,  it  tends  to  bring  down  the  value  of  all  articles 
to  the  level  of  cost  of  production.  But  how  does  it  do  this  ?  By  two 
consecutive  acts:  (a)  by  increasing  the  number  of  producers;  (b)  by 
causing  a  fall  in  prices  owing  to  the  struggle  which  takes  place  among 
them.  Now,  very  often,  the  first  effect  only  is  produced,  and  that  to  an 
extent  far  beyond  what  is  required.  The  second  does  not  take  place; 
for  the  new  additional  producers  come  to  an  understanding,  tacit  or 
otherwise,  with  the  old,  to  raise  the  price  to  a  level  which  will  allow 

1  Adapted  by  permission  from  Charles  Gide,  Political  Economy,  pp.  134-38. 
(D.  C.  Heath  &  Co.,  1913.) 


COMPETITION  923 

them  all  to  make  a  living.    Thus  only  the  hurtful  effect  of  competition 
remains. 

4.  Competition  does  not  necessarily  equalise  profits  and  fortunes, 
since  it  is  after  all  a  veritable  war,  giving  victory  to  the  strong  by  crush- 
ing the  weak.  It  is  in  countries  like  the  United  States,  where  indus- 
trial competition  is  in  full  force,  that  the  most  colossal  fortunes  are 
made. 

5.  Finally,  the  most  curious  and  unexpected  result  of  all  is  that  the 
state  of  competition  is  not  a  stable  state.  Experience  shows  that  it 
tends  to  destroy  itself  by  giving  birth  to  monopoly.  For,  by  the 
very  act  of  eliminating  small,  in  favour  of  large,  undertakings,  it 
encourages  the  growth  of  giant  enterprises  which  aim  at  suppressing 
all  competition. 

350.    COMPETITION  FAULTY  AS  A  REGULATOR  OF  PRICES1 

During  the  same  time  that  competition  has  ceased  to  control 
quality,  there  has  been  a  break-down  of  competition  in  the  control  of 
prices.  This  is  now  admitted  for  the  so-called  public  utilities.  So 
far  as  interstate  commerce  is  concerned,  the  price  is  fixed  by  the  rail- 
road and  controlled  by  the  Interstate  Commerce  Commission.  Within 
many  of  the  states,  the  prices  are  fixed  by  the  corporations  but  may 

»be  modified  by  the  commissions. 
In  cities  the  street  car  lines,  gas  companies,  and  electric  companies 
each  have  a  monopoly  in  a  given  city,  or  the  two  or  more  agree  upon 
identical  rates.     Competition  has  ceased  to  control  prices.    Where 
prices  are  controlled,  it  is  through  a  public  utilities  commission. 

Just  as  there  has  been  a  complete  collapse  in  competition  in  prices 
for  railroad  transportation  and  city  utilities,  so  there  has  been  com- 
plete collapse  in  charges  for  communication.  The  post-office  is  a 
public  monopoly;  the  rates  are  fixed.  The  telegraph  business  of  the 
country  has  become  consolidated  into  two  great  corporations  the  prices 
of  which  are  identical.  The  telephone  business  is  now  mainly  under 
the  control  of  a  single  corporation. 

Closely  allied  to  the  natural  monopolies  are  the  great  companies 
which  for  each  industry  are  controlled  by  a  single  organization  or  by  a 
number  of  organizations  working  together  under  open  or  secret  agree- 
ments or  understandings  and  not  competing  in  price.  Here  are  in- 
cluded anthracite,  steel,  oil,  beef,  whisky,  sugar,  and  other  great 

1  Adapted  by  permission  from  C.  R.  Van  Hise,  Concentration  and  Control, 


g24  INDUSTRIAL  SOCIETY 

industries.  When  prices  are  maintained  at  the  same  level  for  a 
decade  during  times  of  panic  and  great  expansion  alike,  it  is  certain 
that  competition  has  ceased  to  control  adequately  prices  for  iron 
products.  The  same  applies  to  anthracite,  oil,  and  many  other  com- 
modities. 

To  a  large  extent  competition  has  ceased  adequately  to  control  the 
prices  for  many  articles  not  in  great  combinations,  and  this  is  true 
both  in  the  wholesale  and  the  retail  businesses.  The  various  associa- 
tions of  business  men  have,  as  one  of  their  chief  purposes,  the  main- 
tenance of  prices.  Many  articles  which  are  protected  by  patents  or 
trade  marks  are  sold  to  the  dealers  only  on  condition  that  the  prices 
fixed  by  the  manufacturer  shall  be  maintained.  The  manufacturer  of 
a  definite  automobile  apportions  the  country  into  districts  and  requires 
of  the  dealers  in  each  of  the  districts  that  the  prices  fixed  by  the  manu- 
facturer shall  be  charged.  The  same  thing  is  true  of  hundreds  of 
articles,  from  sewing  machines  to  talking  machines,  and  so  on  down 
to  an  atomizer.  In  this  class  of  trade  there  is  competition  to  a  certain 
extent  between  the  different  manufacturers;  there  is  no  competition 
between  the  tradesmen  selling  the  same  articles. 

But  this  does  not  indicate  anything  like  the  extent  to  which  com- 
petition in  price  has  disappeared.  The  retailers  in  a  given  city  or 
community  have  an  association  either  formal  or  informal,  and  there 
is  among  the  members  a  definite  understanding  that  prices  shall  be 
maintained. 

See  also       253.  The  Economic  Advantages  of  Concentration. 
292.  Unfair  Methods  of  Competition. 
293-99    on  The  Trust. 

351.    THE  TENDENCY  TO  EVER  LOWER  LEVELS 

A* 
What  is  competition  from  the  point  of  view  of  the  workman  ?  It 
is  work  put  up  to  auction.  A  contractor  wants  a  workman;  three 
present  themselves.  "How  much  for  your  work ?"  "Half  a  crown; 
I  have  a  wife  and  children."  "Well;  and  how  much  for  yours?" 
"Two  shillings;  I  have  no  children  but  I  have  a  wife."     "Very  well; 

«  Taken  by  permission  from  Louis  Blanc,  Organisation  du  travail,  as  trans- 
lated by  J.  S.  Mill  in  his  "Chapters  on  Socialism,"  Fortnightly  Review,  XXXI 
(1879),  229-31. 


COMPETITION  925 

and  now  how  much  for  you  ? "  "One  and  eightpence  are  enough  for 
me;  I  am  single."  "Then  you  shall  have  the  work."  It  is  done; 
the  bargain  is  struck.  And  what  are  the  other  two  workmen  to  do  ? 
It  is  to  be  hoped  they  will  die  quietly  of  hunger.  But  what  if  they 
take  to  thieving?  Never  fear;  we  have  the  police.  To  murder? 
We  have  the  hangman.  As  for  the  lucky  one,  his  triumph  is  only 
temporary.  Let  a  fourth  workman  make  his  appearance,  strong 
enough  to  fast  every  other  day,  and  his  price  will  run  down  still 
lower;  there  will  be  a  new  outcast,  a  new  recruit  for  the  prison 
perhaps! 

B1 

What  is  meant  by  saying  that  unguarded  competition  tends  to 
lower  the  moral  sense  of  a  business  community?  This  law— for  I 
suppose  in  the  ordinary  acceptance  of  that  term  the  statement  here 
presented  may  be  called  a  law  of  tendencies— is  not  of  equal  applica- 
tion to  all  forms  of  business.  Wherever  the  personal  element  of  a 
service  comes  prominently  into  view,  and  the  character  of  the  agent 
rather  than  the  quality  of  the  goods  is  forced  into  prominence, 
probity  has  its  market  value  and  honesty  may  be  the  best  policy. 
But  in  the  commercial  world  as  at  present  organized,  where  the  pro- 
ducer and  consumer  seldom  come  into  personal  contact,  the  moral 
arrangements  followed  in  the  process  of  production  are  not  permitted 
a  moment's  thought.  All  that  is  considered  by  the  purchaser  is  the 
quality  and  price  of  the  goods.  Those  that  are  cheap  he  will  buy, 
those  that  are  dear  he  will  reject;  and  in  this  manner  he  encourages 
those  methods  of  production  that  lead  to  cheapness. 

There  are,  of  course,  exceptions  to  this  rule.  Some  men,  for 
example,  will  not  wear  "dollar-shirts,"  preferring  to  buy  the  material 
and  see  to  it  that  living  wages  are  paid  in  the  making.  That  is,  they 
declare  a  private  boycott  against  the  great  establishments,  because 
the  shirts  there  made  do  not  fit  their  consciences.  An  apparent 
exception  also  is  found  in  the  fact  that,  in  almost  any  line  of  business, 
a  few  men  are  able  to  maintain  themselves  in  the  face  of  fierce  com- 
petition by  giving  greater  attention  to  the  quality  of  goods  than  to  the 
price  at  which  they  may  be  placed  upon  the  market;  for  there  is  a 
limited  number  of  purchasers  who  understand  that  quality  is  an 
element  of  cheapness.     Under  such  conditions  it  is  possible  for  the 

1  Taken  by  permission  from  H.  C.  Adams,  "The  Relation  of  the  State  to 
Industrial  Action,"  Publication  of  the  American  Economic  Association,  I  (1886- 
87),  503-4- 


926 


INDUSTRIAL  SOCIETY 


producer  to  incline  to  the  leadings  of  his  moral  instincts  in  business 
affairs. 

But  these  exceptions  do  not  vitiate  the  rule  laid  down.  There 
must  be  substantial  uniformity  in  the  methods  of  all  producers  who 
continue  in  competition  with  each  other.  Each  man  in  the  business 
must  adopt  those  rules  of  management  which  lead  to  low  price,  or  he 
will  be  compelled  to  quit  the  business.  And  if  this  cheapness,  the 
essential  requisite  of  business  success,  be  the  result  of  harsh  and  inhu- 
man measures,  or  if  it  lead  to  misrepresentation  and  dishonesty  on  the 
part  of  salesmen  or  manufacturers,  the  inevitable  result  will  be  that 
harshness  and  inhumanity  will  become  the  essential  condition  of 
success,  and  business  men  will  be  obliged  to  live  a  dual  existence. 

352.    HAS  COMPETITION  RETARDED  INDUSTRIAL  PROGRESS  ?« 

As  to  the  sudden  industrial  progress  which  has  been  achieved 
during  our  own  century,  and  which  is  usually  ascribed  to  the  triumph 
of  individualism  and  competition,  it  certainly  has  a  much  deeper 
origin  than  that.  Once  the  great  discoveries  of  the  fifteenth  century 
were  made,  especially  that  of  the  pressure  of  the  atmosphere,  sup- 
ported by  a  series  of  advances  in  natural  philosophy — and  they  were 
made  under  the  mediaeval  city  organization — once  these  discoveries 
were  made,  the  invention  of  the  steam-motor  and  all  the  revolution 
which  the  conquest  of  a  new  power  implied,  had  necessarily  to  follow. 
If  the  mediaeval  cities  had  lived  to  bring  their  discoveries  to  that 
point,  the  ethical  consequences  of  the  revolution  effected  by  steam 
might  have  been  different;  but  the  same  revolution  in  technics  and 
science  would  inevitably  have  taken  place.  It  remains,  indeed, 
an  open  question  whether  the  general  decay  of  industries  which 
followed  the  ruin  of  the  free  cities,  and  was  especially  noticeable  in  the 
first  part  of  the  eighteenth  century,  did  not  considerably  retard  the 
appearance  of  the  steam-engine  as  well  as  the  consequent  revolution 
in  arts.  When  we  consider  the  astounding  rapidity  of  industrial  prog- 
ress from  the  twelfth  to  the  fifteenth  centuries— in  weaving,  working 
of  metals,  architecture,  and  navigation— and  ponder  over  the  scien- 
tific discoveries  which  that  industrial  progress  led  to  at  the  end  of  the 
fifteenth  century,  we  must  ask  ourselves  whether  mankind  was  not 
delayed  in  its  taking  full  advantage  of  these  conquests  when  a  general 

1  Taken  by  permission  from  P.  Kropotkin,  Mutual  Aid,  a  Factor  of  Evolution,  ' 
PP.  297-98.     (The  McClure  Co.,  1907.     Copyright  by  Alfred  A.  Knopf,  Publisher, 
1917.) 


COMPETITION  927 

lepression  of  arts  and  industries  took  place  in  Europe  after  the  decay 
>f  mediaeval  civilization.  Surely  it  was  not  the  disappearance  of  the 
•tist-artisan,  nor  the  ruin  of  large  cities  and  the  extinction  of  inter- 
:ourse  between  them,  which  could  favor  the  industrial  revolution; 
ind  we  know  indeed  that  James  Watt  spent  twenty  or  more  years  of 
lis  life  in  order  to  render  his  invention  serviceable,  because  he  could 
lot  find  in  the  last  century  what  he  would  have  readily  found  in 
lediaeval  Florence  or  Brugge,  that  is,  the  artisans  capable  of  realizing 
lis  devices  in  metal,  and  of  giving  them  the  artistic  finish  and  precision 
which  the  steam-engine  requires. 

To  attribute,  therefore,  the  industrial  progress  of  our  century  to 
the  war  of  each  against  all  which  it  has  proclaimed,  is  to  reason  like 
the  man  who,  knowing  not  the  causes  of  rain,  attributes  it  to  the  victim 
he  has  immolated  before  his  clay  idol.  For  industrial  progress,  as  for 
each  other  conquest  over  nature,  mutual  aid  and  close  intercourse 
certainly  are,  as  they  have  been,  much  more  advantageous  than 
lutual  struggle. 

353.    THE  SOCIALISTS'  INDICTMENT  OF  COMPETITIVE 
SOCIETY1 

What  are  the  chief  counts  in  the  indictment  brought  against 

tpitalism  ?    Applying  first  the  touchstone  of  efficiency  in  the  produc- 

;ion  of  material  goods,  it  is  charged  that  the  competitive  system  has 

imentably  failed.    The  provision  of  society's  requirements  as  a  by- 

>roduct  of  individual  self-seeking  has  broken  down.    Private  profit 

is  far  from  coinciding  with  social  gain. 

In  the  first  place,  it  is  charged,  laissezfaire  breaks  down  in  that 
dde  range  of  cases  where  utilities  of  undeniable  importance  are  not 
)rovided  because  incapable  of  private  appropriation  and  sale.  The 
tportance  of  forest  preservation  for  conserving  moisture  is  undeni- 
tble.  But  climate  and  rainfall  cannot  be  packaged  and  trafficked  in, 
md  so  our  forests  are  swept  down  by  axe  and  fire.  A  lighthouse  might 
absolutely  essential  on  some  dangerous  promontory,  but  profit- 
laking  enterprise  would  halt  if  circumstances  made  it  impossible  to 
collect  a  toll  from  benefited  ships. 

Even  more  serious  is  the  loss  entailed  when  the  lure  of  profit 
Lttracts  too  large,  rather  than  too  small,  a  proportion  of  the  com- 
mnity's   working   forces   into   particular   channels.    Conservative 

1  Adapted  by  permission  from  O.  D.  Skelton,  Socialism:   a  Critical  Analysis, 
21-39.     (Copyright  by  Hart,  Schaffner  &  Marx,  191 1.) 


g2$  INDUSTRIAL  SOCIETY 

trust  apologists  have  helped  radical  socialist  critics  to  make  the 
wastes  of  competition  a  commonplace  in  our  thinking.  The  middle- 
man is  again  under  suspicion,  as  in  the  days  when  forestalled,  engross- 
ers, and  regraters  troubled  the  common  weal.  The  contrast  between 
the  planless  distribution  of  milk  by  a  score  of  competing  dealers  serv- 
ing a  single  street,  and  the  systematic  distribution  of  mail  by  a  central 
authority,  has  grown  hoary  in  socialist  service.  Especially  in  the 
field  of  public  utilities,  where  increasing  returns  are  the  rule,  the  waste 
of  competition  is  obvious— in  parallel  railroads,  competing  gas  com- 
panies, duplicated  electric  light  or  power  plants. 

Competitive  selling-costs  bulk  very  large  in  the  "cost  of  produc- 
tion" of  all  commodities.  This  is  clearest  in  the  case  of  advertising. 
To  a  varying  extent  modern  advertising  is  doubtless  informative, 
guiding  and  stimulating  the  wants  of  customers.  But  for  the  most 
part  it  is  merely  competitive,  catering  to  existing  wants.  Con- 
servative economists  estimate  this  waste  as  half  the  selling-price  in 
many  lines.  In  great  part  the  work  of  office  force  and  field  force  is 
equally  void  of  social  utility.  Nor  is  the  waste  ended  when  the  deal 
is  closed:  the  Chicago  manufacturer  may  have  sold  his  goods  in  New 
York,  and  the  New  York  manufacturer  in  Chicago,  so  that  the  item 
of  cross-freights,  serious  in  bulky  wares,  is  still  to  be  reckoned.  For 
further  details  of  competitive  waste,  we  have  only  to  consult  the 
latest  trust  prospectus. 

Nowhere,  the  indictment  continues,  does  capitalism  break  down 
more  conspicuously  than  in  the  equilibration  of  demand  and  supply. 
Production  in  competitive  society  is  planless  and  anarchical.  Hap- 
hazardly scattered  producers  prepare  to  meet  the  guessed-at  demands 
of  world-wide  consumers.  The  adjustment  is  never  exact.  At  times 
it  fails  utterly  in  the  periodical  crises  which  throw  the  industrial 
mechanism  hopelessly  out  of  gear.  "Commerce  is  at  a  standstill, 
the  markets  are  glutted,  hard  cash  disappears,  factories  are  closed,  the 
mass  of  the  workers  are  in  want  of  the  means  of  subsistence." 

The  case  for  competition  is  no  more  favorable  when  we  turn  from 
quantity  to  quality  of  products.  "Adulteration  is  a  form  of  com- 
petition," was  the  frank  apology  offered  by  John  Bright.  The 
advance  of  science  and  original  sin  has  made  it  possible  to  counter- 
feit almost  every  article  of  common  use,  the  more  easily  because  of 
lack  of  experience  of  the  final  purchaser.  Even  in  Tennyson's  day 
"chalk  and  alum  and  plaster  were  sold  to  the  poor  for  bread,"  and 
the  wooden  nutmeg  has  rechristened  a  state.    But  the  amateur 


COMPETITION  92Q 

and  unsophisticated  efforts  of  half  a  century  ago  pale  before  the 
accomplishments  of  today— the  red-raspberry  jam  which  once  was 
gelatine,  aniline,  and  timothy  seed;  and  prune-juice  and  fusel  oil 
masquerading  as  whiskey;  the  chicory  in  the  coffee  and  the  pea-hulls 
in  the  chicory ;  the  artificial  oils  in  the  flavoring  extracts ;  the  labels  we 
drink  at  champagne  prices;  the  shoddy  we  are  clothed  in  and  the 
paper  soles  we  walk  on;  the  "Corot"  on  our  walls  with  its  paint 
scarce  dry. 

Nor  is  it  only  in  the  selling  of  commodities  that  this  fraud  is 
charged.  "The  genius  of  graft,"  declares  a  socialist  satire,  "mani- 
fests itself  in  nearly  all  branches  of  human  activity.  Wherever 
something  can  be  got  for  nothing,  wherever  a  pinch  or  a  squeeze  of 
extra  profit  can  be  made  in  a  transaction,  wherever  falsehood  can  be 
made  to  do  duty  for  truth,  a  pretense  for  accomplishment  or  service, 
there  is  observed  a  metamorphosis  of  the  protean  genius  of  Graft"— 
the  petty  graft  of  the  hackman  or  waiter,  of  the  loan  shark  or  the 
quack  physician  or  the  shyster  lawyer,  of  the  fake  instalment  trade 
or  diploma  factory. 

Even  where  the  quality  of  the  wares  is  honest  enough,  they  have 
lost  all  semblance  of  art  or  seemliness.  The  craftsman's  pride  in  his 
work  has  given  place  to  the  profit-monger's  preoccupation  with  his 
ledger. 

t  Financial  fraud  is  rated  more  serious  even  than  commercial.  As 
credit  and  corporations  count  for  more  and  more,  the  openings  for 
manipulation  widen.  The  way  is  clear  for  promotion,  running  the 
gamut  from  the  downright  swindle  of  the  cent-a-share  mining  com- 
pany to  the  honest  graft  of  a  respectable  over-capitalization.  The 
company  once  formed,  the  divergence  of  interest  between  director 
and  shareholder,  temporary  controller  and  permanent  owner,  tempts 
to  all  the  thousand  and  one  devices  of  manipulation. 

So  much  for  the  efficiency  of  the  competitive  system  as  a  means 
of  producing  the  greatest  possible  amount  of  useful  material  goods. 
Rated  even  in  terms  of  goods  and  gear  it  is  condemned.  What  is 
the  loss  and  gain  computed  in  terms  of  human  life,  what  the  condi- 
tions under  which  the  mass  of  men  labor  to  produce  this  wealth,  what 
their  share  in  the  product  and  the  consequent  measure  of  material 
comfort  and  well-being  attainable?  Here  the  indictment  becomes 
more  serious  and  more  passionate.  For  the  vast  majority,  it  is  urged, 
competition  and  capitalism  spell  misery  and  failure,  a  precarious 
lifelong  battle  with  hunger,  stunted   and  narrowed   development. 


g30  INDUSTRIAL  SOCIETY 

premature  death  or  cheerless  old  age.  Considering  the  condi- 
tions under  which  men  earn  their  living,  the  socialist  finds  the 
majority  sunk  in  "wage  slavery."  The  capitalist's  control  of  all  the 
opportunities  of  labor  gives  him  power  more  tyrannous  than  the  slave- 
owner of  old  ever  held.  No  legal  bond  compels  the  modern  workman 
to  labor  for  his  masters,  but  the  monopoly  of  the  means  of  livelihood 
is  stronger  than  any  parchment  right.  The  main  difference  between 
the  old  and  the  new  slavery  is  that  the  modern  slave-driver  is  under 
no  obligation  to  keep  his  "hands"  from  starving.  It  is  for  the  capi- 
talist, and  the  capitalist  alone,  to  decide  when  and  where  work  shall 
be  begun,  who  shall  and  shall  not  be  employed,  what  the  manner  of 
working  shall  be.  It  is  not  only  from  lack  of  freedom  that  the  modern 
workman  suffers.  The  work  which  he  does  at  another's  bidding  is 
drearily  monotonous  work.  The  factory  system  means  for  the  average 
workman  cramping  and  dispiriting  routine,  a  pitifully  limited  horizon, 
the  repression  of  all  latent  power  not  needed  for  the  mechanical 
day's  work.  Individuality  is  sacrificed  on  the  altar  of  efficient  pro- 
duction. 

The  factory  system  not  only  robs  the  workman  of  freedom  and  of 
interest  in  his  task,  the  arraignment  continues,  but  subjects  him  to 
exhausting  and  dangerous  toil.  The  long  hours  which  the  greed  for 
dividends  wrings  from  the  workers  use  up  every  ounce  of  vitality, 
prevent  that  rounded  development  which  can  come  only  with  moder- 
ate leisure,  and  wear  life  out  at  such  a  rate  that  at  fifty  the  victim 
must  be  discarded  for  a  younger  man,  scrapped  like  outworn  ma- 
chinery. The  danger  of  fatal  or  crippling  accident  is  ever  present, 
with  small  possibility  of  redress  against  the  battalioned  lawyers  of  the 
employer  or  liability  company,  and  with  certainty  of  distress  and 
privation  for  the  family  whose  breadwinner  is  helpless. 

Equally  dangerous  in  the  long  run  are  the  artificial  and  unsanitary 
conditions  which  prevail  in  the  crowded  factory. 

For  all  the  exhausting  rigor  and  the  gray  monotony  of  his  toil, 
the  workman's  greatest  fear  is  lest  he  should  lose  it.  Worse  than 
want  is  the  constant  dread  and  fear  of  want,  the  harrowing  insecurity 
caused  by  the  perpetual  menace  of  unemployment. 

And  for  this  unremitting,  maiming,  and  precarious  toil,  what  share 
falls  to  the  workman  when  the  time  for  the  distribution  of  the  joint 
product  comes  ?  What  possibilities  of  decent  and  comfortable  liveli- 
hood are  placed  at  his  disposal  ?  So  small  a  share,  it  is  charged,  that 
for  the  mass  of  the  workers  the  existing  order  means  lifelong  poverty. 


COMPETITION  93I 

What  wealth  is  produced  is  distributed  with  gross  and  incredible 
unfairness.  To  the  few,  untold  millions  are  given,  unlimited  com- 
mand over  the  lives  and  services  of  their  fellows,  opportunity 
for  boundless  luxury  and  maddening  display;  to  the  many,  a  starving 
pittance  which  barely  holds  body  and  soul  together,  and  shuts  out  all 
hope  of  development  and  culture. 

What  is  the  effect  of  competitive  industrialism  on  moral  life? 
Here  again  the  tally  against  capitalism  is  marked  deep  in  the  socialist 
stick.  "Next  to  intemperance  in  the  enjoyment  of  intoxicating 
liquors,"  declares  Engels,  "one  of  the  principal  faults  of  English 
workingmen  is  sexual  license.  But  this  too  follows  with  relentless 
logic,  with  inevitable  necessity,  out  of  the  position  of  a  class  left  to 
itself,  with  no  means  of  making  fitting  use  of  its  freedom.    The 

•bourgeoisie  has  left  the  working  class  only  these  two  pleasures,  while 
imposing  upon  it  a  multitude  of  labors  and  hardships,  and  the  conse- 
quence is  that  the  workingmen,  in  order  to  get  something  from  life, 
concentrate  their  whole  energy  upon  these  two  enjoyments,  carry 
them  to  excess,  surrender  to  them  in  the  most  unbridled  manner." 

And  then  society  adds  insult  to  injury  by  blaming  on  the  indi- 
vidual the  lapses  its  own  perverse  social  arrangements  have  caused. 

See  also  9.  Planlessness  and  Conflict. 

91.  Some  Criticisms  of  Commerce. 
139-140   on  Some  Defects  of  the  Pecuniary  Order. 
203.  Economic  Insecurity  of  the  Worker. 

354-    HAS  COMPETITION  OUTLIVED  ITS  USEFULNESS?1 

Every  one  of  us  is  a  competitor  in  several  or  many  fields,  while  he 
is  at  the  same  time  a  member  of  various  co-operating  groups:  and — 
what  seems  somewhat  surprising — we  are  likely  to  compete  with  the 
very  persons  with  whom  we  co-operate.  For  example,  every  impor- 
tant branch  of  trade  has  a  rather  elaborate  system  of  co-operation, 
including  associations,  trade-journals,  price  agreements,  and  the  like; 
yet  it  is  among  those  who  follow  the  same  trade  that  competition  is 
most  severe.  Again,  here  is  a  factory  full  of  operatives  joined 
together  in  a  labor  union  for  the  furtherance  of  common  interests; 
yet  they  inevitably  compete  among  themselves  for  reputation  as  work- 
men and  advancement  in  grade,  for  office  or  influence  in  the  union, 

1  Adapted  by  permission  from  C.  H.  Cooley,  "Personal  Competition," 
Economic  Studies,  IV,  95-99.     (American  Economic  Association,  1899.) 


932  INDUSTRIAL  SOCIETY 

and  probably  in  many  ways  not  directly  connected  with  their  work. 
It  is  the  same  with  any  active  group. 

Because  it  requires  intelligence  and  energy,  because  it  is  difficult, 
intelligent  co-operation  always  lags  behind  the  need  for  it;  and  we 
have  the  rule  that  competition  once  set  up  is  likely  to  persist  beyond 
the  point  where  it  ought  to  be  dispensed  with.  Owing  to  this  fact  it 
is,  in  our  own  time,  not  only  intense,  but  quite  often  excessive:  it 
continues  when  it  might  better  yield  to  co-operation.  When  the 
selective  process  has  performed  its  function,  when  it  has  answered 
the  question,  what  is  the  fittest,  as  well  as  it  can,  it  ought  to  cease 
and  give  place  to  organization.  To  prolong  it  beyond  this  point  is 
wasteful  and  destructive;  the  principle  involved  being  the  same 
as  that  rule  of  humane  warfare  which  declares  that  the  sacrifice 
of  life  ought  not  to  continue  when  the  result  ceases  to  be  doubtful. 
The  failure  to  cease  is  an  evil  characteristic  of  a  time  like  the  present, 
when  the  work  of  breaking  down  obstructive  organization,  the  outworn 
machinery  of  the  past,  has  been  pretty  well  accomplished,  and  the  time 
for  reorganization  has  arrived.  During  the  breaking-down  period  the 
great  need  is  to  introduce  the  competitive  principle;  but  when  this 
has  been  achieved,  and  the  building-up  period  has  set  in,  the  great 
need  is  to  check  it.  If  we  look  about  us  we  see  almost  everywhere  a 
condition  of  disintegration,  of  working  at  cross  purposes,  which  gives 
much  color  to  the  views  of  those  who  charge  the  age  with  "anarchical 
individualism"  and  call  for  repressive  control.  In  almost  every 
branch  of  trade  competing  agencies  are  multiplied  beyond  what  is 
necessary  or  economical;  there  seem  to  be  too  many  small  groceries, 
drug  stores,  hardware  stores,  shoe  stores,  restaurants,  and  the  like; 
that  is,  the  goods  they  supply  could  be  furnished  cheaper  if  the  same 
energy  were  concentrated  upon  fewer  establishments.  It  is  well 
known  that  more  railroads  have  been  built,  in  many  instances,  than 
there  is,  any  need  for,  and  the  rate-wars  that  frequently  take  place 
have  been  shown  to  be  injurious  to  the  public  as  well  as  to  the  stock- 
holders. We  hear  also  that  there  are  too  many  small  churches,  too 
many  small  colleges,  and  so  on. 

This  state  of  things  is  slowly  working  its  own  remedy;  the  tend- 
ency, the  current,  is  clearly  toward  organization.  This  is  decidedly 
a  time  of  "getting  together,"  though  the  results  so  far  achieved  are 
small  compared  with  what  is  needed.  It  is  surprising  to  note  the 
number  and  variety  of  conventions  that  take  place  in  one  of  our  larger 
cities  during  the  summer  months.    From  the  advancement  of  science 


COMPETITION  933 

to  bill  posting,  almost  every  reputable  occupation  seems  to  have 
general  interests  which  require  the  attendance  of  delegates  at  an 
annual  meeting;  not  to  speak  of  the  hundreds  of  social  and  benevolent 
societies.  The  rise  of  department  stores,  the  multiplication  of  private 
industrial  corporations,  and  the  formation  of  trusts  are,  of  course, 
an  outcome  of  the  same  tendency.  Organization,  since  it  brings 
power  and  success,  is  coming  rapidly;  and  the  very  process  of  its 
coming  introduces  a  new  set  of  problems,  problems  of  symmetry  in 
growth.  Some  forms  of  organization,  like  the  private  corporations 
just  mentioned,  outstrip  other  forms  which  are  required  to  balance 
or  control  them— legislation,  for  instance,  administrative  machinery, 
economic  science,  trades  unions — and  we  have  an  overweening  growth 
of  power,  which  gives  rise  to  much  wrong,  much  protest,  and  to 
extravagant  projects  of  reform.  In  this  lack  of"  symmetry,  this 
narrowing  of  contemporary  development  into  a  few  channels  while 
others  are  almost  dried  up,  is  to  be  found  the  cause  of  many  if  not  most 
of  the  evils  characteristic  of  our  time. 

355.     THE  BRIEF,  INCOMPLETE  REIGN  OF  COMPETITION1 

It  would  be  a  great  misconception  of  the  actual  course  of  human 
affairs,  to  suppose  that  competition  exercises  in  fact  unlimited  sway. 
I  am  not  speaking  of  monopolies,  either  natural  or  artificial,  or  of  any 
interferences  of  authority  with  the  liberty  of  production  or  exchange. 
I  speak  of  cases  in  which  there  is  nothing  to  restrain  competition; 
no  hindrances  to  it  either  in  the  nature  of  the  case  or  in  artificial 
obstacles;  yet  in  which  the  result  is  not  determined  by  competition, 
but  by  custom  or  usage;  competition  either  not  taking  place  at  all,  or 
producing  its  effect  in  quite  a  different  manner  from  that  which  is 
ordinarily  assumed  to  be  natural  to  it. 

Competition,  in  fact,  has  only  become  in  any  considerable  degree 
the  governing  principle  of  contracts  at  a  comparatively  modern  period. 
The  farther  we  look  back  into  history,  the  more  we  see  all  transactions 
and  engagements  under  the  influence  of  fixed  customs.  The  reason 
is  evident.  Custom  is  the  most  powerful  protector  of  the  weak  against 
the  strong;  their  sole  protector  where  there  are  no  laws  or  government 
adequate  to  the  purpose.  Custom  is  a  barrier  which,  even  in  the  most 
oppressed  condition  of  mankind,  tyranny  is  forced  in  some  degree  to 

1  Adapted  by  permission  from  J.  S.  Mill,  Principles  of  Political  Economy, 
Vol.  I,  Book  II,  chap.  iv.     (D.  Appleton  &  Co.,  1893.) 


934  INDUSTRIAL  SOCIETY 

respect.  To  the  industrious  population,  in  a  turbulent  military  com- 
munity, freedom  of  competition  is  a  vain  phrase;  they  are  never  in  a 
condition  to  make  terms  for  themselves  by  it;  there  is  always  a  master 
who  throws  his  sword  into  the  scale,  and  the  terms  are  such  as  lie 
imposes.  But  though  the  law  of  the  strongest  decides,  it  is  not  the 
interest  nor  in  general  the  practice  of  the  strongest  to  strain  that 
law  to  the  utmost,  and  every  relaxation  of  it  has  a  tendency  to  become 
a  custom,  and  every  custom  to  become  a  right.  Rights  thus  originat- 
ing, and  not  competition  in  any  shape,  determine,  in  a  rude  state  of 
society,  the  share  of  the  produce  enjoyed  by  those  who  produce  it. 

Prices,  whenever  there  was  no  monopoly,  came  earlier  under 
the  influence  of  competition,  and  are  much  more  universally  subject 
to  it,  than  rents:  but  that  influence  is  by  no  means,  even  in  the  present 
activity  of  mercantile  competition,  so  absolute  as  is  sometimes  assumed. 

The  wholesale  trade,  in  the  great  articles  of  commerce,  is  really 
under  the  dominion  of  competition.  There,  the  buyers  as  well  as 
sellers  are  traders  and  manufacturers,  and  their  purchases  are  not 
influenced  by  indolence  or  vulgar  finery,  but  are  business  transactions. 
In  the  wholesale  markets,  therefore,  it  is  true  as  a  general  proposition 
that  there  are  not  two  prices  at  one  time  for  the  same  thing:  there  is  at 
each  time  and  place  a  market  price,  which  can  be  quoted  in  a  price- 
current.  But  retail  price,  the  price  paid  by  the  actual  consumer, 
seems  to  feel  very  slowly  and  imperfectly  the  effect  of  competition; 
and  when  competition  does  exist,  it  often,  instead  of  lowering  prices, 
merely  divides  the  gains  of  the  high  price  among  a  greater  number  of 
dealers.  The  influence  of  competition  is  making  itself  felt  more  and 
more  through  the  principal  branches  of  retail  trade  in  the  large  towns; 
and  the  rapidity  and  cheapness  of  transport,  by  making  consumers 
less  dependent  on  the  dealers  in  their  immediate  neighbourhood,  are 
tending  to  assimilate  more  and  more  the  whole  country  to  a  large 
town:  but  hitherto  it  is  only  in  the  great  centres  of  business  that  retail 
transactions  have  been  chiefly,  or  even  much,  determined  by  com- 
petition. Elsewhere  it  rather  acts,  when  it  acts  &t  all,  as  an  occasional 
disturbing  influence;  the  habitual  regulator  is  custom,  modified  from 
time  to  time  by  notions  existing  in  the  minds  of  purchasers  and 
sellers,  of  some  kind  of  equity  or  justice. 

In  many  trades  the  terms  on  which  business  is  done  are  a  matter 
of  positive  arrangement  among  the  trade,  who  use  the  means  they 
always  possess  of  making  the  situation  of  any  member  of  the  body 
who  departs  from  its  fixed  customs,  inconvenient  or  disagreeable.    It 


COMPETITION  935 

is  well  known  that  the  bookselling  trade  was,  until  lately,  one  of  these, 
and  that,  notwithstanding  the  active  spirit  of  rivalry  in  the  traded 
competition  did  not  produce  its  natural  effect  in  breaking  down  the 
trade  rules.  All  professional  remuneration  is  regulated  by  custom. 
The  fees  of  physicians,  surgeons,  and  barristers,  the  charges  of 
attorneys,  are  nearly  invariable.  Not  certainly  for  want  of  abundant 
competition  in  those  professions,  but  because  the  competition  oper- 
ates by  diminishing  each  competitor's  chance  of  fees,  not  by  lowering 
the  fees  themselves. 

Since  custom  stands  its  ground  against  competition  to  so  con- 
siderable an  extent,  even  where,  from  the  multitude  of  competitors 
and  the  general  energy  in  the  pursuit  of  gain,  the  spirit  of  competition 
is  strongest,  we  may  be  sure  that  this  is  much  more  the  case  where 
people  are  content  with  smaller  gains,  and  estimate  their  pecuniary 
interest  at  a  lower  rate  when  balanced  against  their  ease  or  their 
pleasure.  I  believe  it  will  often  be  found,  in  Continental  Europe,  that 
prices  and  charges,  of  some  or  of  all  sorts,  are  much  higher  in  some 
places  than  in  others  not  far  distant,  without  its  being  possible  to 
assign  any  other  cause  than  that  it  has  always  been  so:  the  customers 
are  used  to  it,  and  acquiesce  in  it.  An  enterprising  competitor,  with 
sufficient  capital,  might  force  down  the  charges,  and  make  his  fortune 
during  the  process;  but  there  are  no  enterprising  competitors;  those 
who  have  capital  prefer  to  leave  it  where  it  is,  or  to  make  less  profit 
by  it  in  a  more  quiet  way. 

356.    COMPETITION  NOT  RESPONSIBLE  FOR  MANY  EVILS 

A1 
An  open  market  is  the  presupposition  of  competition.  Competi- 
tion, as  a  wholesome  law,  means  no  more  than  the  adjustment  of  the 
terms  of  production  and  of  exchange  to  each  other  over  a  certain  area, 
so  that  each  shall  have  the  advantage  and  render  the  service  that,  from 
the  nature  of  the  case,  belong  to  it.  Competition  does  not  create 
the  productive  forces,  but  assigns  their  relation  in  reference  to  each 
other.  The  accidents  of  trade  and  the  tricks  of  trade  and  the  com- 
binations of  trade,  which  prevent  a  genuine  expression  of  the  facts 
involved,  constitute  no  part  of  competition  as  an  economic  law, 
any  more  than  a  lie  is  a  constituent  of  the  narrative  in  which  it  is 
embodied.    A  productive  territory,  fully  represented,  is  the  essential 

1  Adapted  by  permission  from  John  Bascom,  Social  Theory:  A  Grouping  of 
Social  Facts  and  Principles,  pp.  145-54-     (Thomas  Y.  Crowell  &  Co.,  1895.) 


936 


INDUSTRIAL  SOCIETY 


notion  of  a  market.  Any  limitation  is  so  far  a  loss  of  a  market.  If 
bad  weather  prevents  the  usual  attendance  in  the  public  square  of  a 
city  of  those  who  supply  it  with  vegetables,  the  market,  to  that 
degree,  fails.  If  bad  roads  render  this  light  attendance  frequent,  the 
economic  forces  involved  are  correspondingly  straitened.  Compe- 
tition alone  does  not  suffice  to  cure  the  evil.  The  broader  conditions 
of  civilization  which  enclose  it  are  at  fault,  and  demand  correction. 
As  a  matter  of  fact,  there  are  comparatively  few  complete  markets. 
We  are  constantly,  therefore,  giving  an  ideal  completeness  to  the  law 
of  competition  which  does  not  belong  to  it.  It  would  possess  this 
perfection  only  if  the  way  had  been  perfectly  prepared  for  it.  If  we 
wish  competition  to  become  an  adequate  and  beneficent  force,  we 
must  intermeddle  with  it;  we  must  provide  the  suitable  conditions 
under  which  it  takes  full  effect. 

Not  only  is  any  given  market  seldom  adequate;  it  is  seldom  open. 
By  an  open  market  we  understand  one  that  gives  free  admission  to  all 
economic  forces,  and  excludes  all  others.  Deception  and  restriction 
of  all  sorts  set  aside  considerations  which  should  guide  purchase  and 
sale,  or  introduce  considerations  which  are  not  pertinent  to  them. 
The  open  market  discloses  the  facts  in  the  case,  and  leaves  the  adjust- 
ment of  prices  to  them.  Competition  which  conceals  or  distorts  the 
facts  is  no  more  a  law  of  production  than  are  theft  and  violence. 

An  important  and  unfortunate  limitation  of  competition  arises 
from  the  ignorance  of  those  extremely  poor,  and  from  their  narrow 
resources.  The  poor  are  not  good  buyers,  nor  do  they  buy  at  the 
best  places.  The  kinds  of  goods  they  can  purchase  are  so  inferior,  or 
the  amount  called  for  is  so  small,  or  their  credit  is  so  limited,  or  the 
range  of  their  knowledge  is  so  restricted,  or  their  diffidence  and  distrust 
are  so  great,  that  they  buy  almost  exclusively  in  poor  localities  at 
exorbitant  prices.  Even  in  large  commercial  cities,  there  are  certain 
streets  and  sections  where  rates  have  little  to  do  with  the  current  cost  of 
goods.  This  tendency  to  a  patient  submission  to  hard  terms  is  en- 
hanced by  national  and  clannish  predilections.  Customs  which  in  the 
outset  completely  rule  prices  never  wholly  give  way  in  the  lower  classes. 

B1 
Man  has  not  succeeded  in  regulating  the  productiveness  of  all 
industries.    Agriculture  is  affected  by  every  variation  in  the  weather 

1  Taken  by  permission  from  G.  de  Molinari,  The  Society  of  Tomorrow,  pp.  1 1 1- 
13-     (G.  P.  Putnam's  Sons,  1904.) 


COMPETITION  937 

ind  all  sorts  of  epidemic  blights,  but  perfection  of  that  branch  of  com- 
lerce  which  is  called  speculation  might  doubtless  palliate  this  varia- 
>ility  of  the  harvests.  If  the  surplus  of  one  season  were  withheld  from 
le  markets  there  would  neither  be  an  immediate  glut  and  consequent 
:ollapse  of  prices,  nor  would  the  failure  of  future  seasons  entail 
mhanced  prices  and  insufficient  supply.  But,  with  imperfect  means 
)f  storage  and  preservation,  the  insufficiency  of,  and  too  high  rates 
m,  capital— subject  as  this  is  to  the  continual  drain  of  unproductive 
governmental  expenditure— with  the  great  existing  antipathy  to  specu- 
lation, the  regulative  action  of  competition  upon  agricultural  products 
hindered  by  time,  as  it  is  harrassed  by  the  custom-house  in  the  case 
)f  other  industries. 

Finally,  we  must  remember  our  insufficient  knowledge  of  the 
world's  markets.     When  markets  were  limited  to  the  territory  of  a 
lordship,  a  county,  or  a  province,  demand  was  practically  stable,  easily 
estimated,  and  production  as  readily  adjustable.     But  such  knowl- 
edge has  become  increasingly  difficult  with  every  enlargement  of  areas, 
'he  need  for  it  no  doubt  creates  and  multiplies  channels  of  informa- 
ion;   harvest  figures  and  estimates,  statements  of  the  visible  stocks 
)f  corn,  cotton,  wool,  sugar,  etc.,  are  flashed  from  one  corner  of  the 
forld  to  every  other.     But  even  if  this  system  embraced  every  known 
irticle  of  production,  and  was  perfected  to  the  last  conceivable  degree, 
the  controllers  of  production  would  still  be  insufficiently  instructed 
is  to  every  local  shortage  or  surplus.    That  information  can  only  be 
)btained  by  absolute  knowledge  of  the  average  profit  in  every  branch 
of  production,  and  such  information  is  unobtainable  until  impersonal 
organizations  monopolize  the  entire  production  of  the  world. 


In  modern  society  competition  is  far  from  occupying  the  sphere  of 
its  natural  action.  Our  laws  run  counter  to  it,  at  least  in  as  great  a 
degree  as  they  favor  its  action;  and  when  it  is  asked  whether  the 
inequality  of  conditions  is  owing  to  its  presence  or  its  absence,  it  is 
sufficient  to  look  at  the  men  who  make  the  greatest  figure  among  us, 
and  dazzle  us  by  the  display  of  their  scandalous  wealth,  in  order  to 
assure  ourselves  that  inequality,  so  far  as  it  is  artificial  and  unjust, 
has  for  foundation  conquests,  monopolies,  restrictions,  privileged 

1  Taken  from  Frederic  Bastiat,  Harmonies  of  Political  Economy,  pp.  283-84. 
(John  Murray,  i860.) 


93« 


INDUSTRIAL  SOCIETY 


offices,  functions,  and  places,  ministerial  trafficking,  public  borrowing 
—all  things  with  which  competition  has  nothing  to  do. 

See  also  174.  Simple  versus  Complex  Industry. 

175.  Complex  Industry  Is  Difficult  to  Regulate. 

176.  Can  We  Control  the  Genie? 

357.  COMPETITION  DEPENDS  ON  NO  ONE  MOTIVE1 
A  very  powerful  source  of  the  sentiment  against  competition  and 
of  the  belief  which  many  cherish  that  it  cannot  be  a  permanent  fea- 
ture of  social  life,  lies  in  its  connection  with  personal  ill-feeling.  It  is 
often  said  to  be  in  its  very  nature  anti-social,  a  state  of  war  instead  of 
a  state  of  peace,  generating  hostile  passions  instead  of  sympathy  and ; 
love.  The  bloody  conflicts  of  our  brute  ancestors  have  been  replaced 
by  something  less  obvious  and  open  but — so  we  are  told — equally 
bitter  and  destructive,  morally  speaking  the  same  thing. 

Yet  there  is  no  inevitable  association  between  competition  and 
hostility.  In  great  measure  the  selective  process  operates  with- 
out generating  personal  feeling.  A  young  man,  for  example,  starts 
out  in  life  with  the  purpose  of  following  a  certain  profession — let  us 
say  the  law.  The  experience  of  two  or  three  years  convinces  him  and 
others  that  he  cannot  succeed  in  this,  and  he  makes  his  way  into  some- 
thing else.  About  half  the  graduates  of  our  law  schools  are  eliminated 
in  this  way,  and  the  same  sort  of  thing  takes  place  in  other  trades  and 
professions.  But  the  process  is  gradual  and  the  eliminating  forces,  as 
a  whole,  impersonal;  that  is  to  say,  they  are  too  many,  too  intangible, 
to  make  an  impression  of  wilful  personal  opposition.  Disappointment 
may  ensue,  but  not  hatred;  except  in  the  case  of  weak  and  abnormally 
sensitive  minds  whose  uncontrolled  emotions  lead  them  to  ascribe 
every  painful  experience  to  the  malignant  purpose  of  others.  So 
with  commercial  competition;  a  man's  trade  gradually  increases  or 
declines;  but  there  is  seldom  any  one  person  who  can  be  fixed  upon  as 
the  cause.  In  fact,  while  admitting  the  existence  of  a  great  deal  of 
competitive  bitterness,  I  believe  that  most  men  look  upon  the  social 
conditions  under  which  they  work  very  much  as  the  farmer  looks  upon 
the  weather  and  other  natural  agents.  They  may  make  or  mar  him, 
and  he  thrives  or  suffers  accordingly,  but  there  is  no  single  person  to 
hold  responsible. 

'Adapted  by  permission  from  C.  H.  Cooley,  "Personal  Competition,"  Eco- 
nomic Studies,  IV,  146-54.     (American  Economic  Association,  1899.) 


COMPETITION  939 

Moreover,  open  and  declared  opposition  is  not  the  thing  most 
likely  to  give  rise  to  hatred  and  jealousy.  Where  a  conflict  takes 
place  under  recognized  rules  and  conditions  which  ^re  observed  by 
both  parties,  it  does  not  necessarily  give  rise  to  bitter  feeling,  no 
matter  how  dangerous  and  destructive  it  may  be. 

The  conditions  of  the  open  market,  like  the  conditions  of  the  field 
of  battle,  are  conceived  of  as  part  of  the  necessary  course  of  things  and 
do  not,  in  fairly  reasonable  men,  generate  personal  hostility.  Bitter- 
ness arises  when  there  is,  or  is  believed  to  be,  something  unfair,  some- 
thing exceptional,  some  infraction  of  the  rules  resulting  in  unjust 
discrimination.    In  fact,  so  far  as  my  observation  goes,  it  is  among 

(those  removed  from  open  and  equal  competition  that  hatred  and 
jealousy  are  most  rife. 
It  may  be  maintained  that  competition,  when  not  unjust  or 
destructive,  promotes  a  broader  social  feeling.  The  free  and  open 
play  of  energy  and  purpose  is  calculated  to  arouse  precisely  that  knowl- 
edge of  others,  and  of  the  limitations  which  their  life  imposes  upon  ours, 
out  of  which  a  wholesome  sympathy  and  a  sense  of  justice  must 
spring.  Competition  involves  contact  and  usually  necessitates  some 
degree  of  mutual  comprehension.  To  succeed  one  must  understand 
opposing  forces,  and  understanding  is  the  beginning  of  sympathy. 

As  regards  the  feeling  under  the  influences  of  which  competition  is 
carried  on,  any  motive  whatever  may  be  a  motive  to  competition, 
from  the  basest  fear  or  rage  up  to  the  noblest  love,  emulation,  or  sense 
of  duty.  There  is  no  special  class  of  feelings  or  desires  that  is  pecul- 
iarly competitive.  All  alike  strive  for  success  as  they  conceive  it. 
To  be  a  man  is  to  compete.     Vivere  militare  est. 

358.    COMPETITION  AND  LAISSEZ  FAIRE  NOT  SYNONYMOUS1 

In  spite  of  the  glaring  weaknesses  of  the  competitive  system,  and 
its  undoubted  waste  of  effort,  it  is  the  belief  of  the  liberal  school  that 
it  is  the  most  effective  system  yet  devised — that  it  secures  the  greatest 
efficiency  in  the  whole  industrial  machine.  This  belief  rests  upon  a 
few  well-known  principles  which  only  need  to  be  restated.  In  the 
first  place,  every  individual  of  mature  age  and  sound  mind  knows 
his  own  interest  better  than  any  set  of  public  officials  are  likely  to 
know  it.  In  the  second  place,  such  an  individual  will,  if  left  to  himself, 
pursue  his  own  interest  more  systematically  and  successfully  than  he 

1  Taken  by  permission  from  T.  N.  Carver,  Essays  in  Social  Justice,  pp.  1 55-57 . 
(Harvard  University  Press,  1915.) 


940  INDUSTRIAL  SOCIETY 

could  if  he  were  given  his  work  and  directed  in  it  by  any  body  of  public 
officials.  In  the  third  place,  if  the  public  through  its  legal  enactments 
and  its  executive  and  judicial  officers  effectively  closes  every  oppor- 
tunity by  which  such  an  individual  could  further  his  own  interest  in 
harmful  or  non-serviceable  ways,  he  will  then  pursue  his  own  interests 
in  ways  that  are  serviceable  to  the  community.  Finally,  where  every 
individual  is  left  absolutely  free  to  pursue  his  own  interests  in  all 
ways  that  are  serviceable,  and  where  the  degree  of  his  well-being 
depends  upon  the  amount  of  service  which  he  performs,  all  will  be 
spurred  on  by  their  own  self-interest  to  render  as  much  service  as 
possible,  and  the  whole  community  will  then  be  served  in  the  most 
effective  manner  possible,  because  all  its  members  will  be  striving 
to  serve  one  another  in  order  to  serve  themselves. 

In  applying  this  argument  there  are  two  things  which  need  to 
be  observed  but  which  are  frequently  overlooked.  In  the  first 
place,  it  is  no  argument  in  favor  of  laissez  faire  or  the  let-alone  policy 
of  government.  On  the  contrary,  it  requires  governmental  interfer- 
ence with  every  non-serviceable  line  of  activity  which  it  is  possible 
for  the  law  to  reach.  In  the  second  place,  it  is  not  a  glorification  of 
self-interest.  It  does  not  even  involve  in  the  slightest  degree  an 
approval  of  self-interest  as  a  motive  to  action. 

In  order  to  make  this  an  argument  for  laissez  faire,  two  additional 
assumptions  are  necessary:  I,  every  individual  is  of  mature  age  and 
sound  mind;  II,  all  human  interests  are  harmonious.  No  advocate 
of  laissez  faire  has  ever  made  the  first  assumption.  Therefore  allow- 
ance has  always  been  made  for  the  need  of  public  direction  in  the  care 
of  children  and  persons  of  unsound  mind — in  all  cases,  in  fact,  where  it 
is  evident  that  the  individual  does  not  know  so  well  what  is  good  for 
him  as  public  officials  do.  But  as  the  basis  of  the  doctrine  of  laissez 
faire  there  has  always  been  the  assumption  of  a  natural  harmony  of 
human  interests.  With  this  assumption,  the  argument  reaches  the 
finality  of  a  syllogism. 

Major  premise.— Each  individual  of  mature  years  and  sound  mind 
will  pursue  his  own  interests  more  energetically  and  intelligently  when 
left  to  himself  than  when  directed  by  any  body  of.  public  officials. 

Minor  premise. — The  interests  of  each  individual  harmonize 
with  those  of  the  rest  of  society. 

Conclusion. — Each  individual  of  mature  years  and  sound  mind 
will,  if  left  to  himself,  work  in  harmony  with  the  interests  of  the  rest 
of  society  and  work  more  energetically  and  intelligently  than  he 
would  if  directed  by  any  body  of  public  officials. 


COMPETITION  g4l 

359.    THE  ENORMOUS  DEMANDS  UPON  COMPETITION1 

The  intensity  of  competition  varies:  (1)  with  the  degree  of  personal 
iberty;  (2)  with  the  rate  of  social  change;  (3)  inversely  as  the  effi- 
iency  of  the  selective  agents. 

The  freer  the  individual,  the  wider  his  field  of  choice  in  determin- 
ing the  social  function,  and  the  wider  the  field  of  choice,  the  more 
active  must  the  selective  process  be  in  assigning  him  his  place  in  it. 
Of  a  child  born  in  British  India,  it  can  be  predicted  with  some  proba- 
bility what  and  where  he  will  be  thirty  years  hence;  but  a  child  born  in 
America  may  be  anywhere  or  anything,  almost,  at  the  end  of  that 
time:  no  one  would  venture  a  guess.    In  the  one  case  competition  has 

Pittle  to  do;  in  the  other,  everything.  So  with  social  change;  unless 
t  is  mere  decay,  it  involves  new  things  to  be  done,  new  opportunities. 
For  example,  the  electric  industries,  now  employing  hundreds  of 
thousands  of  men,  have  arisen  within  a  comparatively  short  time, 
and  every  man  in  them  has  found  his  place  by  competition.  In  an 
analogous  manner  the  opening  of  new  regions,  like  Oklahoma  or  the 
Klondike,  the  creation  of  an  army  such  as  took  place  at  the  outbreak  of 
the  Spanish  War,  the  revelation  of  new  fields  of  research,  such  as  was 
made  by  the  publication  of  the  Origin  of  Species,  are  inevitably  the 
occasion  of  a  selective  activity  to  determine  who  shall  be  the  settlers, 
the  miners,  the  military  officers,  the  investigators,  that  the  situation 
demands. 

As  to  selective  agencies,  an  all-wise  despot  would  undoubtedly 
be  the  most  efficient;  and  it  is  conceivable  that  he  might  give  to  men 
a  great  deal  of  personal  liberty  and  provide  for  any  amount  of  social 
change  without  much  increase  in  the  intensity  of  competition.  This 
being  out  of  the  question,  a  society  striving  to  be  free  and  progressive 
must  do  the  best  it  can  to  achieve  rational  selections  through  its 
organization.  By  just  laws,  by  a  public  sentiment  appreciative 
of  every  sort  of  merit,  and,  most  of  all,  by  a  system  of  education 
calculated  to  discover  and  develop  the  special  capabilities  of  each 
individual,  it  can  do  much  to  make  its  choices  prompt,  intelligent, 
and  just,  and  to  avoid  wasteful  conflict.  It  is  from  this  point  of  view 
that  the  existing  state  of  things  has  been  most  effectively  criticised; 
and  writers  who  demand  that  competition  be  suppressed,  usually 
mean  that  we  ought  to  replace  irrational  and  destructive  contention 
by  intelligent  selection. 

1  Adapted  by  permission  from  C.  H.  Cooley,  "Personal  Competition,"  Eco- 
nomic Studies,  IV,  85-91.     (American  Economic  Association,  1899.) 


942  INDUSTRIAL  SOCIETY 

The  three  propositions  that  I  have  suggested  indicate  the  social 
conditions  of  more  or  less  intensified  competition.  To  these  should  be 
added  a  condition  that  is  rather  biological  or  psychological,  namely, 
the  race  traits  of  the  people.  An  aggressive,  ambitious,  virile  people, 
such  as  the  Anglo-Saxon,  German,  or  Irish,  is  naturally  competitive. 
Each  man  wants  a  great  deal,  and  has  little  dread  of  migration, 
hardship,  uncertainty,  or  personal  contention,  to  deter  him  from 
seeking  it.  An  Englishman  or  a  German  will  seize  upon  all  the  oppor- 
tunities in  sight  and  demand  more,  where  an  Italian  or  a  Spaniard 
would  perhaps  make  no  use  of  those  that  are  at  hand. 

The  principles  above  stated  are  sufficient  to  explain  the  fact, 
which  seems  to  me  unquestionable,  that  the  present  time  is  one  when, 
among  all  progressive  peoples,  competition  is  far  more  intense  than  it 
has  ever  been  in  the  past.  They  also  explain  why  it  is  much  more 
intense  in  some  parts  of  those  countries  than  in  other  parts. 

The  first  principle  gives  one  reason  for  intense  competitive  activity 
in  the  United  States;  a  consideration  of  the  second  will  show  how 
greatly  this  activity  is  stimulated  by  social  change.  The  changes  that 
this  country  is  undergoing  may  be  divided  into  two  classes:  those  that 
are  world-wide,  which  it  shares  with  other  countries  that  are  in  the 
current,  and  local  changes  incident  to  the  development  of  a  new  coun- 
try. The  former  have  intensified  competition  everywhere,  the  latter 
give  it  a  peculiar  vigor  and  a  special  character  among  us. 

The  thought  of  the  industrial  revolution  and  of  the  radical  social 
changes  of  every  sort  that  have  grown  out  of  it  is  so  familiar  that  I 
do  not  care  to  dwell  upon  it.  Not  industry  only,  but  family  life,  social 
relations,  science,  education,  philosophy,  and  religion  are  in  process 
of  transformation  as  a  result  of  this  movement.  In  all  these  fields, 
though  most  consciously  in  industry — because  that  gives  occupation  to 
the  vast  majority  of  the  people — we  have  intenser  activity,  more 
striving,  more  success,  and  more  failure,  a  constant  breaking-up  of 
settled  relations.  Great  cities,  which  are  incidental  products  of  the 
new  regime,  are  in  all  countries  the  foci  of  competition,  and  show  most 
conspicuously  its  good  and  evil  results.  Populated  by  immigrants, 
tradition  and  status  have  little  hold  upon  them,  either  for  good  or 
evil;  their  industries,  their  institutions,  their  social  and  moral  condi- 
tions, are  new  and  unregulated. 

To  all  this  a  new  country  adds  the  special  series  of  changes  incident 
to  the  passage  of  each  part  of  it  through  those  steps  of  development, 
from  the  rude  agriculture  of  pioneers  to  the  full  maturity  of  manu- 


COMPETITION 


943 


factures  and  commerce,  which  would  suffice  to  produce  a  restless  and 
competitive  condition  of  things,  even  if  the  course  of  life  in  older 
countries  were  quite  uniform  and  regular.  This  series  is  so  mingled 
with  the  other  that  it  cannot  well  be  studied  separately,  but  its 
influence  appears  clearly  in  the  general  result.  It  is  chiefly,  I  think, 
because  they  have  this  additional  strain  upon  them  that  Americans 
are  thinner,  quicker,  more  nervous  and  restless  than  their  English 
kinsmen;  it  is  for  this  reason,  I  should  say,  rather  than  on  account  of 
the  difference  in  climate,  that  people  walk  faster  upon  the  streets  of 
Chicago  than  upon  the  streets  of  London;  and  this  helps  to  explain 
also  why,  in  spite  of  an  unequalled  expenditure  of  ability  and  energy, 
so  much  remains  undone  in  the  United  States  that  other  nations  have 
achieved. 

And,  moreover,  the  disintegration  that  accompanies  all  these 
changes  affects  the  selective  process  itself,  and  tends  in  some  measure 
to  exaggerate  the  intensity  of  competition  and  lower  its  character 
by  making  it  wasteful,  unjust,  brutal,  anarchical.  The  just  laws, 
the  effective  moral  sentiment  adapted  to  the  various  conditions  of 
human  activity,  the  adequate  educational  institutions  which  ought 
to  preside  over  and  assist  competition,  being  things  of  slow  growth, 
are  largely  wanting  just  when  they  are  most  needed;  and  we  have  as 
a  result  the  disorganization  which  is  so  often  portrayed,  not  without 
some  extravagance,  by  the  advocates  of  radical  reconstruction. 

Whether  this  great  intensity  of  competition  is  on  the  whole  a 
good  or  a  bad  thing  cannot  be  determined  satisf  actorify  until  the  period 
is  past  and  we  can  see  what  comes  of  it;  perhaps  not  then.  In 
general,  it  may  be  said  here  that  the  present  regime  certainly  does 
great  things  for  those  individuals  whom  nature  and  training  have 
fitted  to  thrive  in  it,  developing  energy,  self-reliance,  strength  of 
character,  and  power  and  efficiency  of  many  sorts;  but  bears  with 
blind  severity  upon  the  weak,  the  misplaced,  and  the  unprepared, 
among  whom  are  many  who  in  circumstances  more  fortunate  would 
take  an  honorable  and  important  part  in  the  general  life. 

360.    REGIONS  WHERE   COMPETITION  SHOULD   NOT  BE 
EXPECTED  TO  ORGANIZE1 
There  are  many  natural  monopolies  from  which  there  is  no  escape, 
or  only  a  partial  one.    All  personal  power  that  is  incapable  of  acquisi- 
tion is,  in  the  services  it  renders,  a  monopoly.    The  qualities  of  different 
1  Adapted  by  permission  from  John  Bascom,  Social  Theory,  pp.   154-56. 
(Thomas  Y.  Crowell  &  Co.,  1895O 


944  INDUSTRIAL  SOCIETY 

soils  fitting  them  to  a  peculiar  form  of  production,  as  of  wine  or 
cotton  or  fruit,  place  their  owners  beyond  the  range  of  competition. 
Various  favorable  positions  in  a  commercial  city  have  a  similar  affect. 

There  are  also  many  important  monopolies  in  modern  society 
which  rest  partly  on  law,  partly  on  the  nature  of  the  case,  and  partly 
on  the  interests  of  the  community.  A  good  example  of  these  is  the 
gas  supply  of  a  city,  or  of  any  subdivision  of  it.  A  corporate  company 
receives  the  privilege  of  supplying  a  certain  area  with  gas.  The 
securing  of  a  site,  the  building  of  works,  and  the  laying  of  pipes  give 
the  first  occupants  an  advantage  not  easily  overcome.  Of  much  more 
importance  is  the  fact  that  the  community  can  be  best  and  most 
cheaply  served  by  a  single  plant.  The  larger  the  gas-works,  the 
more  economically  they  can  be  run.  It  is  a  great  annoyance,  and  a 
useless  expenditure,  to  pipe  twice  over  the  same  district.  Competi- 
tion, therefore,  instead  of  reducing  the  price  of  gas  must  necessarily 
increase  its  cost,  or  result  in  serious  loss.  If  a  single  company  can  be 
compelled  to  satisfy  itself  with  moderate  profits  it  can  render  a  given 
district  a  cheaper  and  better  service  than  can  possibly  be  secured  by 
two  companies. 

To  this  class  of  quasi-monopolies  belong  public  electric  lights, 
water-works,  street  railways,  oftentimes  omnibus  lines,  telegraphs, 
telephones,  railroads.  Strictly  parallel,  or  approximately  parallel, 
railways  are  quite  sure  to  fail  of  their  apparent  purpose.  They  put 
upon  the  community  a  more  expensive  and  cumbersome  service,  and 
must  themselves*  endure  the  loss,  or  inflict  it  on  others  in  high  rates. 

Railroads,  from  the  nature  of  the  case,  are  in  a  high  degree 
monopolies.  We  can  no  more  advantageously  duplicate  them  than 
we  could  profitably  pour  two  rivers  through  one  valley.  They  are 
best  treated  as  monopolies.  They  are  often  also  monopolies  by  ter- 
minal advantages,  such  as  well-located  stations  and  depots,  access  to 
elevators  and  water  fronts,  a  favorable  passage  through  cities.  Most 
of  these  gains  cannot  be  duplicated.  The  best  way  tends  to  exclude, 
and  ought  to  exclude,  all  inferior  ways.  Natural  advantages  are  not 
concessive  to  competition  and  often  entirely  circumvent  it. 


See  also  398.  The  Classical  Statement  of  the  Functions  of  Gov- 
ernment. 
399.  Reasons  for  Increasing  Intervention. 
404.  Modern  Statement  of  the  Functions  of  Government. 


COMPETITION  945 

361.     COMPETITION  AND  MORAL  QUALITY' 

In  closing  this  discussion  of  the  effect  of  competition  upon  human 
character  and  happiness  it  is  only  right  to  state  explicitly  the  fact— 
which  has  been  implied  all  along,  and  is  perhaps  too  obvious  to  call 
for  much  exposition— that,  whatever  its  evils,  it  promotes  individual- 
ity, self-reliance,  and  earnestness. 

In  so  far  as  a  man  can  and  does  live  upon  traditional  ideas  and 
feelings,  without  the  necessity  of  exercising  choice  or  of  testing  his 
principles  by  use,  he  fails  to  achieve  individual  character  and  self- 
reliant  manhood.  It  is  by  permitting  this,  and  so  relaxing  the  tissue 
of  personal  character,  that  the  most  elaborate  social  systems  of  the  past 
have  decayed.  The  man  who  has  made  his  way  in  a  competitive 
order  has  learned  to  resist  suggestions,  to  select  and  develop  one  class 
of  influences  and  reject  others,  thus  achieving  self-knowledge  and 
effective  will.  At  the  same  time,  as  we  have  seen,  he  is  forced  to 
study  other  men  and  to  develop  a  robust  type  of  sympathy.  The 
plainest  workman,  thrown  upon  his  own  resources,  becomes  something 
of  a  diplomatist,  a  student  of  character,  an  experimental  observer 
of  social  forces.  It  is  the  tendency  of  a  competitive  society  of  the 
better  sort  to  make  every  man  a  man  of  the  world.  He  undergoes 
at  once  individualization  and  socialization,  these  two  proceeding 
hand  in  hand,  in  a  wholesale  social  life,  each  enriching  the 
other. 

Again,  it  is  not  the  least  of  the  merits  of  competition  that  it  makes 
life  earnest  by  giving  to  men  a  definite,  difficult,  and  urgent  problem 
to  solve.  The  present  age  is  alleged  to  be  material,  and  so  vulgar, 
with  too  much  to  eat  and  drink  and  wear  and  no  faith  or  aspiration. 
But  is  it  not  surprising,  on  the  whole,  that  this  facility  of  production, 
this  economic  abundance,  has  produced  so  little  frivolity,  sensuality, 
and  gross  self-indulgence?  The  people  of  the  richest  and  freest 
nation  in  the  world  are  said  to  be  too  earnest,  too  striving;  they  are 
exhorted  to  relax  a  little,  to  permit  themselves  reasonable  recreation. 
How  can  we  account  for  this  idealism,  for  it  is  certainly  a  kind  of  ideal- 
ism, in  view  of  the  apparent  fact  that  the  spiritual  forces  have  seldom 
been  so  ill  organized  as  now,  and  the  material  forces  never  so  well  ? 
How  is  it  that  the  Saxon  of  today,  with  infinitely  greater  command 
over  food  and  drink,  is  less  of  a  sensualist  than  his  ancestor  was  ?    Is  it 

1  Taken  by  permission  from  C.  H.  Cooley,  "Personal  Competition,"  Economic 
Studies,  IV,  164-66.     (American  Economic  Association,  1899.) 


946  INDUSTRIAL  SOCIETY 

not  partly  that  while  the  material  inheritance  is  great,  a  share  of  it 
can  only  be  obtained,  as  a  rule,  by  a  success  more  dependent  upon 
moral  and  intellectual  power  than  success  ever  was  in  the  past,  by  the 
habitual  exercise  of  self-control,  foresight,  patience,  by  the  acquire- 
ment of  character  ?  The  present  regime  usually  gives  a  man  material 
goods  only  upon  condition  that  he  become  something  of  an  idealist, 
allows  him  plenty  only  when  he  is  proved  capable  of  abstinence; 
and  he  often  learns  his  lesson  so  well  that  he  comes  to  care  even  less 
than  is  right  for  the  pleasures  of  sense,  and  to  turn  from  them  when 
they  are  within  his  reach. 


CHAPTER  XIV 
PRIVATE  PROPERTY 
A.     Problems  at  Issue 

It  has  repeatedly  appeared  that  the  individual  in  our  economic 
society  is  vitally  interested  in  the  institution  called  private  property. 
In  it  he  sees  one  of  his  largest  motives  to  economic  activity.  Through 
it  in  large  part  he  exercises  his  control  of  industrial  activity.  It  has 
icome  customary  to  regard  private  property  as  one  of  the  chief 
organizing  agencies  of  our  society. 

General  information  concerning  the  meaning  and  content  of  pri- 
vate property  has  served  reasonably  well  to  this  point  in  our  discus- 
sion. The  purpose  of  this  chapter  is  to  secure  a  more  accurate 
and  detailed  view  of  this  great  economic  institution.  Just  what  is 
private  property?  What  does  it  include?  Has  it  always  had  the 
same  content  ?  What  theories  can  be  used  to  justify  its  continuance  ? 
What  arguments  can  be  urged  against  its  continuance  ?  How  strong 
is  its  position  ?  What  has  the  future  in  store  for  it  ?  What  is  the 
relation  of  private  property  to  human  welfare  ? 

QUESTIONS 

i.  If  a  man  steals  a  watch  does  it  become  his  property?  Distinguish 
between  property,  ownership,  and  possession. 

2.  "The  essence  of  ownership,  then,  is  that  it  is  a  right  or  an  aggregate 
of  rights.  Possession  on  the  other  hand  is  primarily  a  matter  of  fact." 
Explain. 

3.  "Property  rights  may  be  classified  under  five  heads:  the  right  of  gift; 
the  right  of  disposition  by  contract;  the  right  of  use;  the  right  of 
bequest;  the  right  of  unlimited  acquisition."  Explain  the  meaning  of 
each.  Take  up  each  in  turn  asking  yourself  what  would  be  the  effect 
upon  the  institution,  private  property,  if  the  particular  right  you  are 
considering  should  be  wiped  out. 

4.  "Property  includes  the  right  of  inheritance."  Does  i*  necessarily 
include  this  right  ?  Is  this  the  same  right  as  the  right  of  bequest  ? 
If  they  are  different  rights,  which  is  it  more  important  to  retain  if  we 
are  seeking  motives  to  industrial  efficiency  ? 

947 


94s 


INDUSTRIAL  SOCIETY 


5.  Should  property  rights  last  beyond  one  lifetime  ?  Would  such  a  limi- 
tation of  property  rights  result  in  socialism  ? 

6.  Would  the  imposition  of  an  inheritance  tax  be  a  violation  of  private 
property  rights?  Substitute  the  word  "income"  for  "inheritance" 
and  answer  the  question. 

7.  "The  right  of  property  is  an  exclusive  right  but  it  has  never  been  an 
absolute  right."    Explain. 

8.  In  what  sense,  if  any,  is  there  any  right  of  individual  property  against 
the  state  ?  On  what  basis  or  bases  could  a  person  contend  that  the 
state  should  not  "interfere"  with  private  property?  Is  the  exercise 
of  the  right  of  eminent  domain  a  violation  of  private  property  rights  ? 

9.  "Restrictions  on  the  privilege  of  private  property  and  ownership  are 
introduced  even  in  the  most  common  daily  affairs."    Illustrate. 

10.  Compare  the  mediaeval  and  modern  conceptions  of  private  property. 

11.  How  do  you  account  for  the  fact  that  the  term  "property"  has  had  a 
varying  content  at  different  times  and  among  different  peoples  ?  Can 
the  content  of  the  concept  "private  property"  be  stated? 

12.  Show  how  equities  in  property  may  be  modified  by  the  state,  by  changes 
in  social  conventions,  by  changes  in  technique. 

13.  Differentiate  between  (a)  the  occupation  theory,  (6)  the  natural-rights 
theory,  (c)  the  labor  theory,  (d)  the  legal  theory,  (e)  the  social  utility 
theory,  (J)  the  exploitation  theory  of  property. 

14.  "Private  property  has  existed  so  long  that  it  must  be  right."  Do  you 
agree  ?    Who  would  agree  with  this  statement  ? 

15.  Show,  by  illustrations,  how  "the  institution  of  private  property  pre- 
vents acts  economically  destructive;  makes  it  to  the  interests  of  various 
persons  to  perform  productive  operations;  obliges  persons  to  co- 
operate; establishes  an  institutional  system  that  encourages  co- 
operation; and  enables  world-wide  co-operation  to  take  place." 

16.  "Private  property  fosters  and  develops  in  mankind  a  care  for  the  dis- 
tant future  and  a  sense  of  responsibility."    How  ? 

17.  "Property  yields  security  and  continuity  in  ownership."  Of  what 
advantage  is  this  to  industry  ?  to  society  ? 

18.  "A  regulation  of  the  plane  of  competition  necessarily  involves  a  restric- 
tion of  freedom  of  contract."     Why  or  why  not  ? 

19.  "The  institution  of  property  inevitably  means  giving  the  few  power 
over  the  life  of  the  many."    Is  this  true  ? 

20.  What  are  the  disadvantages  of  those  who  lack  property  ?  Are  these 
disadvantages  more  serious  now  than  they  were  300  years  ago  ? 

ax.  Draw  up  a  list  of  the  advantages  of  private  property.  Draw  up  a  list 
of  the  disadvantages  of  private  property.  What  is,  in  your  mind,  the 
ultimate  justification  of  private  property  ? 

22.  Are  the  criticisms  found  in  selections  398,  399,  400,  401  criticisms  of 
private  property  or  of  something  else  ? 


PRIVATE  PROPERTY  949 

"It  is  probably  not  going  too  far  to  assert  that  two-thirds  of  the  durable 
property  basis  of  income  in  this  country  is  nothing  else  than  the  capital- 
ization of  predation."     Explain.    What  of  it  ? 

>4.  Is  a  lack  of  property  a  sign  of  poverty  ?  of  a  wrong  way  of  distribution  ? 

»5.  "Given  universal  education  and  a  due  limitation  of  the  numbers  of  the 
community,  there  could  be  no  poverty  even  under  present  social  insti- 
tutions."    Why  or  why  not  ? 

"It  is  no  argument  against  private  property  to  say  that  production  is 
social  in  character.  The  fact  of  social  production  does  not  prove  that 
the  part  played  by  different  individuals  is  of  the  same  value  in  produc- 
tion."    Do  you  agree? 

Private  property,  freedom  of  contract,  and  competition  have  been 
called  the  fundamental  organizing  institutions  in  modern  society. 
Explain  wherein  each  serves  as  an  organizing  institution. 

iS.  "The  seat  of  authority  is  private  property."    Explain.    Do  you  agree? 

29.  "The  right  of  property  for  use  should  be  maintained,  but  the  right  of 
property  for  power  should  be  abolished."  Comment.  What  are  the 
chances  for  a  laborer  to  acquire  property  for  power  ? 
"Because  of  its  false  assumption  of  equality  of  rights  between  employer 
and  employee,  the  principle  of  freedom  of  contract  amounts  to  class 
favoritism."    Do  you  agree? 

"The  right  of  liberty  and  life  are  practically  denied  to  laborers  in  our 
day  by  virtue  of  the  denial  of  the  right  of  employment."  Do  you 
agree  ?  What  is  meant  by  the  right  of  employment  ?  Is  it  a  property 
right  ? 

32.  "Private  property  has  not  had  a  fair  trial."    Wherein? 

33.  Would  it  not  be  possible  to  get  all  the  advantages  of  private  property 
under  a  communistic  or  socialistic  system  ?  What  reasons  have  you 
for  your  conclusion  ? 

34.  Would  there  be  property  rights  under  socialism  ?  under  communism  ? 

35.  On  what  grounds  can  anyone  say  these  things:  (a)  "The  inequalities  of 
property  serve  as  a  stimulus."  (b)  "Ownership  develops  personality." 
(c)  "Private  property  is  a  social  trust.  This  is  true  not  only  in  a  vague 
and  general  way  but  in  an  economic  and  legal  sense."  (d)  "Property 
is  based  upon  theft."  (e)  "There  should  be  no  inheritance  without  an 
economic  motive."  (/)  "Property  is  not  a  single  absolute  right,  but  a 
bundle  of  rights." 

36.  How  has  it  come  about  that  property  is  in  such  a  strong  position  in  the 
United  States  ? 

37.  Five  movements  are  going  on  which  will  improve  the  institution  of  pri- 
vate property:  (1)  an  increase  in  the  mass  of  free  goods;  (2)  a  restric- 
tion of  the  extent  of  private  property  and  a  corresponding  extension  of 
public  property;  (3)  a  development  of  the  social  side  of  private  prop- 
erty; (4)  an  extension  of  private  property  along  certain  lines;  (5)  changes 


950  INDUSTRIAL  SOCIETY 

in  the  modes  of  acquisition  of  private  property.     Give  illustrations  of 
each  of  these  ways. 

38.  What  is  the  distinction  between  "wealth"  in  the  economic  sense  and 
"property"  ?    Could  "private  wealth "  be  a  synonym  for  "property "  ? 

39.  When  a  United  States  gold  certificate  is  destroyed,  is  wealth  destroyed  ? 
Is  property  destroyed  ? 

40.  Is  a  railroad  bond  wealth  ?  Is  a  patented  invention  ?  a  fire  insurance 
policy  ?    Are  these  things  property  ? 

41.  How  do  you  account  for  the  fact  that  we  do  not  have  private  property 
in  air? 

42.  Suppose  a  new  source  of  mechanical  power  should  become  available 
at  one-fourth  the  cost  of  steam-power.  What  would  be  the  effect  on 
wealth  in  general?  Would  any  individuals  be  made  less  "wealthy" 
by  the  new  discovery  ? 

43.  How  is  wealth  measured— in  terms  of  dollars  and  cents  or  in  terms  of 
physical  units  ? 

44.  "To  be  wealth  a  thing  must  be  scarce."  Is  that  equivalent  to  saying 
that  the  less  we  have  of  things  the  better  off  we  are  ? 

45.  If  wealth  increases  will  there  be  greater  well-being  ?  What  is  the  rela- 
tion of  wealth  to  well-being  ? 

46.  "Demand  is  an  expression  of  the  power  of  ownership."  Explain.  .What 
of  it  ?  Do  you  see  any  relation  between  these  facts  and  the  direction 
which  the  change  in  our  institution  of  private  property  seems  to  be 
taking  ? 

B.    Property  and  Its  Justification 

362.    PROPERTY,  OWNERSHIP,  POSSESSION1 

1.  Conception  of  property. — There  is,  perhaps,  nothing  more 
difficult  than  to  give  a  precise  and  consistent  meaning  to  the  word 
"property."  When  we  speak  of  a  man  of  property,  we  think,  per- 
haps, in  the  first  instance,  of  tangible,  material  things  which 
belong  to  him— land  and  houses,  horses  and  cattle,  furniture  and 
jewelry  and  pictures — things  which  he  may  use  or  destroy  (so  far  as 
that  is  physically  possible);  from  which  he  may  exclude  others;  which 
he  may  sell  or  give  away  or  bequeath;  which  if  he  has  made  no  dis- 
position of  them  will  pass  on  his  death  to  persons  related  to  him. 
Here,  at  the  outset,  we  may  find  it  difficult  to  say  whether  by  "prop- 
erty" we  mean  the  things  themselves  or  the  aggregate  of  rights  which 
are  exercised  over  them. 

1  Adapted  by  permission  from  W.  M.  Geldart,  Elements  of  English  Law, 
pp.  113-20.     (Henry  Holt  &  Co.    Williams  &  Norgate.) 


PRIVATE  PROPERTY  95I 

But,  further,  we  shall  find  that  our  conception  of  property  relates 
to  many  things  which  are  not  tangible  or  material.  Our  man  of 
property  may  be  an  author  or  a  patentee,  and  we  shall  hardly  be  able 
to  say  that  his  copyright  or  patent-right  is  not  part  of  his  property, 
or  even  to  avoid  speaking  of  his  ownership  of  the  copyright  or  patent. 
He  will  have  debtors;  his  bank  is  a  debtor  to  him  for  the  amount 
standing  to  his  credit;  his  investments  of  money  are  claims  to  receive 
payment  from  the  State  or  from  corporations  or  individuals.  Such 
debts  and  claims  are  not  rights  over  any  specific  tangible  objects; 
they  are  mere  rights  against  the  State,  or  the  corporation,  or  the 
person  liable  to  pay.  Yet  these  rights  are  transferable,  and  will 
pass  on  his  death  to  his  representatives.  We  cannot  exclude  them 
from  our  notion  of  property  or  deny  that  in  a  sense,  at  any  rate,  he 
is  the  owner  of  them.  On  the  other  hand,  his  "property"  clearly 
does  not  include  all  his  rights.  To  say  nothing  of  his  general  right 
of  liberty  or  reputation,  his  rights  as  a  husband  or  a  parent  are 
not  proprietary  rights,  nor  is  his  right  to  recover  damages  for  personal 
injury  or  defamation;  but  we  may  include  among  proprietary  rights  the 
right  to  recover  damages  though  unliquidated  (i.e.,  of  uncertain 
amount  until  settled  by  a  judge  or  jury),  for  breach  of  contract,  or, 
probably,  even  for  injury  to  his  property.  Generally  speaking,  we 
shall  include  under  the  notion  of  a  man's  property  in  its  widest 
sense  all  rights  which  are  capable  of  being  transferred  to  others  or 
being  made  available  for  payment  of  his  debts,  or  of  passing  to  his 
representatives  on  his  death. 

2.  Ownership  and  possession. — Turning  to  rights  over  tangible 
things,  we  must  notice  the  distinction  between  ownership  and  pos- 
session. The  owner  of  a  thing  is  the  person  who  has,  in  the  fullest 
degree,  those  rights  of  use  and  enjoyment,  of  destruction,  and  of  dis- 
position, which  have  been  mentioned  above— subject,  of  course,  to  the 
general  rules  of  law  which  protect  the  rights  of  others,  and  subject 
to  certain  limited  rights  which  he  or  his  predecessors  may  have  created 
in  favor  of  others.  The  owner  of  a  pistol  is  none  the  less  owner  because 
the  law  prohibits  him  from  discharging  it  in  a  public  highway;  the 
owner  of  a  field  does  not  cease  to  be  owner  because  the  public  or  a 
neighbor  has  the  right  to  use  a  footpath  across  it. 

The  essence  of  ownership,  then,  is  that  it  is  a  right  or  an  aggregate 
of  rights.  Possession,  on  the  other  hand,  is  primarily  a  matter  of 
fact.  If  the  owner  of  a  watch  is  robbed  of  it  by  a  thief,  the  owner's 
rights  as  rights  remain  intact;  the  thief  acquires  no  right  to  the  watch 


9S2  INDUSTRIAL  SOCIETY 

as  against  the  owner.  But  the  owner's  possession,  and  with  it  his 
actual  power  to  exercise  his  rights,  is  for  the  time  being  gone;  he 
must  recover  the  watch— as  he  may  even  lawfully  do  by  his  own  act — 
before  he  can  be  said  to  be  again  in  possession  of  it.  So,  too,  the 
owner  of  land  may  be  out  of  possession,  and  another  without  right 
may  be  in  possession.  In  this  case  the  forcible  retaking  of  possession 
is  prohibited  under  penalties  by  statute;  but  the  retaking,  though 
punishable,  is  none  the  less  effective  to  restore  the  possession. 

The  cases  of  the  thief  and  squatter  have  been  taken  as  the  clearest 
instances  of  possession  acquired  without  any  right  whatever.  But 
possession  may  lawfully  be  acquired  and  yet  be  unaccompanied  by 
ownership.  An  owner  who  delivers  a  horse  or  a  bicycle  by  way  of  loan 
or  hire  to  another  parts  with  the  possession  of  him,  but  does  not  cease 
to  be  owner.  The  same  is  true  of  one  who  delivers  articles  to  another 
in  order  that  the  latter  may  bestow  his  labour  upon  them.  Such 
voluntary  transfers  of  possession  are  called  bailments,  and  the  person 
who  so  acquires  possession  is  a  bailee  of  the  goods. 

If  we  try  to  analyse  the  conception  of  possession,  we  find  two 
elements.  In  the  first  place,  it  involves  some  actual  power  of  control 
over  the  thing  possessed.  In  the  second  place,  it  involves  some  inten- 
tion to  maintain  that  control  on  the  part  of  the  possessor.  The  nature 
and  extent  of  the  control  and  intention  necessary  to  constitute  pos- 
session will  vary  with  the  circumstances,  and  particularly  with  the 
character  of  the  thing  of  which  the  possession  is  in  question. 

So  far  we  have  thought  of  ownership  and  possession  as  sharply 
distinguished — the  one  a  matter  of  right,  the  other  of  fact.  Never- 
theless, possession  is  a  fact  which  has  an  enormous  legal  significance, 
a  fact  to  which  legal  rights  are  attached.  In  the  first  place,  actual 
possession  is  evidence  of  ownership,  and,  except  in  cases  where  owner- 
ship is  based  on  a  system  of  public  registration,  it  is  hard  to  see  how 
any  ownership  can  be  proved,  otherwise  than  by  going  back  to  some 
prior  possession. 

In  the  second  place,  possession  is  not  merely  evidence  of  owner- 
ship, but  (subject  to  the  rights  of  the  owner)  is  itself  and  for  its  own 
sake  entitled  to  legal  protection.  If  A  has  been  disturbed  in  his  pos- 
session by  a  trespass  committed  by  B,  or  even  if  B  has  deprived  A 
of  possession,  A's  claim  to  legal  protection  or  redress  against  B  cannot 
be  met  by  B's  plea  that  C  and  not  A  is  the  true  owner.  The  finder 
of  goods  is  entitled— except  only  against  one  who  can  show  himself  to 
be  the  owner— to  legal  protection  against  all  the  world. 


PRIVATE  PROPERTY  953 

Lastly,  we  may  notice  that  even  wrongful  possession,  if  continued 
for  a  certain  length  of  time,  matures  into  what,  for  practical  purposes, 
is  indistinguishable  from  ownership.  A  wrongful  possession  of  land 
for  twelve  years,  of  goods  for  six  years,  destroys  the  owner's  right 
torecover  his  property  by  action  and,  at  least  in  the  case  of  land,  his 
right  to  retake  possession. 

363.    THE  ATTRIBUTES  OF  PROPERTY1 

The  right  of  property,  says  Art.  544  of  the  Code  Napoleon,  is  the 
right  to  enjoy  and  dispose  of  things  in  the  most  absolute  fashion. 
dthough  this  definition  has  ceased  to  be  altogether  true— for  the  law 
of  property  is  nowadays  subject  to  ever-increasing  restrictions— it 
>rings  into  sharp  relief  what  ownership  really  is,  an  absolute  right: 
(1)  absolute,  in  that  it  embraces  the  sum  total  of  the  satisfactions 
which  may  be  obtained  from  a  thing,  including  even  the  stupid  satis- 
faction of  destroying  it;  (2)  absolute,  in  that  it  is  not  limited  by  time, 
or  at  any  rate  is  limited  only  by  the  length  of  life  of  the  object. 
Perpetuity  and  free  disposal  are,  then,  the  two  characteristics  of  the 

•right  of  property. 
1.  Perpetuity. — When  the  right  of  property  has  for  its  object 
goods  which  perish  in  consumption,  or  which  last  but  a  short  time, 
perpetuity  is  of  no  great  economic  interest,  since  it  is  not  actually 
realised.  But  when  the  object  appropriated  is  perpetual  in  its  nature 
or  at  least  very  long-lived,  the  right  of  property  appears  in  its  full 
force  and  with  all  its  consequences. 

But  if  the  object  of  the  right  of  property  is  sometimes  everlasting, 
the  subject  never  is.  He  dies.  This  is  a  critical  moment  for  the 
right  of  ownership.  What  is  to  become  of  it  ?  Since  the  right  does 
not  die,  it  must  pass  into  other  hands.    Into  whose  ?    Into  those  of 

Ithe  man  appointed  by  the  deceased  ?  This  would  be  quite  in  keeping 
with  the  law,  although  it  is  a  right  which  was  not  acknowledged  without 
hesitation.  But  if  the  deceased  has  not  appointed  anyone,  on  whom 
will  the  right  devolve  ?  On  the  nearest  relatives,  the  law  declares. 
2.  Free  disposal.  —The  other  essential  attribute  of  the  right  of 
property  is,  as  we  have  said,  the  right  of  free  disposal:  the  right,  as 
the  French  Code  defines  it,  to  enjoy  and  dispose  of  things  in  the  most 
absolute  fashion. 

1  Adapted  by  permission  from  Charies  Gide,  Political  Economy,  466-71. 
(D.  C.  Heath  &  Co.,  1913.) 


954  INDUSTRIAL  SOCIETY 

But  this  right  "to  dispose  of  a  thing  at  will,"  which  gives  owner- 
ship the  essentially  absolute  character  without  which  we  should  not 
recognise  it,  did  not  always  exist.  It  was  only  gradually  that  the  idea 
of  ownership  widened,  passing  through  the  same  progressive  stages 
as  the  object  of  ownership. 

The  following,  so  far  as  we  are  able  to  conjecture,  is  the 
order  in  which  the  right  of  private  ownership  acquired  its  essential 
attributes: 

(i)  Probably  the  first  right  of  property  was  that  of  exploiting  one's 
possessions,  i.e.,  turning  them  to  account  by  the  labour  of  others- 
slave  labour  in  former  times,  the  labour  of  the  free  wage-earner  today. 
This  was  the  most  "noble"  attribute,  since  it  absolved  the  owner  of 
property  from  personal  labour. 

(2)  The  right  of  gift  seems  to  have  been  one  of  the  earliest  modes 
of  disposing  of  wealth— at  least  in  the  case  of  "movable"  objects- 
prior  even  to  the  right  of  sale. 

(3)  The  rights  to  sell  and  to  let  do  not  seem  to  have  appeared 
till  much  later— at  least  in  the  case  of  immovable  property.  Aristotle, 
in  the  fourth  century  B.C.,  declared  that  these  were  necessary  attri- 
butes of  the  right  of  property,  but  does  not  speak  as  if  they  were 
at  that  time  generally  recognised.  There  were  reasons  enough, 
indeed,  why  they  should  not  be.  So  long  as  property  was  vested  in 
the  family  and  was  under  the  seal  of  religious  consecration — which 
was  the  characteristic  of  property  in  antiquity — alienation  was  not 
possible:  it  constituted  an  impious  act  on  the  part  of  any  member  of 
the  family.  Further,  as  division  of  labour  and  exchange  did  not  yet 
exist,  each  family  was  self-sufficient  and  as  movable  wealth  was  rare — 
each  man  kept  his  own,  sometimes  even  taking  it  to  his  tomb  with 
him — sale  could  only  be  an  exceptional  and  abnormal  act.  Thus, 
when  it  first  appears,  we  find  it  compassed  with  extraordinary  solem- 
nities :  it  is  a  sort  of  public  event.  The  mancipation  for  instance,  had  to 
take  place  in  the  presence  of  five  witnesses,  representing  the  five 
classes  of  the  Roman  people. 

(4)  The  right  to  bequeath,  i.e.,  to  give  by  will,  which  has  always 
been  considered  the  most  important  attribute  and  the  crowning  fea- 
ture of  the  right  of  property,  prolonging  as  it  does  this  right  beyond 
death,  was  still  slower  in  making  its  appearance.  The  right  to  dispose 
of  one's  possessions  at  death  ran  counter  to  the  principle  of  intestate 
succession,  and  is  still  in  conflict  with  it  in  most  of  our  modern  legis- 
lations, particularly  the  French  Civil  Code. 


PRIVATE  PROPERTY  955 

364.    THE  VARYING  CONTENT  OF  THE  TERM  PROPERTY* 

One  of  the  mistakes  oftenest  committed  is  that  of  supposing 

lat  the  same  name  always  stands  for  the  same  aggregation  of  ideas. 

\o  word  has  been  the  subject  of  more  of  this  kind  of  misunderstanding 

tan  the  word  property.    It  denotes,  in  every  state  of  society,  the 

irgest  powers  of  exclusive  use  or  exclusive  control  over  things  (and 

sometimes,  unfortunately,  over  persons)  which  the  law  accords,  or 

which  custom  in  that  state  of  society  recognizes;  but  these  powers  of 

;xclusive  use  and  control  are  very  various  and  differ  greatly  in  differ- 

Lt  countries  and  in  different  states  of  society. 

For  instance,  in  early  states  of  society,  the  right  of  property  did  not 

Lclude  the  right  of  bequest.    The  power  of  disposing  of  property  by 

all  was  in  most  countries  of  Europe  a  rather  late  institution;  and  long 

Pter  it  was  introduced  it  continued  to  be  limited  in  favor  of  what 

were  called  natural  heirs.    Where  bequest  is  not  permitted,  individual 

property  is  only  a  life  interest.    And  in  fact,  as  has  been  so  well  and 

fully  set  forth  by  Sir  Henry  Maine  in  his  most  instructive  work  on 

Ancient  Law,  the  primitive  idea  of  property  was  that  it  belonged  to  the 

family,  not  the  individual. 

Then,  again,  in  regard  to  proprietary  rights  over  immovables  (the 
principal  kind  of  property  in  a  rude  age),  these  rights  were  of  very  vary- 
ing extent  and  duration.  By  the  Jewish  law  property  in  immovables 
was  only  a  temporary  concession;  on  the  Sabbatical  year  it  returned  to 
the  common  stock  to  be  redistributed;  though  we  may  surmise  that  in 
the  historical  times  of  the  Jewish  state  this  rule  may  have  been  suc- 
cessfully evaded.  In  many  countries  of  Asia,  before  European  ideas 
intervened,  nothing  existed  to  which  the  expression  property  in  land, 
as  we  understand  the  phrase,  is  strictly  applicable.  The  ownership 
was  broken  up  among  several  distinct  parties,  whose  rights  were 
determined  rather  by  custom  than  by  law.  The  government  was  part 
owner,  having  the  right  to  a  heavy  rent.  Ancient  ideas  and  even 
ancient  laws  limited  the  government's  share  to  some  particular 
fraction  of  the  gross  produce,  but  practically  there  was  no  fixed  limit. 
The  government  might  make  over  its  share  to  an  individual,  who  then 
became  possessed  of  the  right  of  collection  and  all  the  other  rights  of 
the  state,  but  not  those  of  any  private  person  connected  with  the  soil. 
These  private  rights  were  of  various  kinds.  The  actual  cultivators,  or 
such  of  them  as  had  been  long  settled  on  the  land,  had  a  right  to  retain 
1  Adapted  by  permission  from  J.  S.  Mill,  "Chapters  on  Socialism,"  Fortnightly 
Review,  XXXI  (1879),  526-30. 


956 


INDUSTRIAL  SOCIETY 


possession;  it  was  held  unlawful  to  evict  them  while  they  paid  the 
rent— a  rent  not  in  general  fixed  by  agreement,  but  by  the  custom  of 
the  neighborhood.  Between  the  actual  cultivators  and  the  state,  or 
the  substitute  to  whom  the  state  had  transferred  its  rights,  there  were 
intermediate  persons  with  rights  of  various  extent.  There  were 
officers  of  government  who  collected  the  state's  share  of  the  produce, 
sometimes  for  large  districts,  who,  though  bound  to  pay  over  to 
government  all  they  collected,  after  deducting  a  percentage,  were 
often  hereditary  officers.  There  were  also,  in  many  cases,  village 
communities,  consisting  of  the  reputed  descendants  of  the  first  settlers 
of  a  village,  who  shared  among  themselves  either  the  land  or  its  pro- 
duce according  to  rules  established  by  custom,  either  cultivating  it 
themselves  or  employing  others  to  cultivate  it  for  them,  and  whose 
rights  in  the  land  approached  nearer  to  those  of  a  landed  proprietor,  as 
understood  in  England,  than  those  of  any  other  party  concerned. 
But  the  proprietary  right  of  the  village  was  not  individual,  but  col- 
lective; inalienable  (the  rights  of  individual  shares  could  only  be 
sold  or  mortgaged  with  the  consent  of  the  community),  and  governed 
by  fixed  rules.  In  mediaeval  Europe  almost  all  land  was  held  from 
the  sovereign  on  tenure  of  service,  either  military  or  agricultural,  and 
in  Great  Britain  even  now,  when  the  services  as  well  as  all  the  reserved 
rights  of  the  sovereign  have  long  since  fallen  into  disuse  or  been  com- 
muted for  taxation,  the  theory  of  the  law  does  not  acknowledge  an 
absolute  right  of  property  in  land  in  any  individual;  the  fullest  landed 
proprietor  known  to  the  law,  the  freeholder,  is  but  a  "tenant"  of  the 
crown.  In  Russia,  even  when  the  cultivators  of  the  soil  were  serfs 
of  the  landed  proprietor,  his  proprietary  right  in  the  land  was  limited 
by  right  of  theirs  belonging  to  them  as  a  collective  body  managing  its 
own  affairs,  and  with  which  he  could  not  interfere.  And  in  most  of  the 
countries  of  continental  Europe,  when  serfage  was  abolished  or  went 
out  of  use,  those  who  had  cultivated  the  land  as  serfs  remained  in  pos- 
session of  rights,  as  well  as  subject  to  obligations.  The  great  land 
reforms  of  Stein  and  his  successors  in  Prussia  consisted  in  abolishing 
both  the  rights  and  the  obligations,  and  dividing  the  land  bodily 
between  the  proprietor  and  the  peasant,  instead  of  leaving  each  of 
them  with  a  limited  right  over  the  whole.  In  other  cases,  as  in  Tus- 
cany, the  metayer  farmer  is  virtually  co-proprietor  with  the  landlord, 
since  custom,  though  not  law,  guarantees  to  him  a  permanent  pos- 
session and  half  the  gross  produce,  so  long  as  he  fulfills  the  customary 
conditions  of  his  tenure. 


PRIVATE  PROPERTY  9S7 

Again,  if  rights  of  property  over  the  same  things  are  of  different 
:tent  in  different  countries,  so  also  are  they  exercised  over  different 
dngs.    In  all  countries  at  a  former  time,  and  in  some  countries  still, 
le  right  of  property  extended  and  extends  to  the  ownership  of  human 
>eings.    There  has  often  been  property  in  public  trusts,  as  in  judicial 
>ffices,  and  a  vast  multitude  of  others  in  France  before  the  Revolution; 
lere  are  still  a  few  patent  offices  in  Great  Britain,  though  I  believe 
Ley  will  cease  by  operation  of  law  on  the  death  of  the  present  holders; 
id  we  are  only  now  abolishing  property  in  army  rank.    Public  bodies, 
mstituted  and  endowed  for  public  purposes,  still  claim  the  same 
iviolable  right  of  property  in  their  estates  which  individuals  have 
theirs,  and  though  a  sound  political  morality  does  not  acknowledge 
lis  claim,  the  law  supports  it. 
We  thus  see  that  the  right  of  property  is  differently  interpreted, 
md  held  to  be  of  different  extent,  in  different  times  and  places;  that 
le  conception  entertained  of  it  is  a  varying  conception,  has  been 
frequently  revised,  and  may  admit  of  still  further  revision.    It  is  also 
to  be  noticed  that  the  revisions  which  it  has  hitherto  undergone  in  the 
>rogress  of  society  have  generally  been  improvements.    When,  there- 
fore, it  is  maintained,  rightly  or  wrongly,  that  some  change  or  modi- 
ication  in  the  powers  exercised  over  things  by  the  persons  legally 
recognized  as  their  proprietors  would  be  beneficial  to  the  public 
md  conducive  to  the  general  improvement,  it  is  no  good  answer  to 
lis  merely  to  say  that  the  proposed  change  conflicts  with  the  idea 
>f  property.    The  idea  of  property  is  not  some  one  thing  identical 
iroughout  history  and  incapable  of  alteration.    This  is  said  without 
>rejudice  to  the  equitable  claim  of  proprietors  to  be  compensated 
)y  the  state  for  such  legal  rights  of  proprietary  nature  as  they  may  be 
dispossessed  of  for  the  public  advantage.    Under  this  condition, 
however,  society  is  fully  entitled  to  abrogate  or  alter  any  particular 
right  of  property  which  on  sufficient  consideration  it  judges  to  stand 
in  the  way  of  the  public  good.    And  assuredly  the  terrible  case  which 
Socialists  are  able  to  make  out  against  the  present  economic  order  of 
society,  demands  a  full  consideration  of  all  means  by  which  the 
institution  may  have  a  chance  of  being  made  to  work  in  a  manner  more 
beneficial  to  that  large  portion  of  society  which  at  present  enjoys  the 
least  share  of  its  direct  benefits. 


958 


INDUSTRIAL  SOCIETY 


365.    PROPERTY  AND  WEALTH1 

FORMS  OF  WEALTH 

/Productive  land  \  CroP  *""*'  grazing  land  timber  land, 
/  I      mining  land,  hunting  land,  fisheries 

]Ways  of  transit  j  Rail W*>  roadways, 
/      '  (      waterways.  Darks 

\Building  land 

Land  improvements 


Raw  Materials 


Finished  products 


( Buildings  /Overhead 

]  Improvements  on  highways  Underground 
(Minor  /facing 

\Bndging 

(  Mineral 
j  Agricultural 
(  Manufactured 

!By  being  burned 
By  being  eaten  or  drunk 
By  being  otherwise  used 

Mechanical  devices 
Animals 
"Hard  money" 
>urable  <  Clothing  and  jewelry 

Furniture  and  works  of  art 

Reading  matter 

Minor 


tuman  Beings )  |l-s 


FORMS  OF  PROPERTY  RIGHTS 

'  Complete  (Fee  Simple) 

p  /  Rights  in  common 

L  o  services  cut  longitudinally       Rights  to  different  usufructs 
j  Partnership  rights 


Partial 


To  services  cut  transversely 


J  Rights  to  definite  parts  of 
services 


\Minor  and  indefinite 


\  Joint  stock  shares 

Lease 

Reversion 

Patent  and  copyright 


/  Promises 


Orders 


!  Bonds 
Private  notes 
Bank  notes 
Bank  deposits 

;  Checks,  drafts,  and 

bills  of  exchange 
Irredeemable  paper 
money 


(  Good  will  and  custom 
}  Taxing  power 


PP  7  ^ffLT^n"  hT  IrVln8  Fishet'  The  Nature  "f  W*1  and  '•""* 
PP-  7,  37.    (-The  Macmillan  Co.,  1906.) 


PRIVATE  PROPERTY  959 

366.    THEORIES  OF  PRIVATE  PROPERTY 
A1 

The  earliest  theory  of  private  property  as  found  in  some  of  the 
Loman  writers  is  the  occupation  theory.  The  doctrine  that  property 
jlongs  of  right  to  him  who  first  seizes  it  is,  however,  one  that  can 
ipply,  if  at  all,  only  to  the  earliest  stages  of  development.  Where  no 
one  has  any  interest  in  the  property,  no  one  will  object  to  the  assertion 
of  a  claim  by  a  newcomer.  When  property  is  without  any  discover- 
able owner,  we  still  today  assign  it  to  the  lucky  finder.  The  occupa- 
tion theory  may  explain  how  the  present  legal  title  to  certain  forms  of 
property  originated;  it  cannot  serve  as  a  justification  of  private 
property,  except  in  the  rare  case  of  previously  unoccupied  or  unutilized 
wealth.  The  mere  fact  that  a  person  has  seized  a  thing  is  no  reason 
why  he  should  retain  it. 

The  next  doctrine  was  the  natural  rights  theory.  Private  property, 
so  we  were  told  by  the  philosophers  of  antiquity  and  the  publicists  of 
the  later  middle  ages,  is  a  natural  right,  a  part  of  the  law  of  nature. 
It  will  at  once  be  asked,  however,  what  is  denoted  by  nature  ?  The 
great  philosophers  of  antiquity  upheld  private  property  in  slaves  as 
a  natural  right.  Much  of  what  we  today  consider  natural,  our 
descendants  will  deem  unnatural.  Our  conception  of  nature  in  this 
sense  is  essentially  ephemeral  and  mutable. 

Driven  from  this  position,  the  natural  rights  school  took  refuge 
in  the  labor  theory,  and  maintained  that  the  real  title  to  private 
property  is  derived  from  the  toil  and  trouble  experienced  in  creating  it. 
Surely,  it  will  be  said,  a  thing  belongs  of  right  to  him  who  produces  it. 
But  at  once  comes  the  reply:  no  one  has  created  the  land.  As  a  con- 
sequence, we  find  thinkers  of  all  ages,  from  Phaleas  of  antiquity  to 
the  disciples  of  Henry  George  today,  who  contend  that  private  prop- 
erty in  land  is  unjust,  while  maintaining  that  private  property  in 
everything  else  is  defensible.  These  critics,  however,  overlook  the 
fact  that  the  difference  between  land  and  so-called  labor  products  is 
in  this  respect,  at  all  events,  one  only  of  degree,  because  nothing 
is  the  result  of  individual  labor  alone.  The  carpenter,  it  is  said, 
rightfully  owns  the  table  which  he  has  made.  But  to  what  extent 
has  he  made  it  ?  The  tree  which  affords  him  the  raw  material  was 
not  created  by  him;    the  axe  with  which  the  tree  is  felled  is  the 

1  Adapted  by  permission  from  E.  R.  A.  Seligman,  Principles  of  Economics, 
PP-  131-34-     (Longmans,  Green  &  Co.,  1905.) 


960 


INDUSTRIAL  SOCIETY 


accumulated  result  of  centuries  of  invention  expended  by  his  ancestors ; 
the  stream  along  which  the  log  is  floated  is  not  of  his  making.  To  pass 
over  all  the  other  intermediate  processes,  how  long  would  he  be  secure 
in  the  possession  of  the  tools  he  has  used  or  of  the  product  he  has 
finished,  were  it  not  for  the  protection  afforded  to  him  by  the  law  ? 
And  finally,  of  what  use  would  the  tables  be  unless  there  were  a 
demand  for  them  on  the  part  of  the  community  ?  The  value  of  the 
table  is  as  little  the  result  of  individual  labor  as  is  the  value  of  the 
land.  Society  holds  a  mortgage  over  everything  that  is  produced  or 
exchanged. 

Since,  therefore,  neither  occupation,  natural  law  nor  labor  gives 
an  indefeasible  title  to  private  property,  some  philosophers  were  led 
to  frame  the  so-called  legal  theory  of  private  ownership  which  is  in 
essence  that  whatever  is  recognized  as  such  by  the  law  is  rightfully 
private  property.  Obviously,  however,  this  is  not  an  economic 
doctrine.  Good  law  may  be  bad  economics.  The  law  generally 
follows  at  a  respectful  distance  behind  the  economic  conditions,  and 
adjusts  itself  gradually  to  them.  The  legal  theory  tells  us  what 
property  is,  not  why  it  is,  nor  what  it  should  be. 

Thus  we  are  finally  driven  to  the  social  utility  theory.  This  is 
really  implied  in  the  preceding  theories  and  supplies  the  link  that 
binds  them  all  together.  In  ancient  as  in  modern  communities,  the 
individual  is  helpless  as  against  society,  however  much  under  modern 
democracy  society  may  see  fit  to  extend  the  bounds  of  individual 
freedom.  If  we  allow  the  individual  to  seize  upon  unoccupied  wealth, 
if  we  recognize  the  existence  of  certain  rights  in  what  are  deemed  to  be 
the  products  of  labor,  if  we  throw  the  mantle  of  the  law  around  the 
elements  of  private  property — in  every  case  society  is  speaking  in  no 
uncertain  voice  and  permits  these  things  because  it  is  dimly  conscious 
of  the  fact  that  they  redound  to  the  social  welfare.  Private  property 
is  an  unmistakable  index  of  social  progress.  It  originated  because 
of  social  reasons;  it  has  grown  under  continual  subjection  to  the  social 
sanction.  It  is  a  natural  right  only  in  the  broad  sense  that  all  social 
growth  is  natural. 

B1 

First.  There  is  what  I  may  venture  to  call  the  sacrosanct  view 
of  property,  according  to  which  the  right  of  property  is  regarded  as 
something  almost  awfully  sacred,  having  the  deepest  possible  sanction 

1  Adapted  by  permission  from  F.  A.  Walker,  Discussions  in  Economics  and 
Statistics,  II,  406-8.     (Henry  Holt  &  Co.,  1899.) 


PRIVATE  PROPERTY 


961 


nature  or  in  God.  By  this  view,  the  relation  of  the  producer  to 
product  forms  a  mysterious  bond,  establishing  a  connection  only 
soluble  at  his  will.  He  may  sell  his  product,  but  until  he  chooses 
part  with  it,  it  is  his  own  so  perfectly  that  neither  the  state  nor 
lividual  can  limit  his  use  of  it  (if  not  prejudicial  to  others);  and 
ir  he  has  sold  it,  the  proceeds  are  his  so  completely  that  it  is  sheer 
)bery  if  he  is  deprived  of  them  or  any  part  of  them,  for  any  reason 
itsoever.  To  say  that  relationship,  by  this  view  existing  between 
producer  and  the  product,  is  as  tender,  as  close,  as  mysterious  as 
Lt  between  the  parent  and  child,  is  to  understate  the  case.  Accord- 
to  the  opinions  of  writers  of  this  school,  the  rights  of  property  are 
far  more  sacred  than  those  of  liberty  or  life,  for  it  is  admitted  that 
the  state  can,  for  many  a  reason  not  affecting  even  its  own  existence  or 
independence,  summon  its  citizens  to  arms  and  compel  them  to  travel, 
to  watch,  to  fight,  and  even  to  die  for  the  public  interest,  without  com- 
pensation (for  what  compensation  can  there  be  for  life?);  yet  the 
state  cannot  disregard  the  rights  of  property,  in  any  degree,  for  any 
purpose,  without  becoming  a  robber. 

Second.  We  have  the  qualified  view  of  the  sacredness  of  property 
right,  by  which  it  is  held  to  have  a  special  moral  sanctity  attaching  to 
it,  yet  to  be  subject  to  control  by  the  state  for  the  public  good.  Those 
who  hold  this  view  are  amenable  to  reason  on  a  question  regarding  the 
rightfulness  or  wrongfulness  of  a  proposed  invasion  of  property  right. 
They  do  not  put  the  right  of  property  above  those  of  liberty  and  life. 
Third.  There  is  the  utilitarian  view  of  the  property  right, 
according  to  which  a  sufficient  sanction  for  those  rights  is  found  in  the 
fact  (alleged  by  those  who  hold  this  view)  that,  on  the  whole  and  in  the 
long  run  the  greatest  good  of  the  greatest  number  is  clearly  secured  by 
the  conservation  of  private  property.  Those  of  us  who  hold  this 
view  do  not  find  it  necessary  to  seek  the  justification  of  private  prop- 
erty in  a  divine  ordinance.  We  do  not  even  feel  bound  to  show  that 
it  is  fully  what  people  choose  to  call  a  "natural  right,"  such  as  is 
asserted  in  the  American  Declaration  of  Independence.  We  might 
even  go  so  far  as  to  conclude  that  in  some  stages  of  social  progress 
and  industrial  development,  an  altogether  different  system  would  be 
better  than  this. 

Fourth.  We  have  the  view  that  property  is  not  rightfully  in  the 
individual  at  all,  but  in  the  family  or  clan.  This  view  rests  largely 
upon  historical  considerations  drawn  from  such  works  as  Maine's 
Village  Community  and  Hearn's  Aryan  Household. 


962  INDUSTRIAL  SOCIETY 

Fifth.  Lastly,  we  may  call  the  hostile  view,  viz.,  that  the  title  to 
wealth  is  not  rightfully  in  the  individual  nor  in  the  family,  nor  even 
in  the  clan,  but  in  the  state;  and  consequently,  that  " property  is 
robbery." 

C1 

As  we  trace  the  course  of  events  back  through  the  centuries,  it 
becomes  clear  that  private  property  had  its  origin  in  violence  and 
aggression.  Men  took  what  they  could  get  and  kept  it  as  long  as  they 
could.  It  was  appropriation  by  the  strongest  which  probably  first  estab- 
lished the  principle  of  individual  ownership.  This  appears  to  be 
accepted  now  as  a  fact  of  history  by  the  best  students  who  have 
explored  the  subject. 

It  is  not  strange,  therefore,  that  one  of  the  first  answers  to  the 
problem  which  has  been  given  should  have  been  altogether  negative. 
It  has  been  asserted  that  private  property  is  utterly  without  justi- 
fication. Proudhon,  in  France,  enunciated  his  famous  doctrine  in  the 
terse  cry, ' '  What  is  property  ?    Property  is  robbery ! ' ' 

But  there  is  another  theory  which  still  has  a  powerful  hold  upon 
many  thoughtful  people.  It  finds  expression  in  a  number  of  different 
ways.  It  goes  with  the  reverence  for  fixed  institutions.  "  Private 
property  has  existed  so  long  that  it  must  be  right,"  men  seem  to  think. 
They  assume  for  that  reason  that  it  was  established  by  divine  intelli- 
gence. It  has  come  by  the  law  of  nature,  through  the  process  of 
evolution.  If  accident  or  fortune  had  anything  to  do  with  it,  then 
it  was  the  same  accident  or  fortune  that  rules  the  earth  or  the 
universe.  They  claim  the  right  of  ownership  to  their  property 
on  the  same  principle  that  they  assert  ownership  to  the  muscles 
of  their  body,  the  capacities  of  their  brain,  the  qualities  of  their  soul. 
They  believe  it  to  be  an  institution  of  nature,  and  so  an  institution 
of  God. 

It  is,  however,  in  substance  the  same  as  the  other  standpoint — 
the  right  of  occupation.  It  is  the  basis  of  law  with  reference  to 
property.  But  it  is  after  all  a  most  unsatisfactory  position.  Any 
institution  could  seek  justification  by  that  means,  provided  it  had 
existed  long  enough.  Human  slavery  undoubtedly  survived  much 
longer  than  otherwise  would  have  been  the  case,  because  it  supported 
itself  by  that  plea. 

1  Adapted  by  permission  from  W.  L.  Sheldon,  "What  Justifies  Private  Prop- 
erty?" International  Journal  of  Ethics,  IV  (1893-94),  26-28. 


PRIVATE  PROPERTY  963 

367.    A  CASE  FOR  PRIVATE  PROPERTY 
A1 

First  and  foremost,  supreme,  is  a  group  of  advantages  bearing 
ipon  the  production  of  wealth,  arising  from  the  superior  activity, 
'ie  sterner  energy,  the  greater  care  in  the  use  of  tools,  machinery,  and 
>lant,  the  saving  of  waste  in  materials  in  products,  which,  it  is  credibly 
dleged,  belong  to  work  done  for  an  immediate  individual  reward, 
is  compared  with  that  done  by  him  who  only  finds  his  interest  or  feels 
lis  duty  as  a  member  of  a  large  body. 

Herein  is  found  the  main  bulk  of  the  economic  advantages  com- 
monly attributed  to  the  system  of  private  property.  To  those  who 
hold  by  this  system,  the  industrial  superiority  arising  from  the  sources 
indicated,  is  a  superiority  almost  beyond  measure. 

The  second  advantage  of  private  property  is  that  it  sustains, 
fosters,  and  continuously  develops,  in  mankind,  that  care  for  a  distant 
future,  that  sense  of  responsibility  for  a  provision  for  the  young 
(beyond  the  mere  period  of  nursing),  which  not  only  clearly  and  by 
an  almost  infinite  interval,  distinguish  our  race  from  the  brute,  but 
which  become  the  object  of  the  noblest  exertion  and  sacrifices,  the 
spring  of  the  most  heroic  motives  and  impulses  of  which  men  are 
capable;  in  which,  indeed,  may  be  said  to  lie  the  special  cause  of 
man's  progressive  advancement,  in  mind,  in  character,  in  powers,  and 
in  arts,  from  the  lowest  to  the  highest;  which,  in  a  word,  hold  the 
secret  of  civilization. 

The  third  advantage  which  we  attribute  to  private  property  is 
that,  through  the  foregoing  sense  of  responsibility  for  provision  for  the 
young  during  a  more  or  less  distant  future,  it  brings  into  operation 
the  single  force  which  has  the  virtue  to  check  the  wanton,  senseless, 
brutal  increase  of  population,  amid  squalor  and  hunger— the  sure 
result  of  which  is  the  degradation  of  the  species,  and  the  speedy  loss  of 
the  richest  and  ripest  fruits  of  time  and  experience. 

Ba 

The  moral  advantage  of  private  property  over  Communism  is  that 
it  makes  the  private  person  think  of  his  life  as  a  whole,  and  realize 

1  Adapted  by  permission  from  F.  A.  Walker,  Discussions  in  Economics  and 
Statistics,  II,  409-10.     (Henry  Holt  &  Co.,  1899.) 

2  Adapted  by  permission  from  A.  D.  Lindsay,  "The  Principle  of  Private 
Property,"  in  Property,  Its  Rights  and  Duties,  pp.  73~77-  (Macmillan  &  Co.,  Ltd., 
I9I5-) 


964 


INDUSTRIAL  SOCIETY 


his  responsibility  for  his  actions.  In  a  society  whose  economic  organi- 
zation is  at  all  developed,  most  property  consists,  not  in  rights  to  the 
enjoyment  of  things,  but  in  rights  to  services;  the  power  to  make 
men  act  in  certain  ways.  This  power,  it  may  well  be  contended,  is  as 
essential  a  part  of  what  makes  individuality  in  life  as  is  the  possession 
of  objects. 

But  something  else  can  be  said  for  private  property  in  the  means 
of  production.  The  argument  may  be  put  in  some  such  way  as 
this:  It  may  be  true  that  all  productive  work  is  co-operative  and 
that,  therefore,  no  wealth  is  produced  by  individuals'  in  isolation  but 
it  does  not  follow  that  the  part  played  by  different  individuals  is  the 
same  or  of  equal  value.  Co-operation  is  the  combining  of  different 
wills  and  different  minds,  and  all  deliberation  and  contrivance  comes 
originally  from  individual  minds.  Efficient  production  is  only  possible 
if  encouragement  is  given  to  originality  and  invention  in  individuals  as 
much  as  to  the  co-operation  between  all  the  members  of  society.  It 
may  be  true  that  power  over  and  control  of  other  men  is  liable  to 
abuse,  but  it  is  also  an  essential  instrument  in  achieving  anything  of 
note  in  combined  effort.  If  private  property  gives  men  the  power  of 
directing  others  in  the  work  of  co-operative  production,  that  is  no 
evil  but  a  manifest  good  if  that  power  is  in  the  hands  of  those  who  can 
use  it  best.  Further,  while  it  may  be  true  that  we  cannot  divide  up 
wealth  into  parts  and  say  this  part  was  created  entirely  by  this  man 
and  this  by  that,  it  does  not  follow  that  we  cannot  estimate  the  rela- 
tive importance  of  the  parts  played  by  different  men.  On  the  con- 
trary, a  man's  income  does  roughly  express  the  value  which  society 
puts  upon  his  services,  and  the  money  a  man  makes  is  a  fair  criterion 
of  his  capability  to  use  profitably  the  power  over  other  men's  lives 
which  the  possession  of  property  gives.  Such  a  criterion  may  not  be 
infallible.  No  doubt  it  is  not,  but  it  is  a  better  criterion  than  any 
other  which  can  be  substituted  for  it. 


What  have  I  to  say  why  judgment  should  not  be  passed  against 
me  ?  why  I  should  not  be  banished  from  human  society  ?  why,  with 
creatures  of  darkness,  I  should  not  be  cast  into  the  outer  void  ?  I 
have  little  to  say.    But  my  long  and  effective  services  to  society 

1  "My  Apology,"  by  P.  Property.  Taken  by  permission  from  W.  H.  Hamil- 
ton, Current  Economic  Problems,  pp.  866-68.  (The  University  of  Chicago  Press, 
WS-) 


PRIVATE  PROPERTY 


965 


speak  eloquently  for  themselves,  and  I  may  as  usual  content  myself 
with  few  words.  I  need  only  enumerate  in  briefest  form  the  record 
of  my  accomplishments,  and  I  feel  that  my  defense  is  complete. 
I  mention  my  achievements  not  boastfully,  being  as  modest  as  my 
first  name  Private  signifies,  but  only  as  earnests  of  what  society  may 
expect  from  me  in  the  future. 

For  society,  and  in  furtherance  of  civilization,  I,  Private  Prop- 
erty, assert  that  I  have  performed  these  services,  to  wit: 

First,  I  have  rendered  the  fundamental  conditions  of  social  and 
industrial  life  safe  and  secure.  Before  I  came  into  my  own,  the 
power  to  seize  and  hold  summed  up  the  ethics  of  ownership.  Ener- 
gies that  might  have  gone  into  more  productive  employments  were 
used  in  defending  one's  own  or  in  appropriating  one's  neighbor's. 
f  But  I  established  and  secured  social  sanction  and  universal  respect 
for  the  right  of  possession. 

Second,  the  security  thus  afforded  has  caused  the  energies  of  men 

to  be  diverted  from  the  acquisition  to  the  production  of  wealth.    It  has 

led  to  the  utilization  of  natural  resources,  and  has  provided  opportunity 

r  for  the  use  of  long-continued  and  consistent  industrial  policies  which 

have  caused  material  goods  to  increase  verily  a  hundred  fold. 

Third,  such  security  has  furnished  an  incentive  to  man  as  a 
worker  to  utilize  his  productive  capacities  to  the  full.  It  has  caused 
him  to  sow,  because  it  has  promised  that  he,  and  not  another,  should 
reap.  It  has  led  him  to  sacrifice  immediate  gain  in  establishing  new 
processes  and  in  devising  new  instruments  of  production  to  the  end 
that  the  earth  might  be  crowned  with  abundance. 

Fourth,  I  plead  innocent  of  the  charge  of  having  favored  a  privi- 
leged "leisure  class,"  upon  whom  I  have  showered  plenty  that  has 
been  wasted  in  riotous  living.  It  is  true  that  I  have  conferred 
%  wealth  upon  a  few.  But  these  few  I  have  not  particularly  favored. 
I  have  chosen  them  for  highly  important  and  extremely  dangerous 
social  service.  I  have  assigned  to  them  the  task  of  experimentation 
in  consumption.  Whatever  bad  they  have  found  they  have  dis- 
carded. The  good  that  they  have  discovered  has  in  time  been  made 
the  property  of  the  masses.  They  are  the  vanguard  of  my  army 
which  is  engaged  in  raising  the  standard  of  living.  The  goods  sup- 
plied to  them  are  not  rewards;  they  consist  only  of  the  laboratory 
materials  necessary  to  the  work  which  they  are  doing.  Witness 
their  suffering,  their  costs,  and  you  can  appreciate  the  heroism 
which  makes  them  willing  to  serve  society  in  so  dangerous  and 


966 


INDUSTRIAL  SOCIETY 


important  an  undertaking.  The  extent  to  which,  through  their 
pioneer  service,  the  formerly  rigid  boundaries  of  consumption  have 
been  extended  attests  my  wisdom. 

Fifth,  I  have  greatly  increased  the  product  of  industry  by  the 
use  of  vast  stores  of  capital.  The  economic  inequality  which  I 
have  perpetuated  has  been  the  cause  of  the  existence  of  so  fruitful 
a  fund.  For  its  bulk  has  come  from  the  very  large  incomes  whose 
source  I  am.  The  savings  which  become  the  capital  that  turns  the 
wheels  of  our  mills,  runs  our  machines,  and  speeds  our  trains  across 
the  continent  on  their  missions  of  service  are  possible  only  because 
of  me.  And,  but  for  the  security  which  I  offer,  the  investment  of 
these  savings  would  be  impossible. 

Sixth,  I  supply  the  people  with  abundance  and  contribute  to  the 
fullness  of  their  lives.  The  security  which  I  have  brought  about 
has  almost  eliminated  risks.  The  result  is  decreased  costs,  which  I 
generously  offer  to  the  public  in  decreased  prices.  The  long-time 
productive  operations,  the  improvements  in  technique,  and  the  cumu- 
lative investment  of  capital,  which  I  have  brought  about,  confer  the 
favors  of  plenty,  variety,  and  cheapness  upon  all  sorts  and  condi- 
tions of  men.  My  aristocratic  methods  have  been  mere  devices  for 
securing  democratic  ends.  I  have  forced  my  owners  to  use  me 
productively.    I  have  made  them  stewards  of  the  commonweal. 

Seventh,  I  have  led  society  in  its  development  to  higher  and 
higher  planes.  Out  of  my  abundance  they  have  been  able  to  satisfy 
more  and  more  of  their  material  wants.  The  certainty  with  which 
I  have  endowed  the  satisfaction  of  the  necessary  material  wants  has 
enabled  those  who  choose  to  give  of  their  time,  energy,  and  means 
to  the  immaterial  things  of  life.  Our  culture,  with  its  wide  horizon 
and  its  varied  content,  is  my  handiwork.  That  civilization  is  not 
coarse  and  material  and  brutal  is  my  doing. 

Eighth,  I  have  prevented  a  passing  sentimentalism  from  sacri- 
ficing these  more  permanent  values  to  the  passing  fancy  of  the 
moment.  I  have,  at  the  cost  of  much  misunderstanding  and  malig- 
nant criticism,  prevented  the  wealth  that  was  needed  for  a  richer 
life  for  the  generations  of  the  future  from  being  wasted  in  satisfy- 
ing the  immediate  wants  of  a  few  surplus  individuals  who  promised 
no  contribution  to  culture.  I  have  preferred  to  have  such  wealth 
used  in  enlarging  capital,  thus  making  for  bounty  of  goods,  and  in 
social  experimentation  whose  end  was  to  lead  men  to  richer  and 
fuller  life.    I  have  seen  clearly  that  a  deficiency  of  human  life  could 


1 


PRIVATE  PROPERTY  967 

sily  be  supplied  within  a  generation,  but  that  a  deficiency  in  capital 

n  never  be  made  up;   that  cumulatively  it  becomes  greater  as  the 

ears  pass;  and  that  it  must  deny  life  to  many  yet  unborn  and  rob 

thers  of  comforts  which  otherwise  would  have  made  their  lives  less 

vain  and  hollow. 

Ninth,  I  have  proved  myself  the  custodian  of  peace  and  have 
laid  the  foundations  of  a  world-wide  Christian  community.  The 
system  of  vested  interests  with  which  I  have  surrounded  labor  and 
capital  has  done  more  for  the  cause  of  peace  than  all  other  agencies 
combined.  For  I  have  increased  many  fold  the  costs  to  all  classes 
of  engaging  in  war.  The  world-wide  industrial  system  which  I 
have  wrought  is  more  powerful  than  all  armaments  combined  in 
protecting  a  state  against  the  encroachments  of  another  state  and  it 
contributes  more  to  nation's  understanding  of  nation  than  the  whole 
world-wide  system  of  diplomacy.  My  success  has  not  been  com- 
plete, but  that  merely  makes  my  continued  presence  and  activity  all 
the  more  necessary. 

I  would  not  detract  one  whit  from  the  good  intentions  of  my 
malefactors.    I  bear  them  no  malice.    My  only  plea  is  that  I  be 

I  judged  according  to  my  fruits.  I  am  done. 
368.  PRIVATE  PROPERTY  HAS  NOT  HAD  FAIR  TRIAL1 
The  principle  of  private  property  has  never  yet  had  a  fair  trial  in 
any  country;  and  less  so,  perhaps,  in  this  country  than  in  some  others. 
The  social  arrangenients  of  modern  Europe  commenced  from  a 
distribution  of  property  which  was  the  result,  not  of  just  partition,  or 
acquisition  by  industry,  but  of  conquest  and  violence;  and  notwith- 
standing what  industry  has  been  doing  for  many  centuries  to  modify 
the  work  of  force,  the  system  still  retains  many  and  large  traces 
of  its  origin.  The  laws  of  property  have  never  yet  conformed  to  the 
principles  on  which  the  justification  of  private  property  rests.  They 
have  made  property  of  things  which  never  ought  to  be  property,  and 
absolute  property  where  only  a  qualified  property  ought  to  exist. 
They  have  not  held  the  balance  fairly  between  human  beings,  but  have 
heaped  impediments  upon  some,  to  give  advantage  to  others;  they 
have  purposely  fostered  inequalities,  and  prevented  all  from  starting 
fair  in  the  race.  That  all  should  indeed  start  on  perfectly  equal 
terms,  is  inconsistent  with  any  law  of  private  property;  but  if  as  much 
1  Adapted  by  permission  from  J.  S.  Mill,  Principles  of  Political  Economy, 
Book  II,  chap.  i.     (D.  Appleton  &  Co.,  1893.) 


968  INDUSTRIAL  SOCIETY 

pains  as  has  been  taken  to  aggravate  the  inequality  of  chances  arising 
from  the  natural  working  of  the  principle  had  been  taken  to  temper 
that  inequality  by  every  means  not  subversive  of  the  principle  itself; 
if  the  tendency  of  legislation  had  been  to  favor  the  diffusion,  instead 
of  the  concentration  of  wealth— to  encourage  the  subdivision  of  the 
large  masses,  instead  of  striving  to  keep  them  together— the  principle 
of  individual  property  would  have  been  found  to  have  no  necessary 
connection  with  the  physical  and  social  evils  which  almost  all  Socialist 
writers  assume  to  be  inseparable  from  it. 

Private  property,  in  every  defence  made  of  it,  is  supposed  to 
mean  the  guarantee  to  individuals  of  the  fruits  of  their  own  labor  and 
abstinence.  The  guarantee  to  them  of  the  fruits  of  the  labor  and 
abstinence  of  others,  transmitted  to  them  without  any  merit  or 
exertion  of  their  own,  is  not  of  the  essence  of  the  institution,  but  a 
mere  incidental  consequence,  which,  when  it  reaches  a  certain  height, 
does  not  promote,  but  conflicts  with  the  ends  which  render  private 
property  legitimate.  To  judge  of  the  final  destination  of  the  insti- 
tution of  property,  we  must  suppose  everything  rectified  which 
causes  the  institution  to  work  in  a  manner  opposed  to  that  equitable 
principle  of  proportion  between  remuneration  and  exertion,  on  which 
in  every  vindication  of  it  that  will  bear  the  light,  it  is  assumed  to 
be  grounded.  We  must  also  suppose  two  conditions  realized,  without 
which  neither  Communism  nor  any  other  laws  or  institutions  could 
make  the  condition  of  the  mass  of  mankind  other  than  degraded  and 
'  miserable.  One  of  these  conditions  is  universal  education;  the 
other,  a  due  limitation  of  the  numbers  of  the  community.  With  these, 
there  could  be  no  poverty  even  under  the  present  social  institutions. 

C.     An  Indictment  of  Property 
369.    PROPERTY  FOR  USE;   PROPERTY  FOR  POWER1 

Aristotle  was  the  first  to  make  the  familiar  appeal  on  behalf  of 
private  property  that  it  is  necessary  for  the  free  development  of  the 
higher  life  in  the  individual,  and  is  the  most  effective  stimulus  to 
character  and  personal  exertion.  We  are  all  familiar  with  the  argu- 
ment, and  we  feel  its  force  to  the  full.  The  average  man  wants  the 
sphere  which  he  can  call  "his  own"  to  stimulate  him  to  develop  him- 
self, to  get  room  to  move  freely  and  realize  what  he  is  capable  of. 

1  Adapted  by  permission  from  Charles  Gore,  Property,  Its  Rights  and  Duties, 
Introduction,  pp.  xiv-xxii.     (Macmillan  and  Co.,  Ltd.,  19 15.) 


PRIVATE  PROPERTY 


969 


even  at  the  utmost  he  is  able  to  use—is  a  very  limited  quantity  on  the 
whole.  ^  Very  speedily,  as  it  expands,  it  becomes  "  property  for 
power";  it  becomes  at  last  the  almost  unmeasured  control  by  the  few 
rich,  not  of  any  amount  of  unconscious  material,  but  of  other  men 
whose  opportunity  to  live  and  work  and  eat  becomes  subject  to  their 
will.    That  is  where  property  has  so  manifestly  gone  wrong. 

The  tenure  of  property  in  any  community  must  be  judged  by  its 
tendency  to  promote  what  alone  is  the  real  end  of  civil  society— that 
is,  the  best  possible  life  for  man  in  general  and  all  men  in  particular. 

The  stimulus  of  unlimited  acquisition,  it  is  sometimes  pleaded,  is 
necessary  to  bring  out  of  men  their  greatest  capacity  and  energy.  If 
you  restrain  a  man's  freedom  to  acquire,  you  damp  his  energy.  But 
what  about  the  energy  of  the  masses  of  men  who  can  acquire  no 
property  or  not  sufficient  property  to  give  them  secure  status  and 
hope?  If  you  go  some  way  towards  equalizing  opportunity,  as 
between  one  man  and  another,  will  you  not  stimulate  a  thousand 
energies  and  interests  to  one  which  you  may  check  ? 

The  most  formidable  form  of  this  plea  is  that  which  represents 
to  us  that  in  modern  industry  the  most  important  factor  is  the  brain 
of  the  great  organizer;  that  this  will  only  work  under  the  stimulus  of 
unlimited  acquisition  of  wealth  and  personal  power;  and  that  if  in  our 
own  country  this  power  of  unlimited  acquisition  is  restricted,  the 
men  of  greatest  initiative  will  go  to  countries  where  no  such  restric- 
tions exist,  and  our  own  industrial  life  will  suffer.  This  is  a  terrible 
argument — the  argument  that  what  is  most  powerful  in  men  cannot 
be  induced  to  act  in  the  public  interest  but  only  on  the  motive  of  unre- 
stricted selfishness.  There  are  many  experiences  in  modern  industrial 
life  to  be  set  against  it.  It  may,  however,  be  a  motive  for  pro- 
ceeding gradually  in  reforming  industrial  conditions,  and  a  ground 
for  strengthening  international  fellowship  among  reformers  so  that 
similar  tendencies  may  be  apparent  in  all  countries.  But  it  can 
never  be  a  ground  for  tying  the  hands  of  justice;  and  it  leaves  alto- 
gether out  of  account  the  stimulus  to  industry  which  is  to  be  antici- 
pated in  any  country  in  which  more  and  more  men  in  the  industrial 
world  can  feel  that  it  is  worth  while  to  do  their  best. 

Property  in  some  sense  is  necessary  for  personality.  That  is 
certainly  true.  Let  us  therefore  be  careful  to  guard  against  any 
invasion  of  the  real  liberty  of  persons,  let  us  maintain  the  right  of 
property  "for  use." 


970  INDUSTRIAL  SOCIETY 

370.  PROPERTY  AT  ITS  ZENITH1 
But  as  industry  is  more  productive,  so  accumulation  proceeds  on 
a  vastly  greater  scale  in  our  own  civilization;  and  wnile  the  borders 
of  political,  religious,  national,  and  one  may  say  social,  freedom  have 
widened,  the  inequalities  of  wealth  have  only  increased.  Yet  it  is  not 
inequality  as  such  that  is  the  fundamental  fact  of  our  system.  It 
is  the  entire  dependence  of  the  masses  on  land  and  capital  which 
belong  to  others.  What  is  more,  only  a  fraction  of  our  population 
could  be  supported  by  agriculture;  and  for  the  cotton  spinner,  the 
railway  man,  or  the  coal  miner  there  is  no  sense  in  talking  of  his  owning 
the  means  of  production  as  an  individual. 

Thus,  while  modern  economic  conditions  have  virtually  abolished 
property  for  use— apart  from  furniture,  clothing,  etc.;  that  is, 
property  as  the  means  of  production,  for  the  great  majority  of  the 
people — they  have  brought  about  the  accumulation  of  vast  masses  of 
property  for  power  in  the  hands  of  a  relatively  narrow  class.  The 
contrast  is  accentuated  by  the  increasing  divorce  between  power  and 
use.  The  large  landowner  stood  in  some  direct  governing  relation 
to  his  estate.  Responsibility  went  with  ownership,  and  even  sur- 
vived the  explicit  association  between  land  tenure  and  political 
functions.  The  capitalist  employer,  who  began  to  be  differentiated 
from  the  workman  in  the  earlier  part  of  the  modern  period,  and  who 
was  the  prominent  feature  of  the  first  two  generations  of  the  industrial 
revolution,  was  still,  as  the  name  implies,  the  employer  as  well  as  the 
capitalist.  He  himself,  that  is  to  say,  was  actively  engaged  in  carry- 
ing out  the  function  which  his  property  made  possible.  But  with  the 
progress  of  accumulation  there  came  further  differentiations.  It 
became  more  and  more  indisputable  that  the  possession  of  capital  was 
one  thing  and  the  conduct  of  business  another;  and  with  the  rise  of 
the  joint-stock  system  capital  became  so  split  up  into  shares  and 
stocks  that  it  has  come  to  be  for  its  owners  nothing  more  than  a  paper 
certificate,  or  an  entry  in  the  books  of  the  Bank  of  England,  which 
they  have  never  seen,  meaning  to  them  only  what  it  brings  in  by  the 
quarter  or  the  half-year.  And  yet  these  investments,  this  capital, 
is  the  governing  force  in  the  lives  of  thousands  and  millions  of  men 
scattered  throughout  the  world.  It  is  the  instrument  by  which 
they  are  set  in  motion,  by  which  their  labour  is  sustained,  above  all, 

1  Taken  by  permission  from  L.  T.  Hobhouse,  "The  Historical  Evolution  of 
Property  in  Fact  and  Idea,"  Property,  Its  Rights  and  Duties,  pp.  21-23.  (Mac- 
millan  &  Co.,  Ltd.,  191 5.) 


■ 


PRIVATE  PROPERTY  q7i 

)y  which  it  is  directed  and  controlled.  The  divorce  of  functions 
is  complete;  and  what  wonder  if  the  owner  of  capital  presents  himself 
to  the  imagination  of  the  workman  merely  as  an  abstract,  distant, 

lknown  suction-pump,   that  is  drawing  away  such  and  such  a 

jrcentage  of  the  fruits  of  industry  without  making  a  motion  to  help 
the  work? 
Lastly,  behind  the  mass  of  the  investors,  is  the  financier,  who 

Luffles  all  these  abstract  pieces  of  capital  about,  controls  their 
ipplication,  takes  his  commission  on  the  proceeds,  and  constitutes 
himself  the  working  centre  of  industry  and  commerce.  The  institu-^i 
tion  of  property  has,  in  its  modern  form,  reached  its  zenith  as  a 
means  of  giving  to  the  few  the  power  over  the  life  of  the  many,  and 
Its  nadir  as  a  means  of  securing  to  the  many  the  basis  of  regular 

dustry,  purposeful  occupation,  freedom,  and  self-support. 

371.    PROPERTY  AND  PRODUCTION1 

Individuality  in  the  production  of  wealth  is  for  the  good  of  society 
as  well  as  individuality  in  the  spending  of  it,  and  must  be  made' 
possible  under  any  system  of  property.  But  it  does  not  follow  that 
such  individuality  is  best  realized  under  the  existing  system  of  private 
property.  Against  that  particular  conclusion  the  following  con- 
siderations may  be  urged. 

1.  Such  arguments  would  not  justify  the  rights  of  bequest  or 
inheritance.  It  may  be  that  the  power  of  bequest  in  some  form 
is  a  necessary  incentive  to  effort.  It  is  also  true  that  the  solidar- 
ity of  the  family  which  the  right  of  inheritance  encourages,  though  the 
right  of  bequest  does  not,  is  for  the  good  of  society.  Nevertheless, 
in  themselves  these  rights  go  against  the  principle  of  tools  to  those 
who  can  use  them,  inasmuch  as  they  put  great  power  into  the  hands  of 
those  whose  only  claim  to  it  is  that  they  are  the  natural  or  chosen 
heirs  of  those  who  have  shown  the  capability  of  using  it.  Any  defence 
of  these  rights  must  ultimately  be  based  upon  a  recognition  of  the 
importance  and  value  of  the  existence  of  associations  within  the  State, 
intermediate  between  the  State  and  the  individual,  such  as  the 
family  or  what  are  called  voluntary  associations.  The  attempt  to 
enforce  rigidly  the  principle  of  tools  to  those  who  can  use  them  or 
money  to  him  who  has  earned  it,  and  to  give  all  else  to  the  State, 
would  deny  the  value  of  all  such  lesser  bonds  and  communities. 

*  Adapted  by  permission  from  A.  D.  Lindsay,  "The  Principle  of  Private  Prop- 
erty," Property,  Its  Rights  and  Duties,  pp.  71-81.     (Macmillan  &  Co.,  Ltd.,  1915.) 


972  INDUSTRIAL  SOCIETY 

2.  Exceptions  having  been  made  to  the  rights  of  inheritance  and 
of  bequest,  it  is  clear  on  consideration  that  the  amount  of  money 
earned  in  any  undertaking  is  obviously  only  a  very  rough  test  of  its 
public  utility.  There  are  some  ways  of  making  money,  e.g.,  the 
promotion  of  lotteries  or  gambling,  which  the  State  definitely  forbids. 
The  same  principle  is  implied  in  the  special  taxation  on  lotteries  in 
countries  where  they  are  permitted,  or  on  the  drink  traffic.  It  is 
also  implied  in  the  State  endowment  of  research  or  education. 

3.  While  it  is  true  that  the  power  given  to  individuals  by  private 
property  tends  to  efficiency  when  rightly  used,  that  does  not  remove 
the  evils  produced  by  the  irresponsible  power  thus  acquired  with 
property.  It  may  be  the  case  that  as  yet  no  means  have  been  devised 
which  can  prevent  these  evils  without  also  taking  away  the  advan- 
tages of  private  property,  and  that  they  are  a  price  which  is  worth 
paying.    On  that  point  opinions  will  differ. 

Here  we  have  the  analogy  of  the  control  of  political  power  to 
encourage  us.  Indeed,  once  we  realize  that  property  exists  mainly 
as  a  power,  we  can  see  that  the  problem  of  the  proper  regulations  of 
property  is  only  the  old  political  problem  of  the  recognition  and  con- 
trol of  political  power  in  a  vastly  more  complicated  form.  The  same 
difficulty  of  combining  the  efficiency  which  is  given  by  the  concen- 
tration of  power  with  the  prevention  of  its  abuse  and  the  insistence 
that  such  power  shall  be  used  for  social  and  not  for  anti-social  ends, 
has  been  realized  and  to  some  extent  solved,  in  the  political  sphere. 

372.    THE    CONTENT  OF  AMERICAN  PROPERTY  RIGHTS1 

A  great  part  of  the  no  billions  of  American  wealth  is  made  up  of 
one  form  or  another  of  capitalized  privilege  or  of  capitalized  predation. 
If,  indeed,  our  computations  include  all  forms  and  manifestations  of 
private  claim  and  of  private  property  in  that  to  which  no  individual 
can  make  good  his  private  right  of  enjoyment,  it  is  probably  not  going 
too  far  to  assert  that  two-thirds  of  the  durable  property  basis  of 
income  in  the  country  are  nothing  else  than  this  capitalization  of  pre- 
dation. The  market  value  of  these  non-social  forms  of  capital  is 
merely  the  present  worth  of  the  right  to  exact  tribute  from  one's 
fellows  or  to  plunder  one's  fellows.  I  put  this  fraction  at  two-thirds 
admittedly  as  mere  estimate. 

Note  the  facts  as  reported  by  the  1904  census:  Out  of  the  107 
billions  of  material  wealth,  i8i  billions  are  reported  as  current  products 

1  Adapted  by  permission  from  H.  J.  Davenport,  "The  Extent  and  Significance 
of  the  Unearned  Increment,"  Bulletin  of  the  American  Economic  Association,  Fourth 
Series,  No.  2  (191 1),  324-26. 


PRIVATE  PROPERTY  973 

—clothing,  personal  ornaments,  furniture,  carriages.  Of  the  remain- 
ing 89  billions,  2  billions  are  coin  and  bullion.  Of  the  remaining 
87  billions,  62  billions  are  land  and  improvements  and  16  billions 
are  accounted  for  as  public  utility  corporations;  8  billions  remain 
for  live  stock  and  industrial  equipment.  Our  problem  has,  then, 
mostly  to  do  with  these  87  billions  of  social  equipment— income- 
earning  wealth  in  the  ordinary  sense.  We  find  this  total  to  divide 
into:  8  billions  of  non-transportation  equipment;  16  billions  of 
public  utility  wealth;  62  billions  of  land  and  improvements.  How 
much,  then,  of  this  87  billions  of  wealth  is  the  capitalized  bounty  of 
nature  or  the  capitalized  expectation  of  unearned  dividends  ? 

Recalling  that  mines  and  water  powers  are  included  within  the 
land  category;  that  the  ground  values  in  cities  like  New  York  and 
Chicago  are  twice  the  improvement  values;  that  four-fifths  of  the 
farm  values  are  land  values;  that  seven- twelfths  of  the  real  estate 
values  for  a  group  of  states  not  including  New  York,  Massachusetts, 
Illinois,  and  Pennsylvania  are  ground  values;  that  the  last  tax 
report  for  Illinois  gives  the  town  and  city  lots  as  assessed  at  twenty- 
four  times  the  farm  values — it  is  probably  conservative  to  say  that 
over  two-thirds  of  the  real  estate  wealth  of  the  country  is  in  ground 
values:  here  are  41  billions  of  unearned  increment. 

Estimating,  also,  the  value  of  rights  of  way  and  user,  and  of 
terminals  for  the  railroads  and  tramways,  express  companies,  tele- 
phone, electric  light,  and  telegraph  companies,  it  is  probably  not 
wide  of  the  truth  to  say  that  one-half  of  the  18  billions  value  of 
public  service  corporations  represents  merely  social  values.  If  there 
is  overstatement  here,  it  surely  does  not  offset  the  liberality  in  the 
division  of  real  estate  values. 

Here,  then,  are  approximately  50  billions  of  unearned  values  out 
of  a  total  of  87  billions.  Five-ninths  of  the  durable  wealth  reported 
by  the  census  is  made  up  of  privately  appropriated  social  wealth. 


D.     The  Position  of  Property 
373.    THE  POSITION  OF  PROPERTY  IN  AMERICA1 
The  fact  is  that  private  property  in  the  United  States,  in  spite 
of  all  the  dangers  of  unintelligent  legislation,  is  constitutionally  in 
a  stronger  position,  as  against  the   Government  and  the  Govern- 
ment authority,  than  is  the  case  in  any  country  in  Europe.    This  is 
Adapted  by  permission  from  A.  T.  Hadley,   Undercurrents  in  American 
Politics,  pp.   38-56.    (Yale  University  Press,  1915);    and  "The  Constitutional 
Position  of  Property  in  America,"  Independent,  LXIV  (1908),  834-37. 


g74  INDUSTRIAL  SOCIETY 

partly  because  the  governmental  means  provided  for  the  control  or 
limitation  of  private  property  are  weaker  in  America  than  elsewhere, 
but  chiefly  because  the  rights  of  private  property  are  more  formally 
established  in  the  Constitution  itself. 

This  may  seem  a  startling  proposition;  but  I  think  a  very  brief 
glance  at  the  known  facts  of  history  will  be  sufficient  to  support  and 
sustain  it.  For  property  in  the  modern  sense  was  a  comparatively 
recent  development  in  the  public  law  of  European  communities.  In 
the  United  States,  on  the  contrary,  property  in  the  modern  sense 
represents  the  basis  on  which  the  whole  social  order  was  established 
and  built  up. 

Down  to  about  the  thirteenth  century  the  system  of  land  tenure 
in  every  country  in  Europe  was  a  feudal  one.  It  was  based  upon 
military  service.  The  majority  of  those  who  wanted  to  cultivate  the 
soil  were  unable  to  protect  themselves  against  the  dangers-  of  war. 
In  the  absence  of  an  efficient  protector  or  overlord  no  amount  of 
industry  was  effective  and  no  large  accumulation  of  capital  was 
possible.  The  services  of  the  military  chief  were  indispensable  as  a 
basis  for  the  toil  of  the  laborer  or  the  forethought  of  the  capitalist.  It 
was  the  military  chief,  therefore,  who  enjoyed  not  only  the  largest 
measure  of  respect,  but  the  strongest  position  under  the  law.  As 
the  conditions  of  public  security  grew  better,  these  things  changed. 
From  the  fourteenth  century  to  the  nineteenth  Europe  has  witnessed 
the  gradual  substitution  of  industrial  tenures  for  military  tenures, 
the  gradual  development  of  a  system  of  property  law  intended  to 
encourage  the  activities  of  the  laborers  and  the  capitalists,  rather  than 
to  reward  the  services  of  the  successful  military  chieftain.  But  down 
to  the  end  of  the  eighteenth  century  this  new  sort  of  private  property 
represented  a  superadded  element  rather  than  an  integral  basis  of 
the  constitution  of  society.  And  even  the  developments  of  the  last 
hundred  years  in  constitutional  law  and  industrial  activity  have  not 
been  able  to  obliterate  a  certain  sense  of  newness  when  we  contrast 
the  position  of  the  aristocracy  of  wealth  with  that  of  the  aristocracy 
of  military  rank. 

In  the  American  colonies,  on  the  other  hand,  where  the  public 
law  of  the  United  States  first  took  its  rise,  conditions  were  wholly 
different.  People  wanted  no  military  chieftain  to  protect  them,  no 
overlord  to  rule  them.  There  was  plenty  of  land  for  all,  plenty  of 
opportunity  for  the  exercise  of  labor  and  the  use  of  capital.  That 
man  did  the  most  for  society  who  worked  hardest  and  saved  most. 


PRIVATE  PROPERTY  975 

Under  such  circumstances  the  laws  were  so  framed  and  interpreted 
as  to  give  the  maximum  stimulus  to  labor  and  the  maximum  rights 
to  capital.  There  was  no  military  aristocracy  which  stood  in 
the  way. 

At  the  time,  therefore,  when  the  United  States  separated  from 
England,  respect  for  industrial  property  right  was  a  fundamental 
principle  in  the  law  and  public  opinion  of  the  land.  It  was  natural 
enough  that  this  should  be  so  at  a  period  when  every  man  either 
held  property  or  hoped  to  do  so.  But  there  were  certain  circumstances 
connected  with  the  adoption  of  the  Constitution  of  the  United  States 
which  provided  for  the  perpetuation  of  this  state  of  things — which 
made  it  difficult  for  public  opinion  in  another  and  later  age,  when 
property  holding  was  less  widely  distributed,  to  alter  the  legal  con- 
ditions of  the  earlier  period. 

A  large  majority  of  the  members  of  the  Constitutional  Conven- 
tion of  1787  were  men  of  substance;  a  considerable  minority  were 
men  of  wealth.  They  had  viewed  with  apprehension  the  readiness 
of  their  fellow-countrymen  to  issue  paper  money,  to  scale  down 
debts,  or  to  interpret  the  obligation  of  contract  in  such  a  manner  as 
to  render  large  investments  of  capital  precarious.  It  was  at  once 
a  matter  of  personal  interest  and  of  public  interest  to  them  to  prevent 
this ;  of  personal  interest  because  acts  of  this  kind  would  impair  their 
own  enjoyment  and  success;  of  public  interest  because  it  was  vitally 
necessary  to  America  to  have  its  industry  and  commerce  managed 
in  the  most  efficient  and  far-sighted  way. 

This  fact  is  of  itself  sufficient  to  account  for  the  general  tone  of 
the  Constitution  on  matters  of  property  right.  But  there  are  certain 
clauses  in  that  instrument  which  have  been  even  more  effective  in 
securing  the  property  holders  against  adverse  legislation  than  the 
Convention  itself  intended  or  expected.  It  was  in  the  first  place 
provided  that  there  should  be  no  taking  of  private  property  without 
due  process  of  law.  The  states  rights  men  feared  that  the  federal 
government  might,  under  the  stress  of  military  necessity,  pursue  an 
arbitrary  policy  of  confiscation.  The  federalists,  or  national  party, 
feared  that  one  or  more  of  the  states  might  pursue  the  same  policy 
under  the  influence  of  sectional  jealousy.  To  avoid  this  double 
danger  both  parties  united  on  a  constitutional  provision  which  pre- 
vented the  legislature  or  executive,  either  of  the  nation  or  of  the 
individual  states,  from  taking  property  without  allowing  judicial 
inquiry  into  the  public  necessity  involved,  and  without  making  full 


976 


INDUSTRIAL  SOCIETY 


compensation  even  in  case  the  result  of  such  inquiry  was  favorable 
to  the  government;  and  it  was  further  provided,  by  another  equally 
important  clause  in  the  Constitution,  that  no  state  should  pass  a 
law  impairing  the  obligation  of  contracts. 

No  man  foresaw  what  would  be  the  subsequent  effect  of  these 
provisions  in  preventing  a  majority  of  voters,  acting  in  the  legislature 
or  through  the  executive,  from  disturbing  existing  arrangements  with 
regard  to  railroad  building  or  factory  operation  until  the  railroad 
stockholders  or  factory  owners  had  had  the  opportunity  to  have  their 
case  tried  in  courts.  Clauses  which  were  at  first  intended  to  prevent 
sectional  strife,  and  to  protect  the  people  of  one  locality  against 
arbitrary  legislation  in  another,  became  a  means  of  strengthening 
vested  rights  as  a  whole  against  the  possibility  of  legislative  or 
executive  interference.  Nor  was  the  direct  effect  of  these  clauses 
in  preventing  specific  acts  on  the  part  of  the  legislature  the  most 
important  result  of  their  existence.  They  indirectly  became  a  power- 
ful means  of  establishing  the  American  courts  in  the  position  which 
they  now  enjoy  as  arbiters  between  the  legislature,  and  the  property 
owner.  For  whenever  an  act  of  the  legislature  violated,  or  even 
seemed  to  violate,  one  of  these  clauses,  it  came  before  the  court  for 
review;  and  in  case  the  court  found  that  such  violation  existed,  the 
law  was  blocked — rendered  powerless  by  a  dictum  of  the  judges 
declaring  it  unconstitutional. 

But  constitutional  restraints  of  this  kind,  while  they  strengthened 
the  position  of  the  property  holder  in  American  politics,  could  not  give 
him  permanent  security  in  case  public  opinion  demanded  a  change. 
For  the  Constitution  itself  can  be  amended,  and  will  be  amended, 
when  there  is  a  consensus  of  voters  in  different  parts  of  the  country 
in  favor  of  amendment.  Alteration  of  the  Federal  Constitution  is  a 
slower  and  more  formal  thing  than  alteration  of  the  law,  or  than 
alteration  of  the  constitution  of  any  single  state.  But  it  comes 
when  there  is  a  demand  for  it.  Why  did  not  this  demand  make  itself 
felt  ?  Why  did  the  intensely  democratic  America  of  the  nineteenth 
century  rest  satisfied  with  constitutional  provisions  regarding  prop- 
erty rights,  which  were  devised  by  representatives  of  an  aristocratic 
society  in  the  eighteenth,  under  circumstances  which  strengthened 
the  hands  of  the  conservatives  ? 

The  first  cause  for  this  persistence  of  property  right  is  to  be  found 
in  the  land  policy  of  the  United  States.  The  method  adopted  in  the 
disposal  of  the  public  lands  promoted  democracy.     Side  by  side  with 


PRIVATE  PROPERTY  977 

this  effect,  and  in  curious  contrast  to  it,  was  an  equally  marked 
effect  in  promoting  industrial  conservatism.  The  immigrant  who 
settled  in  the  western  states  was  offered  two  things:  the  vote,  and  the 
chance  of  becoming  a  landowner.  The  opportunity  to  own  farms 
in  freehold  made  ambitious  settlers  conservative.  Men  with  a 
hundred  and  sixty  acres  of  land  were  not  likely  to  pass  laws  which 
would  interfere  with  the  rights  of  property,  and  particularly  of  landed 
property.  The  prospect  of  becoming  landowners  had  the  same  sort 
of  steadying  effect  upon  men  who  framed  the  constitutions  of  new 
states  in  1820  or  1830  that  the  fact  of  already  being  landowners  had 
upon  the  men  who  framed  the  Federal  Constitution  forty  years 
earlier. 

But  Hamilton's  policy  of  giving  a  home  at  a  nominal  price  to  every 
bona  fide  settler,  though  it  was  the  most  important  single  element 
in  securing  the  rights  of  property  against  measures  of  legislative 
interference,  was  by  no  means  the  only  influence  of  the  kind.  The 
immigrant  found  it  easy  to  get  land;  he  found  it  hard  to  get  capital. 
Natural  resources  were  present  in  abundance.  The  accumulated 
supplies  of  machinery,  fuel,  and  food  which  enable  man  to  utilize 
those  natural  resources  effectively  were  conspicuous  by  their  absence. 
Each  addition  to  the  capital  of  the  community,  however  small,  repre- 
sented a  large  addition  to  its  productiveness.  The  savings  of  the 
settlers  and  the  investments  of  citizens  who  lived  in  other  states  con- 
tributed alike  to  this  end. 

Under  these  circumstances  there  was  a  tendency  to  grant  all  pos- 
sible privileges  to  those  who  had  capital  for  investment  and  to  free 
them  from  arbitrary  restrictions  of  every  kind.  No  community  would 
enforce  a  usury  law  which  limited  the  rate  of  interest  to  six  per  cent 
when  people  who  borrowed  capital  at  eight  or  at  ten  per  cent  made 
large  and  legitimate  profits  over  and  above  the  interest  rate.  The 
dangers  lay  in  the  opposite  direction.  All  through  the  period  from 
1830  to  i860  the  western  states  of  the  Union  tended  to  encourage 
every  sort  of  scheme  which  would  attract  capital  or  the  semblance  of 
capital,  without  much  regard  to  its  present  or  prospective  soundness. 
Banking  laws  were  so  loosely  and  carelessly  drawn  that  a  board  of 
directors  could  issue  large  amounts  of  notes  upon  small  amounts  of 
reserve.  The  bank  notes,  so  long  as  they  circulated  from  hand  to 
hand,  appeared  to  increase  the  working  capital  of  the  community; 
and  any  man  who  undertook  to  examine  too  closely  the  nature  of  the 
security  that  lay  behind  the  note  was  regarded  as  an  unpatriotic 


978 


INDUSTRIAL  SOCIETY 


member  of  society,  who  in  an  excess  of  selfish  over-caution  questioned 
the  validity  of  a  bill  which  he  might  just  as  easily  have  passed  on  to 
the  next  man  without  inquiry.  Not  until  the  time  of  the  Civil  War, 
when  the  United  States  government  needed  to  use  the  banks  as  a 
means  in  carrying  out  its  own  fiscal  policies,  was  this  state  of  things 
effectively  remedied. 

Among  many  means  employed  by  the  states  of  the  Union  toward 
rapid  development  of  their  resources  the  joint-stock  company  or 
industrial  corporation  was  most  prominent. 

The  incorporation  acts  of  the  colonies  at  the  end  of  the  eighteenth 
century  were  based  almost  entirely  upon  English  models.  The 
American  law,  like  the  English  law  of  the  same  period,  was  reluctant 
to  allow  people  to  avail  themselves  of  the  principle  of  limited  lia- 
bility until  there  had  been  a  special  examination  of  the  circumstances 
by  some  public  authority.  But  as  time  went  on  this  state  of  things 
changed  rapidly.  There  were  in  America  almost  no  large  capitalists 
who  could  finance  industrial  enterprises  on  an  extensive  scale.  To 
build  factories  or  canals  it  was  necessary  to  get  a  large  number  of 
small  investors  united;  and  these  investors  could  not  safely  plan 
to  unite  their  fortunes  for  the  promotion  of  speculative  enterprises 
unless  limited  liability  was  assured  them  as  a  matter  of  course. 

Most  people  were  too  much  occupied  with  the  necessity  of  getting 
capital  for  their  several  communities  to  trouble  their  minds  very  much 
about  what  might  be  done  with  the  capital  when  it  was  once  invested. 
There  was  far  more  tendency  to  help  the  corporations  by  subsidies 
and  special  privileges  than  to  limit  them  by  laws  whose  immediate 
necessity  was  not  very  obvious.  Charters  were  granted  with  the 
utmost  freedom  by  almost  every  state  in  the  Union;  and  charter 
powers  once  given  could  not  easily  be  restricted. 

The  control  of  the  government  over  corporations  was  weakened, 
and  the  rights  and  immunities  of  the  property  holders  were  correspond- 
ingly strengthened,  by  two  developments  of  constitutional  law  whose 
effect  upon  the  modern  industrial  situation  may  be  fairly  character- 
ized as  fortuitous.  One  of  these  was  the  decision  in  the  celebrated 
Dartmouth  College  case  in  1 819;  the  other  was  the  passage  of  the 
Fourteenth  Amendment  to  the  Constitution  of  the  United  States  in 
1868. 

I  call  their  effect  fortuitous,  because  neither  the  judges  who 
decided  the  Dartmouth  College  case,  nor  the  legislators  who  passed 
the  Fourteenth  Amendment,  had  any  idea  how  these  things  would 


PRIVATE  PROPERTY  979 

affect  the  modern  economic  situation.  The  Dartmouth  College  case 
dealt  with  an  educational  institution,  not  with  an  industrial  enterprise. 
The  Fourteenth  Amendment  was  framed  to  protect  the  negroes  from 
oppression  by  the  legislature.  It  is  doubtful  whether  a  single  one 
of  the  members  of  Congress  who  voted  for  it  had  any  idea  that  it 
would  touch  the  question  of  corporate  regulation  at  all.  Yet  the  two 
together  have  had  the  effect  of  placing  the  American  industrial 
corporation  in  a  constitutional  position  of  extraordinary  vantage. 

In  1816  the  New  Hampshire  legislature  attempted  to  abrogate 
the  charter  of  Dartmouth  College.  Daniel  Webster  was  employed 
by  the  college  in  its  defense.  His  reasoning  so  impressed  the  members 
of  the  court  that  they  committed  themselves  to  the  position  that  a 
charter  was  a  contract;  that  a  state,  having  induced  people  to  invest 
money  by  certain  privileges  and  immunities,  could  not  at  will  modify 
these  privileges  and  immunities  thus  granted. 

Again,  by  the  Fourteenth  Amendment  to  the  Federal  Constitution 
the  states  were  forbidden  to  interfere  with  the  civil  rights  of  any 
person  or  to  pass  discriminating  laws  which  should  treat  different 
persons  unequally.  This  amendment,  passed  just  after  the  close  of 
the  Civil  War,  was  intended  simply  to  protect  the  negro;  to  prevent 
the  southern  states  which  were  in  the  act  of  being  readmitted  to  the 
Union  from  abridging  the  rights  of  the  blacks.  A  number  of  years 
elapsed  before  the  probable  effect  of  this  clause  upon  the  constitutional 
position  of  industrial  corporations  seems  to  have  been  realized.  But 
in  1882  the  Southern  Pacific  Railroad  Company,  having  been,  as  it 
conceived,  unfairly  taxed  by  the  assessors  of  a  certain  county  in  Cali- 
fornia, took  the  position  that  a  law  of  the  state  of  California,  taxing 
the  property  of  corporations  at  a  different  rate  from  that  of  individuals, 
was  in  effect  a  violation  of  the  Fourteenth  Amendment  to  the  Con- 
stitution, because  a  corporation  was  a  person  and  therefore  entitled 
to  the  same  kind  of  treatment  as  any  other  person.  This  view,  after 
careful  consideration,  was  upheld  by  the  federal  courts.  A  corpora- 
tion, therefore,  under  the  law  of  the  United  States,  is  entitled  to  the 
same  immunities  as  an  individual;  and  since  the  charter  creating 
it  is  a  contract  whose  terms  cannot  be  altered  at  the  will  of  the 
legislature  which  is  a  party  thereto,  its  constitutional  position  as 
a  property  holder  is  much  stronger  in  America  than  it  is  anywhere 
in  Europe. 

Under  these  circumstances,  it  is  evident  that  large  powers  and 
privileges  have  been  constitutionally  delegated  to  private  property 


gpo  INDUSTRIAL  SOCIETY 

in  general  and  to  corporate  property  in  particular.  I  do  not  mean 
that  property  owners,  and  specifically  the  owners  of  corporate  prop- 
erty, have  more  practical  freedom  from  interference  in  the  United 
States  than  they  do  in  some  other  countries,  notably  in  England. 
Probably  they  do  not  have  as  much.  But  their  theoretical  position — 
the  sum  of  the  conditions  which  affect  their  standing  for  the  long 
future  and  not  for  the  immediate  present — is  far  stronger  in  the 
United  States.  The  general  status  of  the  property  owner  under  the 
law  cannot  be  changed  by  the  action  of  the  legislature  or  the  executive, 
or  the  people  of  a  state  voting  at  the  polls,  or  all  three  put  together. 
It  cannot  be  changed  without  either  a  consensus  of  opinion  among 
the  judges,  which  should  lead  them  to  retrace  their  old  views,  or  an 
amendment  of  the  Constitution  of  the  United  States  by  the  slow  and 
cumbersome  machinery  provided  for  that  purpose,  or,  last — and  I 
hope  most  improbable — a  revolution. 

374.     THE  FUTURE  DEVELOPMENT  OF  PRIVATE  PROPERTY1 

We  notice  movements  actually  going  on  which  take  five  directions, 
all  of  which  are  destined,  as  those  responsible  for  these  movements 
think,  to  improve  the  institution  concerned,  namely: 
I.  An  increase  in  the  mass  of  free  goods. 

II.  A  restriction  of  the  extent  of  private  property  and  corresponding 
extension  of  public  property. 

III.  A  development  of  the  social  side  of  private  property. 

IV.  An  extension  of  private  property  along  certain  lines:  development 
of  rights  akin  to  private  property. 

V.  Changes  in  the  modes  of  acquisition  of  private  property. 

I.  These  free  goods  are  very  generally  intellectual  goods,  ideas  to 
which  we  fall  heir  with  the  expiration  of  specific  pieces  of  intellectual 
property. 

II.  In  regard  to  the  extension  of  public  property,  illustrations 
readily  occur.  Public  pleasure  and  playgrounds  are  examples. 
Natural  wonders,  historical  scenes,  etc.,  fall  under  this  head;  for 
example,  Niagara  Falls.  Places  of  historical  interest  and  many 
beautiful  pieces  of  property  ought  to  be  public  property  and  not 
private.    Forests  come  under  this  head. 

III.  The  present  movement  appears  to  be  along  the  third  of  these 
lines,   manifested  in  the  increasing  public  control  exercised  over 

1  Adapted  by  permission  from  R.  T.  Ely,  Property  and  Contract  in  Their 
Relation  to  the  Distribution  of  Wealth,  1, 340-46, 361-94.    (The  Macmillan  Co.,  1914.) 


PRIVATE  PROPERTY  98r 

so-called  public  utilities,  railways,  gas  works,  etc.  In  the  case  of 
water-supply  the  main  movement  in  trie  United  States  is  for  public 
ownership  and  there  is  clear  indication  of  a  purpose  on  the  part  of  the 
American  people  to  hand  over  to  public  ownership  that  whole  class  of 
undertakings  which  we  call  natural  monopolies— those  lines  of  busi- 
ness in  which  competition  is  excluded  by  the  nature  of  the  case; 
that  is,  permanent  successful  competition— provided  control  as 
opposed  to  public  ownership  does  not  prove  successful. 

IV.  The  fourth  line  of  development  is  the  extension  of  private 
property  and  the  development  of  rights  akin  to  property.  Now  this 
would  seem  to  contradict  the  second  line  of  development,  but  the 
apparent  contradiction  here  is  after  all  not  a  real  contradiction 
because  the  development  of  private  property  to  which  reference  is 
made  is  along  new  lines. 

We  need  a  development  of  private  property  sufficiently  firm  and 
strong  to  protect  individuals  who  come  into  conflict  with  private 
corporations.  Numerous  illustrations  of  virtual  invasions  of  property 
rights  by  powerful  corporations  can  easily  be  cited.  One  of  these 
is  through  false  report  of  earnings,  thus  inducing  individuals  to  make 
investments,  getting  their  money  from  them  under  false  pretenses. 
Note  further  the  abuse  of  the  interests  of  minority  holders  and 
"outside"  interests. 

,  But  the  author  has  in  mind  still  another  matter— the  relations 
existing  between  persons  and  property,  which  show  especially  the 
necessity  of  a  development  of  personal  rights  with  pecuniary  signifi- 
cance. First  of  all,  let  us  think  of  the  right  of  a  person  to  the  protection 
of  the  valuable  economic  powers  which  he  has,  those  powers  of  pecuniary 
significance  which  are  wrapped  up  in  the  natural  person — intellectual 
powers  and  physical  powers;  the  right  to  the  strength  of  his  arms 
against  needless  mutilation  by  transportation  companies  of  all  sorts, 
manufacturing  companies,  unscrupulous  employers;  a  right  finding 
one  expression  in  an  employers'  liability  to  correspond  with  the 
liability  of  those  who  damage  valuable  material  property;  that 
is,  responsibility  for  damages  of  a  pecuniary  significance  to  the 
person. 

We  find  also  in  process  of  evolution  the  right  to  be  well  born,  to  be 
born  under  favourable  conditions.  This  is  what  tenement  house  laws 
mean,  what  sanitary  laws  mean — the  right  to  a  home  under  sanitary 
conditions;  the  right  to  a  development  of  the  powers  of  body  and 
mind.     Such  a  right  is  secured  in  part  by  our  public  schools  and 


982 


INDUSTRIAL  SOCIETY 


compulsory  education.  Laws  shortening  the  length  of  the  working 
day  or  week  may  also  be  regarded  from  the  point  of  view  of  the 
right  of  children  to  be  well  born. 

And  what  about  the  right  to  an  assured  income  ?  It  is  certainly 
as  important  a  right  as  could  be  developed;  there  is  some  move- 
ment in  this  direction.    How  far  is  it  desirable  to  go  in  respect  to 

this? 

The  right  to  reputation  is  also  a  right  of  this  character  and  a 
right  not  well  developed,  although  the  theory  of  the  law  is  that 
this  right  should  be  secured  and  we  have  some  protection.  It  is 
difficult  to  secure  this  right  without  limiting  free  discussion  and 
free  speech. 

V.  We  take  up  now  the  fifth  line  of  development  and  deal  with 
modifications  in  the  modes  of  acquisition  of  private  property. 

It  is  sufficient  for  present  purposes  to  call  attention  to  the  pro- 
nounced self-conscious  efforts  of  civilised  society  to  make  it  easier  to 
acquire  property  through  labour.  This  movement  is  one  of  the  great 
dominant  tendencies  of  our  age,  and  never  in  earlier  centuries  has  the 
world  seen  anything  like  it.  Even  a  catalogue  of  existing  measures 
would  require  much  space.  We  have  education  in  all  its  phases,  pro- 
tective labour  legislation,  modern  industrial  insurance,  improved 
dwellings,  and  numerous  other  measures  which  will  occur  to  the 
intelligent  reader. 

What  is  the  conscious  social  tendency  with  respect  to  speculative 
gains  ?  We  can  see  when  we  review  the  whole  ground — although  it  may 
surprise  those  who  have  not  done  so — that  there  is  a  clearly  marked 
tendency  unfavourable  to  speculative  gains,  including  chance  gains  or, 
as  they  are  technically  called,  gains  of  conjuncture. 

We  observe  an  increasingly  severe  inspection  of  banking  business 
throughout  the  world  and  it  is,  in  part,  with  a  view  to  cutting  down 
speculative  gains.  Publicity  of  corporate  accounts  tends  in  this 
direction.  Speculation  finds  a  considerable  field  in  secrecy  of  accounts 
and  in  false  accounts.  In  the  accounts  of  monopolies,  especially,  the 
tendency  of  unregulated  private  management  is  to  cut  down  the 
apparent  gains. 

We  find  a  movement  somewhat  antagonistic  to  profits  in  the  desire 
to  restrict  and  regulate  the  amount  received  by  capital. 

We  find  also  a  tendency  to  reduce  the  gains  of  monopolies  to  what 
are  regarded  by  legislatures  and  courts  as  fair  returns  to  capital  and 
enterprise. 


PRIVATE  PROPERTY 


983 


Finally,  we  have  efforts  to  cut  down  the  private  receipts  of  the 
rent  of  land.  Apart  from  the  agitation  of  opponents  of  landed  prop- 
erty, we  have  a  pronounced  movement  in  favour  of  the  public  owner- 
ship of  natural  treasures  and  water-power. 

We  come  next  to  modifications  in  the  treatment  of  gifts  and 
inheritances.  This  is  one  of  the  great  world  movements  of  the  age 
which  attracts  inadequate  attention  at  the  present  time.  We  not 
only  have  the  taxation  of  gifts  and  inheritances,  but  we  have  a  regula- 
tion apart  from  taxation. 

See  also  265.  Forces  Governing  the  Distribution  of  Property. 

266.  Forces  Governing  the  Differences  of  Incomes  from 
Work. 

E.    Wealth  and  Welfare 

375.     DEMAND  AN  EXPRESSION  OF  THE  POWER  OF 
OWNERSHIP1 

What  is  demand  ?  It  is  simply  an  expression  of  economic  power 
and  will  as  determined  by  all  the  existing  conditions.  It  is  as  much 
the  effect  as  the  cause  of  the  actual  state  of  the  economic  system. 
Like  all  our  inheritance  it  comes  down  from  the  past  in  a  turbid 
stream,  bearing  with  it  those  struggles  and  compromises  that  make 
up  human  history.  All  the  evils  of  the  economic  system,  except  those 
which  are  added  in  the  market  process,  are  already  implicit  in  demand 
and  of  course  are  transmitted  to  production  and  distribution. 

As  to  demand  being  an  expression  of  existing  conditions,  note,  for 
instance,  that  it  is  largely  a  class  phenomenon.  From  income  statis- 
tics collected  in  England  and  Germany  for  purposes  of  taxation  it 
appears  that  about  one-tenth  of  the  population  receive  half  of  the 
income.  No  doubt  we  must  allow  for  a  larger  percentage  of  saving 
among  the  richer  classes,  but  I  doubt  whether  this  is  not  offset  by  the 
notorious  understatement  of  large  incomes.  It  seems  to  me  a  fair 
guess,  not  excessive  when  judged  by  ordinary  observation,  that  one- 
tenth  of  the  people  in  a  modern  commercial  state  consume  half  of  the 
produce.  If  so,  demand  is  preponderately  determined  by  the  eco- 
nomic power  and  will  of  about  this  fraction  of  the  people — a  condition 
to  be  explained  only  by  taking  a  view  of  economic  process  large  enough 

1  Taken  by  permission  from  C.  H.  Cooley,  "Political  Economy  and  Social 
Process,"  Journal  of  Political  Economy,  XXVI  (1918),  368-70. 


9$4 


INDUSTRIAL  SOCIETY 


to  include  the  many  forces  tending  to  such  a  concentration  of  power. 
Whether  this  tenth  is  fit  to  exercise  such  a  predominance  over  the 
whole  process  I  have  not  time  to  inquire:  it  is  obvious  that  something 
might  be  said  on  both  sides.  It  means  much  waste  and  misdirection 
of  social  resources,  but  also  the  fostering  of  important  interests  which 
a  more  equal  distribution  of  power  might  possibly  neglect. 

I  need  hardly  illustrate  the  statement  that  demand  brings  with 
it  all  the  vices  and  degeneracy  of  the  actual  social  system:  it  calls  for 
drink,  for  prostitution,  for  child  labor,  for  currupt  politics  as  loudly 
as  for  better  things.  Are  these  things  the  outcome  of  the  inherent 
corruption  of  human  nature  ?  In  one  sense,  yes;  in  another  they  are 
the  outcome  of  the  economic  process  itself.  If  productivity  as  judged 
on  the  market  is  assumed  as  the  righteous  or  approximately  righteous 
basis  of  distribution,  demand,  with  all  its  implications,  is  accepted  as 
the  standard  of  economic  justice.  With  the  further  argument,  very 
questionable  in  my  judgment,  that  competition  is,  or  tends  to  be, 
effectual  in  giving  to  each  man  or  agent  a  share  proportional  to  his 
productivity,  I  have  nothing  at  present  to  do:  I  wish  only  to  note 
the  fatuity  of  the  assumption.  If  demand  itself  is  organized  wrong — 
as  in  great  measure  it  certainly  is — even  an  efficient  process  may  bind 
men  into  this  wrong.  I  need  only  mention  the  case  of  a  girl  com- 
paring the  earnings  of  needlework  with  those  of  prostitution,  or  of 
children  forced  prematurely  into  monotonous  and  stunting  labor,  to 
show  what  I  mean.  And  these  are  not  exceptional  cases  but  typical 
of  a  great  part  of  the  actual  working  of  demand.  It  would  be  easy 
to  show  that  a  society  might  conceivably  be  quite  just  according  to 
the  law  of  productivity,  and  yet  vicious,  decadent,  and  with  half  its 
population  in  hopeless  poverty.  The  vices  and  luxury  would  be  duly 
paid  for  according  to  this  law,  and  the  increasing  poverty  would  be 
justified  by  the  increasing  inefficiency  which  naturally  attends  it. 

376.    SOME  MISUSES  OF  THE  POWER  OF  OWNERSHIP1 

The  ownership  of  the  material  equipment  gives  the  owner  not  only 
the  right  of  use  over  the  community's  immaterial  equipment,  but  also 
the  right  of  abuse  and  of  neglect  or  inhibition.  This  power  of  inhi- 
bition may  be  made  to  afford  an  income,  as  well  as  the  power  to  serve; 
and  whatever  will  yield  an  income  may  be  capitalized  and  become 
an  item  of  wealth  to  its  possessor.    Under  modern  conditions  of 

1  Adapted  by  permission  from  Thorstein  Veblen,  "On  the  Nature  of  Capital," 
Quarterly  Journal  of  Economics,  XXIII  (1908-9),  106-11. 


PRIVATE  PROPERTY 


985 


th 

in 
ne 


investment  it  happens  not  infrequently  that  it  becomes  pecuniarily 
expedient  for  the  owner  of  the  material  equipment  to  curtail  or 
retard  the  processes  of  industry— "  restraint  of  trade."  Except  for 
the  exigencies  of  investment,  i.e.,  exigencies  of  pecuniary  gain  to  the 
investor,  phenomena  of  this  character  would  have  no  place  in  the 
industrial  system.  They  invariably  come  of  the  endeavors  of  busi- 
ness men  to  secure  a  pecuniary  gain  or  to  avoid  a  pecuniary  loss. 
More  frequently,  perhaps,  maneuvers  of  inhibition— advised  idleness 
of  plant— in  industry  aim  to  effect  a  saving  or  avoid  a  waste  than  to 
procure  an  increase  of  gain;  but  the  saving  to  be  effected  and  the 
waste  to  be  avoided  are  always  pecuniary  saving  to  the  owner  and 
pecuniary  waste  in  the  matter  of  ownership,  not  a  saving  of  goods 
to  the  community  or  a  prevention  of  wasteful  consumption  or  waste- 
ful expenditure  of  effort  and  resources  on  the  part  of  the  community. 
Pecuniary  advantage  to  the  capitalist-manager  has,  under  the  regime 
of  investment,  taken  precedence  of  economic  advantage  to  the  com- 
munity. 

But,  aside  from  such  capitalization  of  inefficiency,  it  is  at  least 
an  equally  consequential  fact  that  the  processes  of  productive  industry 
are  governed  in  detail  by  the  exigencies  of  investment,  and  therefore 
by  the  quest  of  gain  as  counted  in  terms  of  price,  which  leads  to  the 
dependence  of  production  on  the  course  of  prices.  So  that,  under  a 
regime  of  capital,  the  community  is  unable  to  turn  its  knowledge  of 
ways  and  means  to  account  for  a  livelihood  except  at  such  seasons 
and  in  so  far  as  the  course  of  prices  affords  a  differential  advantage 
to  the  owners  of  the  material  equipment.  The  question  of  advanta- 
geous— which  commonly  means  rising — prices  for  the  owners  (man- 
agers) of  the  capital  goods  is  made  to  decide  the  question  of  livelihood 
for  the  rest  of  the  community.  The  recurrence  of  hard  times,  unem- 
ployment, and  the  rest  of  that  familiar  range  of  phenomena  goes  to 
show  how  effectual  is  the  inhibition  of  industry  exercised  by  the 
ownership  of  capital  under  the  price  system. 

Typical  of  a  class  of  investments  which  derive  profits  from  capital 
goods  devoted  to  uses  that  are  altogether  dubious,  with  a  large  pre- 
sumption of  net  detriment,  are  such  establishments  as  race- tracks, 
saloons,  gambling-houses,  and  houses  of  prostitution. 

There  is,  further,  a  large  field  of  business,  employing  much  capital 
goods  and  many  technological  processes,  whose  profits  come  from 
products  in  which  serviceability  and  disserviceability  are  mingled  with 
waste,  and  in  the  most  varying  proportions.    Such  are  the  production 


986 


INDUSTRIAL  SOCIETY 


of  goods  of  fashion,  disingenuous  proprietary  articles,  sophisticated 
household  supplies,  newspapers,  and  advertising  enterprise.  In 
the  degree  in  which  business  of  this  class  draws  its  profits  from  waste- 
ful practices,  spurious  goods,  illusions  and  delusions,  skilled  men- 
dacity, and  the  like,  the  capital  goods  engaged  must  be  said  to  owe 
their  capitalizable  value  to  a  perverse  use  of  the  technological  expedi- 
ents employed. 

These  wasteful  or  disserviceable  uses  of  capital  goods  have  been 
cited,  not  as  implying  that  the  technological  proficiency  embodied  in 
these  goods  or  brought  into  effect  in  their  use,  intrinsically  has  a  dis- 
serviceable bearing,  nor  that  investment  in  these  things,  and  business 
enterprise  in  the  management  of  them,  need  aim  at  disserviceability, 
but  only  to  bring  out  certain  minor  points,  obvious  but  commonly 
overlooked:  (a)  technological  proficiency  is  not  of  itself  an  intrin- 
sically serviceable  or  disserviceable  to  mankind — it  is  only  a  means 
of  efficiency  for  good  or  ill;  (b)  the  enterprising  use  of  capital  goods 
by  their  business-like  owner  aims,  not  at  serviceability  to  the  com- 
munity, but  only  at  serviceability  to  the  owner;  (c)  under  the  price 
system — under  the  rule  of  pecuniary  standards  and  management — 
circumstances  make  it  advisable  for  the  business  man  at  times  to 
mismanage  the  processes  of  industry,  in  the  sense  that  it  is  expedient 
for  his  pecuniary  gain  to  inhibit,  curtail,  or  misdirect  industry,  and 
so  turn  the  community's  technological  proficiency  to  the  community's 
detriment. 

377-  DEMAND  NOT  AN  INFALLIBLE  REGULATOR1 
There  are  some  important  cases  in  which  freely  determined  prices 
cannot  be  recognized  as  being  fitted  adequately  to  regulate  the  use  of 
social  resources.  In  the  first  place,  whenever  present  action  is  likely 
to  affect  greatly  the  remoter  future,  there  is  always  danger  that  con- 
flict will  arise  between  the  immediate  advantage  of  the  individual  and 
the  long-run  advantage  of  society.  Thus,  through  the  powerful  call 
of  high  prices,  the  natural  resources  of  a  nation,  such  as  its  stock  of 
coal,  of  copper,  of  lumber,  may  be  too  freely  consumed  in  meeting 
present  needs.  Again,  the  labor  power  of  a  community  may  be  slowly 
exhausted  by  the  overworking  of  women  or.  the  too  early  or  too  severe 
toil  of  children,  as  also  by  seriously  unfavorable  conditions  in  respect 
to  housing  and  food.     In  cases  like  these  it  is  always  possible  that  the 

1  Taken  by  permission  from  F.  M.  Taylor,  Principles  of  Economics,  pp. 
410-11.     (University  of  Michigan,  1916.) 


PRIVATE  PROPERTY  987 

automatic  working  of  prices  will  do  great  harm;  that,  consequently, 
it  will  become  the  duty  of  the  state  to  intervene,  even  perhaps  to  make 
a  certain  industry  wholly  collectivist,  e.g.,  mining. 

Glaring  cases  wherein  freely  determined  prices  fail  to  secure  the 
proper  guidance  of  economic  action  arise  in  fields  where  extreme 
ignorance  and  credulity  on  the  part  of  consumers  are  almost  certain 
to  be  present.  Particularly  notable  examples  are  supplied  in  the 
medical  field.  The  services  of  quacks,  the  nostrums  of  patent  medi- 
cine companies,  are  products  for  which  the  market  demand  is  high, 
while  they  almost  always  involve  a  waste  of  social  resources  and  often 
great  positive  injury  to  consumers. 

Another  particular  in  which  freely  determined  price  cannot  be 
recognized  as  an  adequate  guide  to  our  action  is  in  the  suppression 
of  not  a  few  forms  of  anti-social  action.  Thus  there  are  jmany  forms 
of  vice,  and  very  hurtful  vice,  which  flourish  like  a  green  bay  tree 
if  left  to  the  regulation  of  price.  Again,  certain  conditions  the 
elimination  of  which  is  assumed  as  a  part  of  the  very  basis  of  the 
present  order  can  be  rooted  more  and  more  strongly  into  that  order 
through  the  free  working  of  price.  I  have  in  mind  certain  types  of 
fraud,  evasion  of  law,  evasion  of  contract  obligation,  even  violence, 
and  so  on.  These  may  be  promoted  by  an  order  which  makes  the 
use  of  our  capacities  follow  the  lines  pointed  out  by  demand  prices, 
for  the  man  who  wishes  to  accomplish  these  anti-social  results  can 
often  bid  very  high  for  the  natural  resources  or  personal  services 
necessary  to  accomplish  his  ends.  If  common  opinion  is  to  receive 
any  credence,  the  corporation  attorney  is  often  paid  a  large  salary 
to  assist  his  company  in  violating  law,  or  at  least  in  running  as  close 
to  doing  so  as  is  possible  without  disastrous  results. 

Another  case  in  which  social  control  through  prices  is  often  inade- 
quate arises  when  there  are  extreme  discrepancies  between  needs  as 
expressed  in  demand  prices  and  those  needs  as  measured  by  an  impar- 
tial observer.  Demand  prices  represent  not  absolute  needs  but  only 
needs  as  these  are  estimated  by  the  persons  immediately  concerned; 
and,  since  persons  differ  greatly  in  their  temperament,  taste,  needs, 
and  above  all  in  their  buying  power,  demand  prices  are  far  from 
representing  needs  in  any  absolute  sense.  Now  society  is  not  pri- 
marily interested  in  supplying  needs  in  accord  with  their  absolute 
magnitude— the  general  good  demands,  not  that  the  price  expression 
of  needs  shall  coincide  with  the  absolute  magnitude  of  those  needs, 
but  rather  that  they  shall  coincide  with  the  significance  of  those  needs 


988  INDUSTRIAL  SOCIETY 

as  being  needs  the  satisfying  of  which  conditions  the  attainment  of 
truly  social  ends;  and  this  will  commonly  mean  that  there  will  be 
a  discrepancy  between  the  price  expression  and  the  absolute  magni- 
tude of  a  need.  But,  while  this  is  true,  the  discrepancy  can  be  too 
great  to  be  endurable  among  a  people  having  any  considerable  moral 
development.  Even  those  persons  who  most  earnestly  advocate 
leaving  freely  determined  prices  to  guide  our  use  of  society's  resources 
would  not  claim  that  a  luxury-need  of  the  better-off  classes  should 
outweigh  the  need  of  a  person  who  is  in  danger  of  starvation.  In  like 
manner,  the  need  of  the  poor  for  good  medical  care,  the  need  of  the 
blind,  of  the  deaf,  and  of  other  defectives  for  education  and  support — 
these  needs  are  more  and  more  coming  to  be  recognized  as  having  a 
paramount  claim  upon  society,  even  though  they  find  no  adequate 
expression,  or  perhaps  none  at  all,  in  demand  prices. 


See  also       139.  Faulty  Direction  of  Economic  Activity. 
140.  Production  for  Profit. 
262.  Why  Wealth  Should  Be  in  the  Hands  of  the 

Many. 
264.  Forces  Making  for  Equality  and  Inequality. 
267-70    on  The  Distribution  of  Wealth  and  Income. 
271-74    on  Poverty. 

374.  The  Future  Development  of  Private  Property. 


CHAPTER  XV 
SOCIAL  CONTROL 
A.    Problems  at  Issue 

In  a  very  real  sense  all  preceding  chapters  have  dealt  with  social 


control.  Social  control  is  intimately  related  to  every  outstanding 
feature  of  our  industrial  society.     It  permeates  all  of  them.    It  has 

■appeared  so  frequently,  both  directly  and  indirectly,  in  every  pre- 
ceding chapter  that  its  introduction  as  a  formal  topic  at  this  point  is 
in  one  sense  little  more  than  a  resurvey  of  all  our  preceding  discus- 
sion from  a  single  point  of  view. 

The  aims  of  this  chapter  are  to  give  us  an  awareness  that  social 
control  is  something  we  could  not  escape  even  if  we  would;  to  have 
us  realize  something  of  the  complexity  and  interactions  of  its  various 
forms;  to  give  us  some  appreciation  of  the  changing  character  of 
control  as  society  moves  on;  to  enable  us  to  form  some  tentative  con- 
clusion concerning  the  kind  of  control  which  is  likely  to  work  well  in 
a  given  case;  and  to  let  us  see  something  of  the  character  of  the 
problem  involved  in  conscious  direction  of  social  control. 

QUESTIONS 

i.  Draw  up  a  classified  list  of  the  forms  or  agencies  of  social  control. 

2.  "We  shall  have  social  control  whether  we  are  aware  of  it  or  not  and 
whether  we  wish  it  or  not."    Prove  or  disprove. 

3.  Although  some  of  the  points  mentioned  are  not  covered  in  your  reading, 
try  to  estimate  what  service  in  social  control  can  be  rendered  by 
(a)  sympathy,  (b)  sense  of  justice,  (c)  the  crowd,  (d)  public  opinion, 
(e)  custom,  (/)  religion,  (g)  the  law,  Qi)  morality,  (*)  education,  (J)  sug- 
gestion, (k)  ceremony,  (/)  fashion,  (m)  tradition. 

4.  Take  up  each  of  the  factors  mentioned  in  the  preceding  question  and 
consider  whether  you  can  cite  any  specific  instance  (1)  where  the  busi- 
ness manager  would  need  to  consider  that  factor;  (2)  where  the  factor 
would  be  sufficiently  important  to  cause  a  readjustment  in  the  internal 
organization  of  a  business. 

5.  How  do  professional  standards  and  ideals  grow  up  ?  What  gives  them 
their  binding  power  ?  Are  they  imposed  for  the  good  of  society  at 
large  or  for  the  good  of  the  trade  or  profession  ?  Can  the  large  social 
group  impose  its  standards  in  the  same  way  ? 

6.  "The  proverbial  energy  and  prosperity  of  new  communities  or  of  new 
businesses  are  due  largely  to  their  escape  from  the  burden  of  the  past." 

989 


990  INDUSTRIAL  SOCIETY 

What  dangers  accompany  this  immunity  ?     Can  you  cite  illustrations 
of  businesses  to  which  your  statements  will  apply  ? 

7.  "The  characteristics  of  modern  fashion  as  distinguished  from  earlier 
fashion  are:  (1)  the  immense  number  of  objects  to  which  it  extends; 
(2)  the  uniformity  of  fashion;  (3)  the  maddening  tempo  of  the  changes 
of  fashion."    Why  should  these  be  characteristics  of  modern  fashion  ? 

8.  Show,  by  illustration,  how  each  of  the  following  has  served  as  an  agency 
of  social  control:  the  miracle  plays,  auricular  confession,  the  worship 
of  saints,  the  high  social  value  set  on  thrift,  the  union  label,  vested 
interests.     . 

9.  By  whom  is  public  opinion  formed — by  the  few  or  by  the  many  ? 

10.  "Public  opinion  is  slow  and  clumsy  in  grappling  with  large  practical 
problems."    Why? 

11.  Make  a  list  of  the  conditions  prerequisite  to  a  sound  use  of  public 
opinion  as  an  agency  of  control.  Can  public  opinion  be  used  effectively 
as  an  agency  of  control  in  the  absence  of  a  definite  social  ideal  ? 

12.  Draw  up  in  parallel  columns  the  factors  making  for  and  against  the 
development  of  honest,  disinterested  public  opinion.  What  is  your 
conclusion  with  respect  to  the  resultant  tendency  in  the  matter  ? 

13.  Should  you  regard  imitation  as  a  case  of  formal  or  informal  social  con- 
trol? What  reasons  can  you  assign  for  a  belief  that  imitation  plays 
a  large  part  in  social  control  ?  Does  it  play  as  large  a  part  as  it  did 
in  mediaeval  society  ? 

14.  Compare  the  organizing  functions  performed  by  custom  in  mediaeval 
and  modern  society. 

15.  How  would  you  define  "social  inheritance"  ?  Mention  cases  of  social 
inheritance.    How  does  this  inheritance  take  place  ? 

16.  "  Culture  has  an  economic  function."     Explain. 

17.  "Law  is  too  costly  to  be  used  to  enforce  the  whole  moral  law."     Why  ? 

18.  "The  law  draws  the  line  on  the  average  man."  Why  ?  Just  what  does 
the  statement  mean  ? 

19.  Compare  law  and  public  opinion  as  agencies  of  social  control.  Is  law 
likely  to  lessen  or  to  increase  with  social  evolution  ? 

20.  Our  legal  system  has  two  elements,  the  traditional  element  and  the 
enacted  element.  Which  is  predominant  and  in  how  far  does  one  react 
on  the  other  ?    What  is  the  result  of  this  reaction  or  interaction  ? 

21.  "So  far  as  any  direct  influence  upon  our  courts  is  concerned,  our  modern 
textbooks  on  economics  might  as  well  be  written  in  Chinese."  Is  such 
a  statement  justified  ? 

22.  Is  it  reasonable  to  hold  against  the  law  the  fact  that  law  involves  a 
somewhat  mechanical  operation  of  rules  ? 

23.  What  is  meant  by  saying  that  our  law  today  is  applicable  to  eighteenth- 
century  conditions  but  not  to  those  of  the  twentieth  century  ?  Does 
the  case  seem  hopeless  ? 


SOCIAL  CONTROL  ggi 

24.  In  how  far  do  the  rights  guaranteed  by  the  constitution  differ  from  the 
new  economic  and  social  rights  ? 

"The  family  is  one  of  the  most  significant  institutions  for  conserving 
the  social  order  and  for  promoting  social  advance."  What  are  the 
grounds  for  this  statement  ? 

26.  What  is  meant  by  saying  that  the  modern  industrial  system  has  made 
it  more  difficult  for  the  family  of  the  usual  type  to  persist  ? 

27.  Does  the  church  play  a  part  in  social  control  today?  Does  it  play  as 
large  a  part  as  it  did  in  mediaeval  society? 

28.  Have  we  any  substitute  for  the  "fair  price"  doctrine  of  mediaeval 
society  ? 

29.  It  has  been  said  that  control  of  industrial  affairs  in  the  mediaeval  period 
may  be  characterized  by  the  propositions  that  (a)  control  was  cus- 
tomary, (b)  control  was  local.  Do  these  statements  properly  charac- 
terize control  of  modern  industry  ? 

30.  What  agencies  of  control  can  be  used  to  secure  quick  mechanical 
changes?  Illustrate.  What  agencies  to  secure  gradual  and  organic 
adaptations?  Illustrate.  What  agencies  can  be  used  directly  to 
secure'  the  object  aimed  at  ?  What  agencies  affect  their  objects  quite 
indirectly  ?  What  agencies  mentioned  in  the  readings  are  most  often 
overlooked  in  programs  of  control  ? 

31.  Ross  says  that  there  is  a  tendency  to  assign  to  each  form  of  control 
that  work  for  which  it  is  best  fitted.  Work  back  over  the  list  you 
made  in  question  1  and  indicate  for  what  kind  of  work  each  instrument 
is  best  fitted. 

32.  What  elements  in  social  control  are  relatively  unchanging  ?  What  ones 
are  relatively  easily  changed  ? 

23.  "Human  life  in  the  Middle  Ages  was  entirely  regulated  by  authority." 
Was  this  true  in  religion  ?  in  morals  ?  in  the  intellectual  field  ?  Is  indi- 
vidualism always  a  revolt  against  authority  ? 

34.  How  do  you  account  for  the  fact  that  people  in  the  United  States  are 
more  individualistic  and  more  imbued  with  the  laissez-faire  idea  than 
is  true  of  most  other  countries  ? 

35.  "It  is  plain  that  the  individual  citizen's  power  to  determine  his  own 
mode  of  life  and  that  of  his  family  has  been  greatly  abridged  since  the 
middle  of  the  last  century."  Is  this  true?  Can  society  determine 
what  it  is  to  be  ? 

36.  Enumerate  the  general  conditions  which  have  been  responsible  for  the 
"passing  of  individualism."    Is  it  really  passing  ? 

37.  Draw  up  a  statement  of  the  component  parts  or  ideas  of  mercantilism. 

38.  What  were  the  essential  doctrines  of  the  physiocrats  ?  Can  you  give 
any  reasons  why  these  doctrines  emerged  at  the  time  they  did  ? 

39.  Answer  the  same  questions  for  mercantilism.  How  long  has  mercan- 
tilism been  dead  ?    Is  it  dead  ?    What  is  meant  by  saying  that  the 


992  INDUSTRIAL  SOCIETY 

vitally  changed  conditions  brought  about  by  the  Industrial  Revolution 
would  inevitably  cause  the  breakdown  of  mercantilism  ? 

40.  Give  Smith's  statement  of  the  duties  of  the  sovereign  according  to  the 
system  of  natural  liberty.  What  does  he  mean  by  a  system  of  natural 
liberty?  Could  an  opponent  of  laissezfaire  today  subscribe  to  the 
statement  of  Smith  ? 

41.  What  is  meant  by  saying  that  the  development  of  industry  in  the 
suburbs  and  rural  districts  of  England  played  a  large  part  in  the  break- 
down of  mercantilism  and  the  transition  to  laissezfaire? 

42.  Draw  up  a  list  of  the  reasons  why  there  has  been  an  increasing  inter- 
vention of  government  in  the  control  of  business  and  other  social 
activities  ? 

43.  Garner  says,  "The  functions  of  the  state  may  be  classified  as:  first, 
those  which  are  necessary;  and  second,  those  which  are  natural  or 
normal  but  not  necessary;  and  third,  those  which  are  neither  natural 
nor  necessary,  but  which  in  fact  are  often  performed  by  modern  states." 
Enumerate  some  of  the  functions  under  each  class. 

44.  M'Kechnie  gives  five  possible  answers  to  questions  concerning  the  atti- 
tude that  government  should  take:  (a)  deal  with  evils  piecemeal  as  they 
arise;  (b)  regulate  everything,  particularly  industry;  (c)  the  individual- 
istic solution  which  would  make  the  province  of  government  a  very 
narrow  one;  (d)  the  solution  which  would  draw  a  sharp  line  between 
the  sphere  of  the  individual  and  the  sphere  of  the  state;  (e)  the  theory 
of  organic  unity.  The  ideal  province  of  government  is  that  which  is 
best  fitted  to  fulfil  the  final  destiny  of  the  nation  as  a  branch  of  the 
family  of  mankind.  Criticize  each  of  these  theories.  Show  wherein 
(e)  differs  from  each  of  the  others. 

45.  What  are  some  of  the  evil  results  of  having  a  constitution  based  upon 
the  natural-rights  theory  and  the  ideas  of  the  eighteenth  century? 
Are  there  advantages  ? 

46.  Work  out  a  defense  of  laissez  /aire.    Work  out  a  criticism. 

47.  "The  laissezfaire  principle  is  in  harmony  with  the  principle  of  evolu- 
tion." "  Laissez  j 'aire  and  the  evolutionary  doctrine  are  fundamentally 
antagonistic."    With  which  quotation  do  you  agree  ? 

48.  In  the  late  Middle  Ages  and  early  modern  period  mercantilism  came  in. 
This  involved  a  mechanism  of  government  intervention.  Next  came 
the  swing  away  from  government  intervention.  Today  intervention  is 
again  increasing.  Does  this  mean  we  are  headed  toward  socialism? 
Does  it  mean  that  there  is  to  be  a  swing  back  to  laissezfaire  in  the 
future  ? 

49.  "There  may  in  the  future  be  a  swing  away  from  government  interven- 
tion, but  as  long  as  the  evolutionary  theory  is  accepted,  there  can  be  no 
return  to  laissezfaire  and  the  natural-order  concept."  Why  or  why 
not? 


SOCIAL  CONTROL  993 

50.  "The  main  reason  for  desiring  more  state  action  is  in  order  to  give  the 
individual  a  greater  chance  of  developing  all  his  activities  in  a  healthy 
way."     Can  this  be  true  ? 

51.  What  is  meant  by  saying  that  the  private  or  voluntary  association  ren- 
ders useful  service  in  combating  the  development  of  stagnation  in 
government  work  ? 

52."  The  present  epoch  is  one  of  these  critical  moments  in  which  the  thought 
of  mankind  is  undergoing  a  process  of  transformation.  Two  funda- 
mental factors  are  at  the  base  of  this  transformation.  The  first  is  the 
destruction  of  those  religious,  political,  and  social  beliefs  in  which  all 
the  elements  of  our  civilization  are  rooted.  The  second  is  the  creation 
of  entirely  new  conditions  of  existence  and  thought  as  the  result  of 
modern  scientific  and  industrial  discoveries."  Is  this  statement  true  ? 
If  so,  what  courses  of  action  are  open  ? 

53.  "Every  year  the  points  of  contact  and  of  friction  between  government 
and  private  interests  have  multiplied."     Must  this  situation  continue  ? 

54.  Can  there  be  social  control  except  in  terms  of  a  definite  goal  ?  What 
hope  is  there  of  securing  a  definite  goal  for  social  progress  ? 

55.  "War  does  one  thing— it  provides  a  definite  goal  of  social  action  and 
this  provides  definite  standards  for  judgment  of  acts."     Do  you  agree  ? 

56.  "The  greatest  discovery  of  the  nineteenth  century  is  that  we  are  on  our 
way."     What  makes  you  think  so  ? 

57.  Social  control  "often  wells  up  and  spreads  out  from  certain  centers 
which  we  might  term  the  radiant  points  of  social  control."  Who  are 
these  people  who  "hold  the  levers  which  set  in  motion  the  social  checks 
or  stimuli  that  hold  a  man  back  or  push  him  on"? 

58.  Can  you  name  any  problems  of  social  control  arising  out  of  the  pecu- 
niary organization  of  society  ?  out  of  the  specialized,  interdependent 
character  of  society  ?  out  of  the  technological  aspect  of  modern  indu;trial 
society  ?  out  of  the  fact  that  modern  industrial  society  is  a  concentrated 
society  ? 

59.  "The  difficulty  is  that  a  theory  of  industrial  liberty  framed  to  meet  a 
regime  of  hand  work  has  been  accepted  and  developed  by  a  society 
which  knows  only  machine  labor."  Is  this  true  ?  What  would  be  the 
consequences  of  such  a  development  ? 

B.     Some  Forms  and  Agencies  of  Control 
378.     CONSCIOUS  AND   UNCONSCIOUS  SOCIAL  CONTROL1 
The  first  task  of  life  is  to  live.    Men  begin  with  acts,  not  with 
thoughts.     Every  moment  brings  necessities  which  must  be  satisfied 
at  once.    Need  was  the  first  experience,  and  it  was  followed  at  once 
1  Adapted  by  permission  from  W.  G.  Sumner,  Folkways,  pp.  2-6,  28-46,  53-60. 
(Ginn  &  Co.,  1913.) 


994  INDUSTRIAL  SOCIETY 

by  a  blundering  effort  to  satisfy  it.  It  is  generally  taken  for  granted 
that  men  inherited  some  guiding  instincts  from  their  beast  ancestry, 
and  it  may  be  true,  although  it  has  never  been  proved.  If  there  were 
such  inheritances,  they  controlled  and  aided  the  first  efforts  to  satisfy 
needs.  Need  was  the  impelling  force.  Pleasure  and  pain  were  the 
rude  constraints  which  defined  the  line  on  which  efforts  must  proceed. 
Thus  ways  of  doing  things  were  selected,  which  were  expedient. 
They  answered  the  purpose  better  than  other  ways,  or  with  less  toil 
and  pain.  Along  the  course  on  which  efforts  were  compelled  to  go, 
habit,  routine,  and  skill  were  developed.  The  struggle  to  maintain 
existence  was  carried  on,  not  individually,  but  in  groups.  Each 
profited  by  the  other's  experience;  hence  there  was  concurrence 
toward  that  which  proved  to  be  most  expedient.  Hence  the  ways 
turned  into  customs  and  became  mass  phenomena.  Instincts  were 
developed  in  connection  with  them.  In  this  way  folkways  arise. 
The  young  learn  them  by  tradition,  imitation,  and  authority.  The 
folkways,  at  a  time,  provide  for  all  the  needs  of  life  then  and  there. 
They  are  uniform,  universal  in  the  group,  imperative,  and  invariable. 
As  time  goes  on,  the  folkways  become  more  and  more  arbitrary, 
positive,  and  imperative. 

From  recurrent  needs  arise  habits  for  the  individual  and  customs 
for  the  group,  but  these  results  are  consequences  which  were  never 
conscious,  and  never  foreseen  or  intended.  They  are  not  noticed 
until  they  have  long  existed,  and  it  is  still  longer  before  they  are 
appreciated.  Another  long  time  must  pass,  and  a  higher  stage  of 
mental  development  must  be  reached,  before  they  can  be  used  as  a 
basis  from  which  to  deduce  rules  for  meeting,  in  the  future,  problems 
whose  pressure  can  be  foreseen.  The  folkways,  therefore,  are  not 
creations  of  human  purpose  and  wit.  They  are  like  products  of 
natural  forces  which  men  unconsciously  set  in  operation,  or  they  are 
like  the  instinctive  ways  of  animals,  which  are  developed  out  of 
experience,  which  reach  a  final  form  of  maximum  adaptation  to  an 
interest,  which  are  handed  down  by  tradition  and  admit  of  no  excep- 
tion or  variation,  yet  change  to  meet  new  conditions,  still  within  the 
same  limited  methods,  and  without  rational  reflection  or  purpose. 
From  this  it  results  that  all  the  life  of  human  beings,  in  all  ages  and 
stages  of  culture,  is  primarily  controlled  by  a  vast  mass  of  folkways 
handed  down  from  the  earliest  existence  of  the  race,  having  the  nature 
of  the  ways  of  other  animals,  only  the  topmost  layers  of  which  are 
subject  to  change  and  control,  and  have  been  somewhat  modified  by 


SOCIAL  CONTROL  995 

human  philosophy,  ethics,  and  religion,  or  by  other  acts  of  intelligent 
reflection. 

The  folkways,  being  ways  of  satisfying  needs,  have  succeeded 
more  or  less  well,  and  therefore  have  produced  more  or  less  pleasure 
or  pain.  Their  quality  always  consisted  in  their  adaptation  to  the 
purpose.  If  they  were  imperfectly  adapted  and  unsuccessful,  they 
produced  pain,  which  drove  men  on  to  learn  better.  The  folkways 
are,  therefore,  (i)  subject  to  a  strain  of  improvement  toward  better 
adaptation  of  means  to  ends,  as  long  as  the  adaptation  is  so  imperfect 
that  pain  is  produced.  They  are  also  (2)  subject  to  a  strain  of  con- 
sistency with  each  other,  because  they  all  answer  their  several  purposes 
with  less  friction  and  antagonism  when  they  co-operate  and  support 
each  other.  The  form  of  industry,  the  forms  of  the  family,  the 
notions  of  property,  the  constructions  of  rights,  and  the  types  of 
religion  show  the  strain  of  consistency  with  each  other  through  the 
whole  history  of  civilization.  The  two  great  cultural  divisions  of  the 
human  race  are  the  oriental  and  the  occidental.  Each  is  consistent 
throughout;  each  has  its  own  philosophy  and  spirit;  they  are  sepa- 
rated from  top  to  bottom  by  different  mores,  different  standpoints, 
different  ways,  and  different  notions  of  what  societal  arrangements 
are  advantageous. 

The  folkways  are  the  "right"  ways  to  satisfy  all  interests,  because 
they  are  traditional  and  exist  in  fact.  They  extend  over  the  whole 
of  life.  There  is  a  right  way  to  catch  game,  to  win  a  wife,  to  make 
one's  self  appear,  to  cure  disease,  to  honor  ghosts,  to  treat  comrades 
or  strangers,  to  behave  when  a  child  is  born,  on  the  warpath,  in  council, 
and  so  on  in  all  cases  which  can  arise.  The  ways  are  defined  on  the 
negative  side,  that  is,  by  taboos.  The  "right"  way  is  the  way  which 
the  ancestors  used  and  which  has  been  handed  down.  The  tradition 
is  its  own  warrant.  It  is  not  held  subject  to  verification  by  experience. 
The  notion  of  right  is  in  the  folkways.  It  is  not  outside  of  them,  of 
independent  origin,  and  brought  to  them  to  test  them.  In  the  folk- 
ways, whatever  is,  is  right.  This  is  because  they  are  traditional,  and 
therefore  contain  in  themselves  the  authority  of  the  ancestral  ghosts. 
When  we  come  to  the  folkways  we  are  at  the  end  of  our  analysis. 
The  notion  of  right  and  ought  is  the  same  in  regard  to  all  the  folkways, 
but  the  degree  of  it  varies  with  the  importance  of  the  interest  at  stake. 
"Rights"  are  the  rules  of  mutual  give  and  take  in  the  competition  of 
life  which  are  imposed  on  comrades  in  the  in-group,  in  order  that  the 
peace  may  prevail  there  which  is  essential  to  the  group  strength. 


996  INDUSTRIAL  SOCIETY 

Therefore  rights  can  never  be  " natural"  or  "  God-given,"  or  absolute 
in  any  sense.  The  morality  of  a  group  at  a  time  is  the  sum  of  the 
taboos  and  prescriptions  in  the  folkways  by  which  right  conduct  is 
defined.  Therefore  morals  can  never  be  intuitive.  They  are  his- 
torical, institutional,  and  empirical.  World  philosophy,  life  policy, 
right,  rights,  and  morality  are  all  products  of  the  folkways.  They 
are  reflections  on,  and  generalizations  from,  the  experience  of  pleasure 
and  pain  which  is  won  in  efforts  to  carry  on  the  struggle  for  existence 
under  actual  life  conditions.  The  generalizations  are  very  crude 
and  vague  in  their  germinal  forms.  They  are  all  embodied  in  folklore, 
and  all  our  philosophy  and  science  have  been  developed  out  of  them. 
•  When  the  elements  of  truth  and  right  are  developed  into  doctrines 
of  welfare,  the  folkways  are  raised  to  another  plane.  They  then 
become  capable  of  producing  inferences,  developing  into  new  forms, 
and  extending  their  constructive  influence  over  men  and  society. 
Then  we  call  them  the  mores.  The  mores  are  the  folkways,  includ- 
ing the  philosophical  and  ethical  generalizations  as  to  societal 
welfare  which  are  suggested  by  them,  and  inherent  in  them,  as  they 
grow. 

It  can  be  seen  that  philosophy  and  ethics  are  products  of  the 
folkways.  They  are  taken  out  of  the  mores,  but  are  never  original 
and  creative;  they  are  secondary  and  derived.  They  often  interfere 
in  the  second  stage  of  the  sequence — act,  thought,  act.  Then  they 
produce  harm,  but  some  ground  is  furnished  for  the  claim  that  they 
are  creative  or  at  least  regulative. 

The  masses  are  the  real  bearers  of  the  mores  of  the  society.  They 
carry  tradition.  The  folkways  are  their  ways.  They  accept  influ- 
ence or  leadership,  and  they  imitate,  but  they  do  so  as  they  see  fit, 
being  controlled  by  their  notions  and  tastes  previously  acquired. 
They  may  accept  standards  of  character  and  action  from  the  classes, 
or  from  foreigners,  or  from  literature,  or  from  a  new  religion,  but 
whatever  they  take  up  they  assimilate  and  make  it  a  part  of  their  own 
mores,  which  they  then  transmit  by  tradition,  defend  in  its  integrity, 
and  refuse  to  discard  again.  Consequently,  the  writings  of  the  literary 
class  may  not  represent  the  faiths,  notions,  tastes,  standards,  etc.,  of 
the  masses  at  all.  The  literature  of  the  first  Christian  centuries  shows 
us  scarcely  anything  of  the  mores  of  the  time,  as  they  existed  in  the 
faith  and  practice  of  the  masses.  Every  group  takes  out  of  a  new 
religion  which  is  offered  to  it  just  what  it  can  assimilate  with  its  own 
traditional  mores.     Christianity  was  a  very  different  thing  amongst 


SOCIAL  CONTROL  997 

Jews,  Egyptians,  Greeks,  Germans,  and  Slavs.  It  would  be  a  great 
mistake  to  suppose  that  any  people  ever  accepted  and  held  philo- 
sophical or  religious  teaching  as  it  was  offered  to  them,  and  as  we 
find  it  recorded  in  the  books  of  the  teachers.  The  mores  of  the  masses 
admit  of  no  such  sudden  and  massive  modification  by  doctrinal  teach- 
ing. The  process  of  assimilation  is  slow,  and  it  is  attended  by  modify- 
ing influences  at  every  stage.  What  the  classes  adopt,  be  it  good  or  ill, 
may  be  found  pervading  the  mass  after  generations,  but  it  will  appear 
as  a  resultant  of  all  the  vicissitudes  of  the  folkways  in  the  interval. 

Institutions  and  laws  are  produced  out  of  mores.  An  institution 
consists  of  a  concept  (idea,  notion,  doctrine,  interest)  and  a  structure! 
The  structure  is  a  framework,  or  apparatus,  or  perhaps  only  a  number 
of  functionaries  set  to  co-operate  in  prescribed  ways  at  a  certain  con- 
juncture. The  structure  holds  the  concept  and  furnishes  instru- 
mentalities for  bringing  it  into  the  world  of  facts  and  action  in  a  way 
to  serve  the  interests  of  men  in  society.  Institutions  are  crescive 
or  enacted.  They  are  crescive  when  they  take  shape  in  the  mores, 
growing  by  the  instinctive  efforts  by  which  the  mores  are  produced. 
Then  the  efforts,  through  long  use,  become  definite  and  specific. 
Property,  marriage,  and  religion  are  the  most  primary  institutions. 
They  began  in  folkways.  They  became  customs.  They  developed 
into  mores  by  the  addition  of  some  philosophy  of  welfare,  however 
crude.  Then  they  were  made  more  definite  and  specific  as  regards  the 
rules,  the  prescribed  acts,  and  the  apparatus  to  be  employed.  This 
produced  a  structure,  and  the  institution  was  complete.  Enacted 
institutions  are  products  of  rational  invention  and  intention.  They 
belong  to  high  civilization.  Banks  are  institutions  of  credit,  founded 
on  usages  which  can  be  traced  back  to  barbarism.  There  came  a 
time  when,  guided  by  rational  reflection  on  experience,  men  systema- 
tized and  regulated  the  usages  which  had  become  current,  and  thus 
created  positive  institutions  of  credit,  defined  by  law  and  sanctioned 
by  the  force  of  the  state.  Pure  enacted  institutions  which  are  strong 
and  prosperous  are  hard  to  find.  It  is  too  difficult  to  invent  and 
create  an  institution,  for  a  purpose,  out  of  nothing.  The  electoral 
college  in  the  Constitution  of  the  United  States  is  an  example.  In 
that  case  the  democratic  mores  of  the  people  have  seized  upon  the 
device  and  made  of  it  something  quite  different  from  what  the  in- 
ventors planned.  All  institutions  have  come  out  of  mores,  although 
the  rational  element  in  them  is  sometimes  so  large  that  their  origin 
in    the   mores  is  not  to  be  ascertained,  except  by  an  historical 


998 


INDUSTRIAL  SOCIETY 


investigation  (legislatures,  courts,  juries,  joint-stock  companies,  the 
stock  exchange).  Property,  marriage,  and  religion  are  still  almost 
entirely  in  the  mores. 

Acts  of  legislation  come  out  of  the  mores.  In  low  civilization  all 
societal  regulations  are  customs  and  taboos,  the  origin  of  which  is 
unknown.  Positive  laws  are  impossible  until  the  stage  of  verification, 
reflection,  and  criticism  is  reached.  Until  that  point  is  reached  there 
is  only  customary  law,  or  common  law.  The  customary  law  may  be 
codified  and  systematized  with  respect  to  some  philosophical  prin- 
ciples, and  yet  remain  customary.  The  codes  of  Manu  and  Justinian 
are  examples.  Enactment  is  not  possible  until  reverence  for  ancestors 
has  been  so  much  weakened  that  it  is  no  longer  thought  wrong  to 
interfere  with  traditional  customs  by  positive  enactment.  Even  then 
there  is  reluctance  to  make  enactments,  and  there  is  a  stage  of  transi- 
tion during  which  traditional  customs  are  extended  by  interpretation 
to  cover  new  cases  and  to  prevent  evils.  Legislation,  however,  has 
to  seek  standing  ground  on  the  existing  mores,  and  it  soon  becomes 
apparent  that  legislation,  to  be  strong,  must  be  consistent  with  the 
mores.  Things  which  have  been  in  the  mores  are  put  under  police 
regulation  and  later  under  positive  law.  It  is  always  a  question  of 
expediency  whether  to  leave  a  subject  under  the  mores,  or  to  make  a 
police  regulation  for  it,  or  to  put  it  into  the  criminal  law.  Betting, 
horse  racing,  dangerous  sports,  electric  cars,  and  vehicles  are  cases 
now  of  things  which  seem  to  be  passing  under  positive  enactment 
and  out  of  the  unformulated  control  of  the  mores.  When  an  enact- 
ment is  made,  there  is  a  sacrifice  of  the  elasticity  and  automatic  self- 
adaptation  of  custom;  but  an  enactment  is  specific  and  is  provided 
with  sanctions.  Enactments  come  into  use  when  conscious  purposes 
are  formed,  and  it  is  believed  that  specific  devices  can  be  framed  by 
which  to  realize  such  purposes  in  the  society.  Then  also  prohibitions 
take  the  place  of  taboos,  and  punishments  are  planned  to  be  deterrent 
rather  than  revengeful. 

When  folkways  have  become  institutions  or  laws  they  have 
changed  their  character  and  are  to  be  distinguished  from  the  mores. 
The  element  of  sentiment  and  faith  inheres  in  the  mores.  Laws  and 
institutions  have  a  rational  and  practical  character,  and  are  more 
mechanical  and  utilitarian.  The  great  difference  is  that  institutions 
and  laws  have  a  positive  character,  while  mores  are  unformulated  and 
undefined.  There  is  a  philosophy  implicit  in  the  folkways;  when  it 
is  made  explicit  it  becomes  technical  philosophy.  Objectively  re- 
garded, the  mores  are  the  customs  which  actually  conduce  to  welfare 


__     . 

under  existing  life  conditions.  Acts  under  the  laws  and  institutions 
are  conscious  and  voluntary;  under  the  folkways  they  are  always 
unconscious  and  involuntary,  so  that  they  have  the  character  of 
natural  necessity.  Educated  reflection  and  skepticism  can  disturb 
this  spontaneous  relation.  The  laws,  being  positive  prescriptions, 
supersede  the  mores  so  far  as  they  are  adopted.  It  follows  that  the 
mores  come  into  operation  where  laws  and  tribunals  fail.  The  mores 
cover  the  great  field  of  common  life  where  there  are  no  laws  or  police 
regulations.  They  cover  an  immense  and  undefined  domain,  and  they 
break  the  way  in  new  domains,  not  yet  controlled  at  all.  The  mores, 
therefore,  build  up  new  laws  and  police  regulations  in  time. 

We  may  now  formulate  a  more  complete  definition  of  the  mores. 
They  are  the  ways  of  doing  things  which  are  current  in  a  society  to 
satisfy  human  needs  and  desires,  together  with  the  faiths,  notions, 
codes,  and  standards  of  well  living  which  inhere  in  those  ways,  having 
a  genetic  connection  with  them.  By  virtue  of  the  latter  element  the 
mores  are  traits  in  the  specific  character  of  a  society  or  a  period. 
They  pervade  and  control  the  ways  of  thinking  in  all  the  exigencies 
of  life,  returning  from  the  world  of  abstractions  to  the  world  of  action, 
to  give  guidance  and  to  win  revivification.  "The  mores  are,  before 
any  beginning  of  reflection,  the  regulators  of  the  political,  social,  and 
religious  behavior  of  the  individual.  Conscious  reflection  is  the  worst 
enemy  of  the  mores,  because  mores  begin  unconsciously  and  pursue 
unconscious  purposes,  which  are  recognized  by  reflection  often  only 
after  long  and  circuitous  processes,  and  because  their  expediency  often 
depends  on  the  assumption  that  they  will  have  general  acceptance 
and  currency,  uninterfered  with  by  reflection."  "The  mores  are 
usage  in  any  group,  in  so  far  as  it,  on  the  one  hand,  is  not  the  expres- 
sion or  fulfillment  of  an  absolute  natural  necessity  (e.g.,  eating  or 
sleeping),  and,  on  the  other  hand,  is  independent  of  the  arbitrary  will 
of  the  individual,  and  is  generally  accepted  as  good  and  proper, 
appropriate  and  worthy." 


379.     THE  FORMS  OF  CONTROL1 

In  his  book  on  Social  Control,  and  in  his  more  recent  Social  Psy- 
chology, Professor  Ross  recognizes  quite  as  fully  as  does  Professor 
Sumner  that  suggestibility,  imitation,  fashion,  conventionality,  and 
custom  dominate  a  large  part  of  the  individual's  activities.  He 
points  out,  however,  that  adherence  to  customs  found  useful  in 

1  Adapted  by  permission  from  A.  A.  Tenny,  "Some  Recent  Advances  in 
Sociology,"  Political  Science  Quarterly,  XXV  (1910),  520-33- 


IOOO  INDUSTRIAL  SOCIETY 

the  past  is,  in  many  instances,  a  rational  process;  that  discussion 
changes  opinion,  at  times,  and  is  fruitful.  In  his  Social  Psychology, 
after  analysing  with  acumen  the  constraining  effect  of  emotions  that 
arise  in  a  crowd,  he  devotes  a  chapter  to  "prophylactics  against  mob 
mind."  Moreover,  the  earlier  volume,  Social  Control,  is  devoted 
almost  entirely  to  a  discussion  of  that  social  domination  which  aims 
to  attain  beneficent  results  and  which  fulfils  a  recognized  need.  Upon 
the  utilization  of  suggestibility,  it  is  therein  held,  rests  the  whole 
modern  policy  of  founding  a  social  order  on  education.  An  older 
policy  had  utilized  the  same  means  in  religion  and  in  the  conscious 
manipulation  of  beliefs  and  customs. 

Professor  Ross  has  even  ventured  to  divide  the  instruments  of 
control  into  two  classes:  (i)  ethical,  those  arising  in  sentiment  rather 
than  utility,  such  as  public  opinion,  suggestion,  personal  ideal,  social 
religion,  art;  (2)  political,  those  that  are  deliberately  chosen,  such  as 
law,  belief,  ceremony,  and  education.  The  prominence  of  the  one 
or  of  the  other  group  in  the  regulative  scheme,  he  holds,  will  depend 
on  the  constitution  of  society.  The  political  instruments,  operating 
through  prejudice  or  fear,  will  be  preferred:  (1)  in  proportion  as  the 
population  elements  to  be  held  together  are  antipathetic  and  jarring; 

(2)  in  proportion  to  the  subordination  of  the  individual  will  and 
welfare  to  the  scheme  of  control;  (3)  in  proportion  as  the  social 
constitution  stereotypes  differences  of  status;  (4)  in  proportion  as  the 
differences  in  economic  condition  and  opportunity  it  consecrates  are 
great  and  cumulative;  (5)  in  proportion  as  the  parasitic  relation  is 
maintained  between  races,  classes,  or  sexes.  On  the  other  hand,  the 
ethical  instruments,  being  more  mild,  enlightening,  and  suasive,  will 
be  preferred:  (1)  in  the  proportion  as  the  population  is  homogeneous 
in  race;    (2)  in  proportion  as  its  culture  is  uniform  and  diffused; 

(3)  in  proportion  as  the  social  contacts  among  the  elements  of  the 
population  are  many  and  amicable;  (4)  in  proportion  as  the  total 
burden  of  requirement  laid  upon  the  individual  is  light;  (5)  in  pro- 
portion as  the  social  constitution  does  not  consecrate  distinctions 
of  status  or  the  parasitic  relation,  but  conforms  to  common  elementary 
notions  of  justice.  In  general  Professor  Ross  holds  that  a  statecraft  is 
taking  the  place  of  folkcraf t. 

380.    TRADITION  AND  SOCIAL  INHERITANCE1 
The  interplay  of  human  motives  and  the  interaction  of  human 
beings  is  the  fundamental  fact  of  social  life,  and  the  permanent  results 

1  Taken  by  permission  from  L.  T.  Hobhouse,  Social  Evolution  and  Political 
Theory,  pp.  33-36.     (Columbia  University  Press,  191 1.) 


SOCIAL  CONTROL  IOOi 


I  which  this  interaction  achieves  and  the  influence  which  it  exercises 
upon  the  individuals  who  take  part  in  it  constitute  the  fundamental 
fact  of  social  evolution.  These  results  are  embodied  in  what  may  be 
called,  generically,  tradition.  Tradition  is,  in  the  development  of 
society,  what  heredity  is  in  the  physical  growth  of  the  stock.  It 
is  the  link  between  past  and  future,  it  is  that  in  which  the  effects  of  the 
past  are  consolidated  and  on  the  basis  of  which  subsequent  modifica- 
tions are  built  up.  We  might  push  the  analogy  a  little  farther,  for  the 
ideas  and  customs  which  it  maintains  and  furnishes  to  each  new 
generation  as  guides  for  their  behavior  in  life  are  analogous  to  the 
determinate  methods  of  reaction,  the  inherited  impulses,  reflexes, 
and  instincts  with  which  heredity  furnishes  the  individual.  The 
tradition  of  the  elders  is,  as  it  were,  the  instinct  of  society.  It  furnishes 
the  prescribed  rule  for  dealing  with  the  ordinary  occasions  of  life 
which  is  for  the  most  part  accepted  without  inquiry  and  applied 
without  reflection.  It  furnishes  the  appropriate  institution  for  pro- 
viding for  each  class  of  social  needs,  for  meeting  common  dangers, 
for  satisfying  social  wants,  for  regulating  social  relations.  It  con- 
stitutes, in  short,  the  framework  of  society's  life  which  to  each  new 
generation  is  a  part  of  its  hereditary  outfit.  But  of  course  in 
speaking  of  tradition  as  a  kind  of  inheritance  we  conceive  of  it  as 
propagated  by  quite  other  than  biological  methods.  In  a  sense  its 
propagation  is  psychological,  it  is  handed  on  from  mind  to  mind,  and 
even  though  social  institutions  may  in  a  sense  be  actually  incorporated 
in  material  things,  in  buildings,  in  books,  in  coronation  robes,  or  in 
flags,  still  it  need  not  be  said  that  these  things  are  nothing  but  for 
the  continuity  of  thought  which  maintains  and  develops  their  signifi- 
cance. Yet  the  forces  at  work  in  tradition  are  not  purely  psycho- 
logical; at  least,  they  are  not  to  be  understood  in  terms  of  individual 
psychology  alone.  What  is  handed  on  is  not  merely  a  set  of  ideas, 
but  the  whole  social  environment;  not  merely  certain  ways  of  think- 
ing or  of  acting,  but  the  conditions  which  prescribe  to  individuals  the 
necessity  for  thinking  or  acting  in  certain  specific  ways  if  they  are  to 
achieve  their  own  desires. 

381.    IMITATION:  AN  AGENT  OF  CONSERVATION  AND  OF 
PROGRESS1 

1.  The  child  gets  the  bulk  of  his  ideas,  habits,  ideals,  and  purposes  by 
imitating  the  copy  in  the  way  of  activities,  ideals,  and  character 
furnished  within  the  family  circle. 
1  Taken  by  permission  from  E.  S.  Bogardus,  Introduction  to  the  Social  Sciences, 

pp.   174-76.     (University  of   Southern  California,   1913.    Author's   copyright.) 


I002  INDUSTRIAL  SOCIETY 

a)  So  rapidly  does  this  imitative  process  go  on  that  by  the  time  the 
eighth  year  is  reached  it  seems  probable  that  the  foundation 
lines  of  the  child's  social  and  moral  character  are  laid. 

b)  This  imitative  process  preserves  the  continuity  of  the  social 
environment  and  is  a  vast  conservative  force  in  society. 

c)  Only  by  imitation  each  generation  takes  up  and  makes  its  own 
customs  and  traditions  of  the  preceding  generation. 

d)  Parents  set  children  copies  when  the  children's  habits  are  un- 
formed and  when  they  lack  all  means  of  test  or  criticism. 

e)  More  custom  imitation  in  human  than  in  the  lower  species. 
There  the  young  are  well  equipped  with  instincts  at  birth,  leave 
the  parent  relatively  early;  little  chance  for  imitation  of  the 
parent. 

2.  A  tendency  for  practices  to  continue  by  custom  imitation  long  after 
their  original  significance  has  been  forgotten: 

a)  American  idolatry  of  a  partly  undemocratic  Federal  Constitution. 

b)  American  veneration  for  a  common  law  at  variance  with  certain 
needs  of  an  industrial  civilization. 

c)  Deference  for  a  traditional  system  of  law  which  exhibits  too 
great  a  respect  for  the  individual  and  too  little  respect  for  the 
needs  of  society. 

3.  Physical  isolation  favors  custom  imitation. 

a)  Geographic  barriers  tend  to  shut  out  new  stimuli. 

b)  In  the  back  country,  survive  clanishness,  patriarchal  authority, 
self-supporting  preachers,  "hell-fire"  doctrines. 

c)  Compare  Russia  (rural)  with  Germany  (urban). 

d)  The  Isle  of  Man  is  famous  for  the  old-time  flavor  of  its  institu- 
tion and  customs. 

4.  Society  relies  for  stability  upon  custom  imitation;  without  it 
society  would  fly  to  pieces. 

5.  Custom  imitation  is  offset  by  fashion  imitation;  the  former  is  a 
borrowing  from  ancestors  or  forerunners,  the  latter,  from  con- 
temporaries. 

a)  When  we  imitate  a  contemporary,  we  are  obliged  usually  to 
surrender  some  rooted  belief  or  practice;  our  imitation  is  a 
substitution,  has  to  overcome  the  force  of  habit. 

b)  The  railroads  penetrating  the  rougher  parts  of  Mexico  set  the 
hand  three  centuries  forward  on  the  dial. 

c)  Books,  magazines,  and  newspapers  favor  fashion  imitation; 
on  the  whole  they  create  contacts  with  the  present  rather  than 
with  the  past. 


SOCIAL  CONTROL  I003 

d)  The  school  may  deliver  the  young  from  ignorant  prejudices- 
but  if  its  basis  of  instruction  be  the  ancient  writings  it  may 
foster  a  most  cramping  traditionalism. 

e)  Freedom  of  discussion  breaks  the  spell  of  custom  imitation 

6.  Features  of  Americanism  which  encourage  fashion  imitation  as 
against  custom  imitation. 

a)  Our  individualism  braces  the  immigrant  against  the  commands 
of  priests,  padrones,  the  natural  upbuilders  of .  tradition. 

b)  The  spirit  of  progress— little  reverence  for  antiquity. 

c)  Settlement  in  a  new  region  gives  a  blow  to  the  old  customs. 

7.  Three  classes  of  people  in  relation  to  fashion  imitation. 

a)  Those  who  imitate  their  superior,  so  as  to  be  taken  for  the 
superior. 

b)  Those  who  imitate  in  order  not  to  be  conspicuous. 

c)  Those  who  never  conform  to  fashion,  the  "hay  seeds."  They 
are  the  people  often  of  real  backbone,  democracy,  independence. 

8.  It  may  become  merely  the  fashion  to  think  in  certain  ways  and  we 
imitate,  without  reason. 

a)  That  manual  labor  is  degrading. 

b)  That  pecuniary  success  is  the  only  success. 

c)  That  civic  worth  is  measured  by  pecuniary  success. 

d)  That  things  are  beautiful  in  proportion  as  they  are  costly. 

9.  Laws  of  fashion  imitation. 

a)  The  social  superior  is  imitated  by  the  social  inferior. 

b)  The  more  successful  is  imitated  by  the  less  successful. 

c)  The  rich  are  imitated  by  the  poor. 

d)  The  city  is  imitated  by  the  country. 

e)  The  college  is  imitated  by  the  high  school;  the  senior,  by  the 
freshman. 

382.  THE  FAMILY  AS  AN  AGENCY  OF  CONTROL1 
A1 

We  are  sometimes  inclined  to  talk  as  if  the  Family  had  been 
entirely  superseded  by  the  Individual  in  modern  economic  organiza- 
tion. This  is  a  complete  mistake,  arising  from  forgetfulness  of  the 
fact  that  at  least  one-third  of  the  population  of  the  globe  consists,  not 
of  individuals  in  the  sense  of  independent  adults,  but  of  children 
regarded  by  older  people  as  too  young  to  be  allowed  to  do  what  they 
like.    It  is  true  that  the  work  actually  done  by  children  is  not  of 

1  Taken  by  permission  from  Edwin  Cannan,  Wealth,  pp.  76-78.  (P.  S.  King 
&  Son,  Ltd.,  1914.) 


I004  INDUSTRIAL  SOCIETY 

much  importance.  The  world  would  not  suffer  much  in  the  next 
twelve  months  if  all  child  labour  were  entirely  cut  off  for  that  period. 
But  the  children  themselves  are  of  paramount  importance  because 
it  is  from  them  only  that  the  adults  can  be  recruited,  and  for  the  most 
of  mankind  childhood  is  the  period  during  which  it  is  settled  whether 
the  person  shall  be  industrious  or  idle  and  what  he  shall  work  at  so 
far  as  he  does  work.  By  far  the  greater  number  of  men  and  women 
have  acquired  the  habit  of  industry  because  they  were  persuaded  or 
driven  to  work  by  influences  brought  to  bear  on  them  by  the  Family 
when  they  were  still  children.  These  influences,  of  course,  are  multi- 
farious; some  are  typified  by  the  kiss  of  the  mother,  some  by  the  stick 
of  the  father;  some  consist  in  the  gibes  of  elder  brothers  and  sisters, 
some  in  the  appealing  cries  of  hungry  younger  ones.  Taken  all  to- 
gether, these  family  influences  are  so  powerful  that  modern  States 
find  it  necessary  to  make  many  regulations  and  employ  many  inspec- 
tors to  prevent  children  from  being  overworked.  How  uniformly 
the  habit  of  industry,  once  acquired  in  childhood,  remains  with  the 
adult,  is  shown  by  the  frequency  with  which  we  find  ourselves  attribut- 
ing idleness  in  adults  to  the  accidental  absence  of  the  normal  family 
influences.  Within  the  Family,  too,  as  a  rule,  is  made  the  decision 
which  governs  the  allotment  of  the  person  to  some  one  profession  or 
occupation.  Every  grown  man  or  woman  is  doubtless  legally  free 
to  choose  his  or  her  occupation  and  to  change  it  as  often  as  he  or  she 
pleases,  but  legal  freedom  is  generally  not  of  much  use  after  childhood 
is  over.  This  might  not  make  much  difference  if  the  parents  always 
chose  for  the  child  just  as  the  child  would  choose  if  it  had  experience 
before  the  choice  took  place.  But  that  hypothesis  is  far  from  being 
a  true  one;  the  distribution  of  persons  between  the  various  occupa- 
tions is  influenced  in  the  most  important  manner  by  the  fact  that 
parents  often  cannot,  and  often  will  not  when  they  can,  choose  for 
their  child  the  occupation  which  he  would  choose  for  himself  if  he  were 
perfectly  well  informed  and  capable  of  making  the  selection  which 
seemed  to  him  best  in  his  own  interests. 

B1 

i.  The  family  is -the  primary  social  structure. 

a)  Since  it  contains  both  sexes  and  all  ages,  it  is  capable  of  repro- 
ducing itself,  and  hence  of  reproducing  society. 

1  Taken  by  permission  from  E.  S.  Bogardus,  An  Introduction  to  the  Social 
Sciences,  pp.  78-79.  (University  of  Southern  California,  1913.  Author's  copy- 
right.) 


SOCIAL  CONTROL  loos 

b)  Relations  of  superior  and  subordinate,  and  of  equality,  which 
enter  so  largely  into  the  structure  of  all  social  institutions,  are 
especially  well  developed  in  the  family  relationships. 

2.  Functions  of  the  family  in  conserving  the  social  order. 

a)  Chief  institution  in  society  for  transmitting,  from  one  generation 
to  another,  social  possessions  of  all  sorts. 

b)  Property  in  the  form  of  land,  houses,  personal  property,  is 
passed  from  generation  to  generation  through  the  family. 

c)  Language  is  very  generally  transmitted  in  the  family. 

d)  Ideas,  beliefs  regarding  governments,  religion,  moral  standards, 
artistic  tastes,  etc.,  are  largely  transmitted  through  the  family. 

3.  Functions  of  the  family  in  promoting  social  advance. 

a)  The  family  is  the  almost  sole  generator  of  altruism  in  human 
society. 

b)  Upon  altruism  society  depends  for  every  upward  advance  in 
co-operation.  Hence  the  family  is  the  chief  source  of  social 
progress. 

c)  Family  life  is  a  school  for  socialization.  The  family  meal,  when 
all  members  gather  together,  is  just  becoming  recognized  as  a 
great  socializing  factor. 

4.  A  problem — modern  industry  versus  the  home. 

a)  Primitively  industry  was  subordinate  to  and  centered  in  the 
home ;  modern  industry  is  an  enormous  expansion  of  primitive 
housekeeping. 

b)  Removal  of  industries  from  the  family  group  has  often  been 
followed  by  the  removal  of  the  parents  and  children  from  the 
home,  and  by  the  practical  disintegration  of  the  family. 

c)  Subordination  of  industry  to  the  family  is  necessary.  No  sound 
and  stable  life  until  requirements  of  industry,  of  wealth-getting, 
are  subordinated  to  the  requirements  of  the  family  for  the  good 
birth  and  proper  rearing  of  children. 

383.    THE  ECONOMIC  SIGNIFICANCE  OF  CULTURE1 

It  is  by  directing  human  labor  and  by  controlling  the  processes 
of  nature  that  modern  industry  creates  vast  quantities  of  goods, 
including  food  supplies  in  excess  of  what  nature  offers  freely  in  unso- 
licited bounty.  In  achieving  this  end  modern  industry  is  dependent 
upon  man's  acquisitions  of  scientific  knowledge  and  technical  skill. 
Knowledge  and  skill  have  had  beginning  and  growth  in  man's  cease- 
less interrogation  of  nature  through  unnumbered  generations,  and  in 
his  attempt  to  imitate  her  ways.  These  questionings  and  imitations 
lead  back  into  a  maze  of  religious  ceremonies  and  beliefs,  back  into 
the  world  of  animistic  ideas,  and  then  yet  farther  back  to  those  earliest 

1  Taken  by  permission  from  F.  H.  Giddings,  "The  Economic  Significance  of 
Culture,"  Poiitical  Science  Quarterly,  XVIII  (1903).  45°-5i- 


IOo6  INDUSTRIAL  SOCIETY 

forms  of  mimicry,  of  which  language  and  manners  were  born .  Modern 
industry,  then,  presupposes  among  its  antecedents  the  whole  cultural 
history  of  man  considered  as  a  mental  preparation  for  his  present  task. 

This,  however,  is  not  all.  Industry  presupposes  certain  motives 
for  productive  effort,  and  these  are  more  than  pangs  of  hunger  and 
cold.  They  include,  not  only  the  demand  of  the  body  for  nourish- 
ment and  protection,  but  also  the  demand  of  body  and  of  mind  for 
exhilarating  activity;  for  the  pleasures  of  sight  and  of  sound,  of 
imagination  and  of  sentiment,  and  for  the  deeper  satisfactions  of 
understanding  and  of  faith.  In  their  turn  all  these  satisfactions  are 
concretely  embodied  in  cultural  forms  handed  down  to  us  from  the 
past.  On  the  side  of  motive  also,  therefore,  modern  industry  pre- 
supposes the  long  historical  evolution  of  culture. 

Thus,  indirectly  at  least,  culture  has  an  economic  function.  As 
motive  and  means — a  necessary  antecedent  of  the  whole  industrial 
scheme  of  the  modern  world — it  must  be  recognized  among  economic 
causes.  Has  it,  then,  or  has  it  had  in  the  past  an  economic  function 
more  immediate,  an  economic  character  less  disguised?  Did  it 
originate  in  economic  effort  ?  As  a  product  of  evolution  it  must  be 
regarded  as  in  some  way  related  to  the  struggle  for  existence.  Did 
it  grow  and  differentiate  because  it  contributed  in  a  practical  way  to 
life  maintenance,  or  only  because  it  happened  to  be  correlated  with 
useful  activities,  and  fortunately  added  something  to  ithe  variety  and 
interest  of  an  existence  which  it  had  no  power  to  sustain  ? 

The  answer  to  this  question  is  not  doubtful.  In  its  earliest  forms 
culture  is  an  economy;  a  practical,  utilitarian  thing.  Only  in  its  late 
developments  does  it  become  a  diversion.  To  the  primitive  man 
culture  in  general,  like  music  or  dancing  in  particular,  is  a  serious 
business. 

See  also  300.    Control  through  Ethical  Development. 

384.  PUBLIC  OPINION1 
Genuine  opinion  is  neither  cold,  logical  judgment  nor  irrational 
feeling.  It  is  scientific  hypothesis,  to  be  tested  and  revised  as  expe- 
rience widens.  Opinion  is  a  view  of  a  situation  based  on  grounds 
short  of  proof.  In  a  valid  opinion  they  must  be  just  short  of  proof. 
Good  opinion  is  not  spasmodic.  The  mind  must  have  made  a  very 
wide  sweep,  made  the  complete  circuit  of  the  compass.  It  must  first 
have  hunted  down  the  predisposing  prejudice  and  neutralized  it  and 
J  Adapts  by  permission  from  an  editorial  in  the  New  Republic,  IV  (19 15), 


SOCIAL  CONTROL  ioo7 

then  bent  itself  to  discovering  all  the  factors  that  converge  upon  the 
situation.  But  good  opinion  is  not  flabby  or  uncertain.  It  is  not  a 
"much  to  be  said  on  both  sides."  It  is  a  provisional  conviction  to  be 
held  as  a  conviction  until  new  light  alters  it.  It  strains  constantly 
toward  truth.  It  invites  criticism.  It  has  the  scientist's  disinter- 
estedness in  its  own  conviction.  What  it  wants  is  to  understand,  to 
get  the  thing  it  is  judging  rightly  placed,  to  grasp  its  true  meaning 
in  the  world. 

Opinion,  however,  aims  not  at  a  mere  static  comprehension.  It 
is  a  force,  and  the  only  force  that  can  be  relied  upon  in  the  long  run 
to  fortify  the  will  and  clear  the  vision.  Conviction,  gripped  after  the 
widest  possible  survey  of  the  field,  is  what  we  must  act  upon  if  we  are 
to  effect  those  social  changes  which  most  of  us  desire.  The  world  has 
generally  preferred  to  act  from  logical  consistency  or  from  the  high 
elation  of  feeling,  rather  than  upon  daring  and  clear-sighted  experi- 
ment. The  idea  of  a  social  and  political  opinion  which,  free  from 
moral  prejudice,  strains  toward  scientific  proof,  as  the  hypotheses  of 
the  physicist  strain  toward  physical  laws,  is  still  very  new,  but  it  is 
already  playing  havoc  with  the  old,  crusted  folkways. 

If  such  opinion  is  to  be  the  force  of  the  future,  there  cannot  be  too 
much  of  its  guiding  thread.  Yet  it  constantly  becomes  not  easier  but 
harder  to  form  valid  opinions.  We  are  stunned  by  the  volume  of  what 
there  is  to  know  tin  the  human  world.  We  are  overwhelmed  by  the 
mass  of  sociological  data  and  brought  to  despair  even  more  by  the 
great  gaps  which  must  be  filled.  Discussion  and  universal  reading 
have  not  really  made  popular  opinion  any  more  intelligent  or  reliable. 
They  have  merely  made  great  masses  emotionally  articulate,  rendered 
prejudice  more  vociferous  and  varied.  The  need  for  interpreters,  for 
resolute  expressers  of  opinion,  becomes  therefore  more  urgent.  Even 
if  real  opinion  is  an  Utopian  ideal,  and  no  mind  can  ever  make  the  wide 
survey  and  go  through  the  stringent  processes  necessary  to  form  it, 
the  brave  effort  must  always  be  made.  To  work  at  breaking  up  the 
cake  of  intellectual  custom,  at  setting  the  new  terms  and  values  that 
current  society  needs,  at  judging  events  in  the  light  of  the  larger  con- 
ceptions of  science  and  the  most  fruitful  social  tendencies,  will  be  not 
to  remain  entirely  futile  in  the  modern  world. 

385.    PUBLIC  OPINION  AND  ACQUIESCENCE1 

A  cause  of  the  prevailing  acquiescence  in  existing  social  conditions 
is  the  continual  output  from  pulpit,  sanctum,  forum,  and  college  chair 

•Adapted  by  permission  from  W.  J.  Ghent,  Our  Benevolent  Feudalism, 
pp.  122-25,  139-49.    (The  Macmillan  Co.,  1902.) 


I00g  INDUSTRIAL  SOCIETY 

of  our  professional  moulders  of  opinion.  Now  not  all  of  this  output 
makes  for  acquiescence;  but  the  overwhelming  mass  of  it  unques- 
tionably does.  From  these  instructors  of  the  people  we  learn  that 
conditions,  while  not  perfect,  either  are  reasonably  near  to  perfection, 
or,  if  evil,  are  not  to  be  corrected  except  by  individual  regeneration. 
We  learn  of  the  irrationality  or  the  moral  obliquity  of  discontent; 
the  viciousness  or  fanaticism  of  impertinent  persons  who  seek  to 
change  things;  the  virtues  of  obedience;  the  obligation  of  toil  (specifi- 
cally directed  to  those  who  are  doing  most  of  the  world's  work,  for 
the  profit  of  others),  and  of  the  worth,  benevolence,  and  indispensa- 
bility  of  our  magnates. 

It  may  be  doubted  if  our  commissioned  teachers  exert  so  great 
an  influence  upon  opinion  as  do  our  newspapers.  "The  newspaper 
"'  today,"  said  Archbishop  Ireland  recently  before  the  National  Educa- 
tion Association,  "is  pre-eminently  the  mentor  of  the  people;  it  is 
read  by  all;  it  is  believed  by  nearly  all.  Its  influence  is  paramount; 
its  responsibility  is  tremendous."  There  is  much  truth  in  this  dictum 
though  something  of  qualification  is  needed. 

The  average  newspaper  is  owned  and  operated  as  a  commercial 
property.  The  days  when  the  editor  hired  the  publisher  are  gone;  it 
is  now  the  publisher  who  hires  the  editor,  and  the  counting  room  de- 
termines the  policy.  Advertising  is  the  material  mainstay,  and  the 
merchants  and  magnates  who  have  largesse  to  distribute  must  be 
humored. 

It  is  not  so  much  through  their  editorial  expressions  as  through 
their  coloring  of  the  news  that  the  weeklies  and  dailies  mould  the 
opinions  of  the  mass.  A  growing  scepticism  averts  the  former  influ- 
ence; but  against  the  latter  there  is  no  prophylactic.  News  is 
assorted,  pruned,  improved,  to  accord  with  a  predetermined  policy. 

Our  laudatory  stump  orators  have  their  measure  of  influence  on 
social  thought,  no  doubt,  but  it  is  one  that  surely  declines,  and  the 
subject  may  be  passed  with  but  scant  mention.  Likewise,  the  hetero- 
geneous small  fry  of  seigniorial  retainers  in  the  various  walks  of  life, 
whose  business  it  is,  in  season  and  out,  to  glorify  the  prevailing  regime, 
may  be  noticed  and  dismissed  in  a  sentence.  The  influence  of  the 
pulpit,  however,  is  a  subject  that  requires  some  attention.  This 
influence,  while  greater  than  that  of  either  of  the  groups  just  men- 
tioned, is  unquestionably  less  than  that  of  either  the  editors  or  the 
professional  lay  publicists.  But  weakened  as  it  has  been,  it  is  yet 
felt  by  the  magnates  to  be  an  instrument  of  social  control  which  by 


SOCIAL  CONTROL  1009 

proper  use  can  be  made  to  perform  a  needed  service.  A  constant 
pressure  is,  therefore,  brought  to  bear  upon  pastoral  utterances.  It  is 
the  "safe"  men  who  are  in  most  request  to  fill  pulpits;  and  it  is  the 
"safe"  men  who  draw  to  their  churches  the  largest  endowments. 
Under  the  influence  of  this  pressure  there  has  gradually  been  developed 
a  code  of  pulpit  ethics,  outside  the  limits  of  which  no  prudent  minister 
will  dare  range.  The  minister  may  be  "long"  on  spirituality,  but  he 
must  be  "short"  on  social  precepts. 

386.    CONTROL  BY  VOLUNTARY  ASSOCIATIONS 

A1 

Some  idea  of  the  strong  influence  of  this  factor  upon  legislation 
may  be  formed  from  the  following  partial  list  of  important  public 
measures  or  policies  which  have  been  drawn  up  and  are  being  urged 
by  private  business  or  civic  associations: 

I.      IN  THE   NATIONAL  GOVERNMENT 

Internal  waterways 

The  civil  service 

Restriction  of  immigration 

Regulations  of  interstate  and  foreign  commerce 

Treatment  of  Indians 

Treaties  of  arbitration 

Settlement  of  labor  disputes 

Forestry 

Irrigation 

2.      IN  THE   STATE   GOVERNMENT 

Revision  and  enforcement  of  the  tax  laws 

Establishment  of  new  system  of  public  charities 

Reorganization  of  prisons 

Forestry  protection 

Restriction  of  child  labor 

Health  improvement 

Improvement  in  school  administration 

Regulation  of  liquor  licenses 

Inspection  of  foods 

3.      IN  THE  MUNICIPAL   GOVERNMENT 

Parkways,  boulevards,  and  park  areas 
Recreation  grounds 

« Adapted  by  permission  from  J.  T.  Young,  The  New  American  Government 
and  Its  Work,  pp.  575-87-     (The  Macmillan  Co.,  1915.) 


IOIO  INDUSTRIAL  SOCIETY 

Reorganization  of  city  school  systems 
Medical  inspection  of  schools 

Manual  training  methods,  nature  of  study  in  the  schools 
Extension  of  library  systems 
Reorganization  of  the  tax  laws 

Adoption  of  the  business  methods  in  the  granting  of  franchises  and  in 
the  award  of  contracts 

Suppression  of  the  grosser  forms  of  gambling  and  vice 
Establishment  of  modern  accounting  methods 

In  some  of  the  large  cities,  societies  have  not  confined  themselves 
to  the  simple  proposal  of  plans  for  government  action  but  have  placed 
these  plans  in  actual  operation  with  the  aid  of  private  funds,  have 
demonstrated  the  feasibility  of  the  proposed  improvements  and  have 
then  turned  over  the  material,  plant,  and  experience  thus  gained  to 
the  municipal  authorities. 

Our  public  baths,  playgrounds,  vacation,  sewing,  singing,  and 
cooking  schools,  our  investigations  of  the  proper  method  of  treating 
tuberculosis  and  some  of  the  most  valuable  phases  of  social  work,  are 
all  examples  of  private  experiments  which  first  demonstrated  their 
ability  to  produce  results  and  were  then  handed  over  to  the  city 
government.  Such  private  associations  have  undeniably  "set 
the  pace"  for  our  public  machinery,  and  in  doing  so  have  opened  up 
a  new  method  of  work  whose  value  is  hard  to  overestimate.  This 
activity  is  not  a  simple  expression  of  public  opinion;  it  is  a  demonstra- 
tion of  what  can  be  done  and  what  should  be  done  by  our  governments 
to  improve  the  individual  welfare. 

The  besetting  sin  of  modern  governments  is  a  constant  tendency 
toward  the  stagnation  of  routine  work — the  hostility  to  new  ideas. 
At  this  point  the  experimental  activity  of  the  private  association 
steps  in  to  show  what  is  and  what  is  not  feasible. 


It  is  the  cotton  lobby  which  throws  its  great  influence  against 
the  workers  in  the  cotton  states,  the  glass  lobby  in  the  glass  states, 
the  laundrymen's  association  wherever  legislation  for  laundry  workers 
is  proposed,  the  retail  dealers'  association  against  any  relief  for  shop 
girls.  Individual  employers,  it  goes  without  saying,  are  humane  and 
enlightened,  but  their  official  organizations  and  representatives  have 

1  Adapted  by  permission  from  Josephine  Goldmark,  Fatigue  and  Efficiency, 
pp.  121-23.     (Charities  Publication  Committee,  191 2.) 


SOCIAL  CONTROL  I0II 

won  a  sinister  distinction  in  opposing  labor  legislation.  Such  asso- 
ciations of  employers  as  those  named  above  are  found  officially  in 
the  field  at  every  session  of  the  state  legislatures.    It  was,  for  instance, 

tthe  Illinois  Manufacturers'  Association  which  officially  combated  any 
restriction  whatsoever  of  women's  hours  in  Illinois,  and,  failing  to 
defeat  the  passage  of  the  ten-hour  law  in  1909,  bent  all  their  energies 
to  have  the  law  annulled  by  the  courts.  It  was  the  laundrymen's 
associations  which  played  the  same  part  in  Oregon  in  1907,  and  even 
carried  a  case  against  the  Oregon  ten-hour  law  to  the  United  States 
Supreme  Court.  It  is  the  retail  Dry  Goods  Merchants'  Association 
of  New  York  City  which  by  varied  means  has  succeeded  in  stifling 
all  limitation  of  hours  for  adult  women  employed  in  department 
stores.  It  was  the  official  Manufacturers'  Association  of  Colorado 
which  issued  a  statement  to  the  legislature  in  191 1,  pointing  out  the 
dangers  of  the  proposed  eight-hour  law,  and  denying  its  need  by 
recounting  the  contributions  of  Colorado  manufacturers  to  various 
charities.  The  universal  argument  which  has  so  often  crowned  their 
official  efforts  with  success  is  the  abject  money-makers'  pleas,  the 
fear  of  loss — "Save  us  lest  we  perish." 

See  also    236.  Other  Forms  of  Community  Control. 
243.  The  Trade  Union  Program. 
254B.  Concentration  in  Marketing. 
290.  Trade  Associations. 

387.    LAW  AND  SOCIAL  CONTROL1 

'  The  law  is  but  one  of  various  means  of  control. — There  are  other 
means  of  control  such  as  religion,  superstition,  ethical  teaching,  pub- 
lic opinion,  etc.  Men  use  physical  force,  persuasion,  education,  social 
ostracism,  boycott,  blacklist,  all  sorts  of  economic,  political,  and 
social  pressure — court,  legislature,  school,  press,  pulpit,  platform, 
market,  bank,  factory, .etc.,  in  the  effort  to  make  other  men  do  as  they 
wish.  Every  man  and  every  group  of  men  is  constantly  striving 
consciously  or  unconsciously,  effectively  or  ineffectively,  to  control 
the  world  in  his  or  its  interest.  The  law  molds  human  conduct  by 
means  of  the  organized  application  of  physical  compulsions  to  the 
persons  or  property  of  the  people.  It  is  a  massive,  external,  tangible 
control. 

1  Adapted  by  permission  from  Frank  Parsons,  Legal  Doctrine  and  Social 
Progress,  pp.  17-23.     (B.  W.  Huebsch,  1911.) 


I0I2  INDUSTRIAL  SOCIETY 

Law  too  costly  to  be  used  to  enforce  the  whole  moral  law.— Which 
forms  of  control  should  be  used  in  any  particular  case  or  class  of  cases 
depends  on  the  nature  and  training  of  the  persons  to  be  controlled 
and  the  peculiar  circumstances,  especially  in  relation  to  cost,  certainty, 
directness,  definiteness,  and  practicability.  It  costs  a  great  deal  in 
time,  money,  and  friction  to  set  the  cumbrous  machinery  of  the  law 
in  motion  and  to  carry  it  through  to  judgment  and  execution;  to  use 
that  method  of  control  for  small  offenses  against  the  moral  law,  such 
as  ordinary  lying,  explosions  of  ill-temper,  common  breaches  of  cour- 
tesy, etc.,  would  be  to  incur  far  greater  evils  than  those  intended  to  be 
repressed.  Such  offenses  should  be  dealt  with  by  public  opinion  and 
the  inner  ethical  control,  which  work  with  the  minimum  cost  and  the 
maximum  of  effectiveness. 

The  law  draws  the  line  at  the  average  man. — It  would  be  folly  to 
attempt  to  use  the  law  to  punish  the  ordinary  shortcomings  of  the 
average  man.  Any  system  of  law  that  would  make  the  mass  of  human 
conduct  subject  to  suit  or  prosecution,  or  bring  the  mass  of  men  into 
court,  or  make  them  liable  to  be  brought  into  court,  would  be  simply 
intolerable.  The  law  may  be  used  to  punish  the  sins  of  our  savage 
blood,  to  press  the  defective  classes  into  shape,  and  bring  the  lagging 
minority  up  to  the  average  standard.  But  the  common  sins  of  the 
average  man  should  be  left  to  education,  public  opinion,  and  the 
complex  mass  of  family  and  social  influences  that  are  gradually  mold- 
ing human  nature  to  higher  and  higher  types. _  The  law  draws  a 
broad  line  at  the  average  level  civilization  has  attained:  it  requires 
only  good  faith  and  due  care,  that  is,  the  degree  of  honesty,  care,  and 
skill  which  an  ordinary  man  would  exercise  under  similar  circum- 
stances. It  does  not  require  the  honesty,  skill,  and  care  exhibited 
by  the  best  (a  rule  which  would  subject  the  bulk  of  mankind  to  legal 
liability  and  prosecution),  but  only  demands  the  virtue  of  the  man  of 
ordinary  character,  intelligence,  and  care.  The  moral  law  requires 
of  all  the  conduct  of  the  best  and  more;  but  the  civil  law  demands 
only  the  goodness  of  the  average  type. 

|  The  law  waits  for  crystallized  public  opinion. — So  again  uncer- 
tainty as  to  the  character  of  the  act,  or  the  proof  of  it,  may  bar  the 
law  as  a  remedy.  Society  is  not  yet  agreed  that  the  use  of  intoxicants 
(I  am  not  referring  to  the  organized  liquor  traffic),  narcotics,  or  drugs, 
stock  speculation,  sensational  journalism,  or  useless  duplication  of 
industries,  stores,  factories,  etc.,  is  immoral;  the  legal  presumption  is 
always  with  liberty  till  experience  makes  it  clear,  beyond  a  reason- 


SOCIAL  CONTROL  IOI3 

tble  doubt,  that  the  conduct  in  question  is  against  the  interests  of 
)ciety  J  Till  then  the  matter  should  be  left  to  ethical  discussion, 
to  the  pressure  of  public  opinion  and  its  allies.  Gradually  experi- 
ence works  such  questions  out  and  brings  the  community  to  substan- 
ial  unity  of  judgment.  Two  notable  examples  have  occurred  in 
recent  years.  Pugilism  and  the  lottery  not  many  years  ago  were 
the  free  field,  outside  the  law,  subject  only  to  public  opinion 
md  ethical  education. 
L  The  law  enters  only  where  proof  is  possible— Where  the  facts  are 
lifficult  of  proof,  the  law  is  equally  excluded.  Neither  is  it  adapted 
to  deal  with  sins  of  envy,  jealousy,  overeating,  vices  of  secret  char- 
ter, etc.  In  the  field  of  evidence  the  law  draws  broad  lines.  It  will 
lot  deal  with  evils  that  in  their  nature  are  generally  incapable  of  clear 
>roof.  It  puts  up  the  bars  against  hearsay  evidence.  It  requires  a 
fitness  to  tell  what  he  knows  of  his  own  knowledge,  not  what  he 
infers  from  what  he  has  heard  others  say.  It  requires  the  best  evi- 
dence the  nature  and  circumstances  of  the  case  permit. 

388.    STATUTE  LAW  AND  COMMON  LAW 

A' 

t 

L.       We  commonly  speak  both  of  law  and  of  laws,  and  these  terms, 

though  not  used  with  precision,  point  to  two  different  aspects  under 

which  legal  science  may  be  approached.    The  laws  of  a  country  are 

thought  of  as  separate,  distinct,  individual  rules;  the  law  of  a  country, 

however  much  we  may  analyse  it  into  separate  rules,  is  something 

more  than  the  mere  sum  of  such  rules.    It  is  rather  a  whole,  a  system 

which  orders  our  conduct;   in  which  the  separate  rules  have  their 

place  and  their  relation  to  each  other  and  to  the  whole;  which  is  never 

completely  exhausted  by  any  analysis,  however  far  the  analysis  may 

be  pushed,  and  however  much  the  analysis  may  be  necessary  to  our 

understanding  of  the  whole.    Thus  each  rule  which  we  call  a  law  is  a 

part  of  the  whole  which  we  call  the  law.    Lawyers  generally  speak  of 

law;  laymen  more  often  of  laws. 

There  is  also  a  more  precise  way  in  which  we  use  this  distinction 

between  law  and  laws.     Some  laws  are  presented  to  us  as  having 

from  the  beginning  a  separate  and  independent  existence;   they  are 

not  derived  by  any  process  of  analysis  or  development  from  the  law 

1  Adapted  by  permission  from  W.  M.  Geldart,  Elements  of  English  Law, 
pp.  7-13.     (Henry  Holt  &  Co.,  Williams  &  Norgate.) 


I0I4  INDUSTRIAL  SOCIETY 

as  a  whole.  We  know  when  they  were  made  and  by  whom,  though 
when  made  they  have  to  take  their  place  in  the  legal  system;  they 
become  parts  of  the  law.  Such  laws  in  this  country  are  for  the  most 
part  what  we  call  statutes;  collectively  they  are  spoken  of  as  Statute 
Law.  On  the  other  hand,  putting  aside  for  the  present  the  rules  of 
Equity,  the  great  body  of  law  which  is  not  Statute  Law  is  called  the 
Common  Law.  The  Common  Law  has  grown  rather  than  been  made. 
We  cannot  point  to  any  definite  time  when  it  began;  as  far  back  as 
our  reports  go  we  find  judges  assuming  that  there  is  a  Common  Law 
not  made  by  any  legislator.  When  we  speak  of  the  law  we  are  think- 
ing of  the  system  of  law  which  includes  both  Statute  and  Common 
Law,  perhaps  more  of  the  latter  than  of  the  former.  A  rule  of  the 
Common  Law  would  rarely,  if  ever,  be  spoken  of  as  a  law. 

i.  In  spite  of  the  enormous  bulk  of  the  Statute  Law,  the  most 
fundamental  part  of  our  law  is  still  Common  Law.  No  statute,  for 
instance,  prescribes  in  general  terms  that  a  man  must  pay  his  debts  or 
perform  his  contracts  or  pay  damages  for  trespass  or  libel  or  slander. 
The  Statutes  assume  the  existence  of  the  Common  Law;  they  are 
the  addenda  and  errata  of  the  book  of  the  Common  Law;  they  would 
have  no  meaning  except  by  reference  to  the  Common  Law. 

2.  On  the  other  hand,  where  Statute  Law  and  Common  Law  come 
into  competition,  it  is  the  former  that  prevails. 

3.  How  do  we  know  the  law?  Here  there  is  a  great  difference 
between  Statute  and  Common  Law.  A  statute  is  drawn  up  in  a 
definite  form  of  words. 

On  the  other  hand,  we  have  no  authoritative  text  of  the  Common 
Law.  There  is  no  one  form  of  words  in  which  it  has  as  a  whole  been 
expressed  at  any  time.  Therefore  in  a  sense  one  may  speak  of  the 
Common  Law  as  unwritten  law  in  contrast  with  Statute  Law,  which 
is  written  law.  Nevertheless,  the  sources'  from  which  we  derive  our 
knowledge  of  the  Common  Law  are  in  writing  or  print. 

B1 

The  Common  Law  has  passed  or  is  passing  through  at  least  three 
distinct  stages  of  economic  assumption  in  its  dealings  with  industrial 
affairs  and  the  relations  of  capital  and  labour.  There  was  the 
mediaeval  stage  in  which  every  man  was  supposed  to  have  his  proper 
state  in  life,  and  the  law  had  to  see  that  he  was  kept  in  it.    We  cannot 

1  Taken  by  permission  from  Frederick  Pollock,  "The  Genius  of  the  Common 
Law,"  Columbia  Law  Review.  XIII  (1913),  10-11. 


SOCIAL  CONTROL  1015 


fix  a  point  of  time  when  this  conception  of  social  welfare  ceased  to  be 
officially  accepted.  Official  and  judicial  opinion  are  rather  apt  to 
lag  behind  the  general  movement  of  ideas,  but  they  do  move,  and 
older  and  younger  colleagues  are  not  likely  to  move  at  the  same  pace; 
just  as,  in  dating  a  manuscript,  one  has  to  remember  than  an  ancient 
scribe  may  be  writing  the  hand  of  the  last  generation  at  the  same  time 
that  a  young  one  is  eager  to  display  the  very  newest  graces  of  pen- 
manship. We  shall  not  be  far  wrong  in  placing  the  period  of  transition 
between  the  beginning  of  the  nineteenth  century  and  the  reforms  of 
1832.  Next  came  the  reign  of  utilitarian  individualism,  under  which 
unlimited  competition  was  to  be  the  universal  regulator,  and  it  was 
thought  that  the  state  ought  not  to  hinder  this  beneficent  operation 
of  human  nature  and  could  do  nothing  to  help  it  beyond  removing 
artificial  obstacles.  In  the  faith  of  that  doctrine  our  fathers  (I  mean 
the  fathers  of  men  now  growing  old)  lived  through  their  active  years, 
and  their  sons  were  brought  up  in  its  atmosphere.  It  prevailed  for 
approximately  half  a  century.  Then,  well  within  the  memory  of  men 
not  much  past  the  prime  of  life,  it  became  a  tolerated,  indeed  a  prob- 
able or  plausible,  opinion,  that  the  state  was  abdicating  its  functions 
by  remaining  passive,  and  should  not  only  leave  the  road  open  for 
ability,  but  give  assistance  in  suppressing  unfavorable  external  con- 
ditions and  equalizing  opportunities.  The  present  generation  is  full 
of  this  spirit,  and  its  power  seems  likely  to  increase  for  some  time 
yet.  It  is  not  for  me  to  discuss  the  merits  of  these  different  ideals  or 
to  point  out  the  perversions  and  excesses  incident  to  each  of  them. 

389.    LEGAL  INTERVENTION  IN  BUSINESS1 

Legal  intervention  in  business  analyzed. — A  business  man  may  be 
thinking  of  taking  some  action,  or  he  may  be  inactive  and  someone 
may  be  trying  to  get  him  to  act.  To  know  whether  the  action  con- 
templated or  requested  shall  be  taken  requires  that  the  business  man 
know  what  rules  of  law  are  applicable  to  the  act  in  question.  After 
he  has  decided  whether  or  not  the  action  will  be  possible  or  profitable 
he  must  yet  decide  what  the  legal  consequences  of  his  acting  or  refusing 
to  act  will  be.  Depending  upon  the  nature  of  the  act  involved,  the  law 
may  say  to  him  one  of  three  things:    (1)  "You  shall  not  do  it-'* 

(2)  " Do  it  or  not,  as  you  like.    If  you  decide  to  do  it,  I  will  help  you." 

(3)  "You  shall  do  it." 

1  Prepared  by  H.  E.  Oliphant. 


IOI6  INDUSTRIAL  SOCIETY 

Prohibitive  intervention.— -The  law  often  intervenes  in  affairs  of 
men  to  prohibit  certain  acts  and  conduct.  The  thing  prohibited  may 
be  so  detrimental  to  the  public  if  permitted  that  the  public,  through 
its  organized  representative,  the  state,  labels  it  criminal  and  punishes 
the  offender  with  death,  imprisonment,  or  fine.  The  principal  crimes 
have  been  classified  as  follows:  (i)  Offenses  against  the  government, 
including  treason,  bribery,  extortion,  maintenance,  perjury,  and  con- 
tempt; (2)  offenses  against  the  public  peace  and  welfare,  including 
affray,  riot,  libel  and  slander,  nuisance,  and  conspiracy;  (3)  crimes 
against  religion  and  morality,  including  blasphemy,  adultery,  bigamy, 
and  kidnapping;  (4)  offenses  against  the  person,  including  assault, 
homicide,  and  robbery;  (5)  offenses  against  property,  including  arson, 
burglary,  larceny,  embezzlement,  cheating,  forgery,  and  counter- 
feiting. Those  crimes  of  prime  importance  to  the  business  man 
are:  libel  and  slander,  conspiracy,  embezzlement,  cheating,  and 
forgery. 

Besides  conduct  contrary  to  morals,  that  contravening  public 
policy  is  condemned,  though  not  of  sufficient  seriousness  to  constitute 
a  crime.  Reprehensible  conduct,  short  of  crimes,  usually  takes  one 
of  two  forms:  torts,  or  illegal  contracts.  Public  policy  requires  the 
protection  of  certain  interests.  They  may  be  the  interests  of  the 
individual,  of  society  as  a  whole,  or  of  the  state  as  a  representative  of 
society.  The  law  intervenes  if  I  insist  upon  mashing  your  nose  or 
destroying  your  reputation  by  defamation.  Marriage-brokers'  con- 
tracts and  contracts  or  gifts  whose  effects  are  to  restrain  marriage  are 
not  valid.  I  must  not  make  a  highway  of  your  lawn  or  otherwise 
lessen  the  value  of  your  enjoyment  of  any  property  that  is  yours. 
One  cannot  enforce  a  promise  to  pay  a  bribe  or  a  contract  to  lobby  for 
a  legislative  measure.  The  social  interests  which  are  protected  are 
enormous  in  number  and  happily  increasing.  To  take  examples  from 
a  single  field,  that  of  economic  interests,  the  body  of  law  rendering 
futile  contracts  in  restraint  of  trade  is  both  enormous  and  adolescent, 
while,  to  the  question  what  means  are  fair  and  foul  in  the  bargaining 
struggle  between  employers  and  employees  and  in  contracts  between 
trade  rivals,  the  answer  which  the  law  will  finally  return  will  doubtless 
be  as  complex  as  it  is  now  uncertain. 

There  are  many  ways  by  which  the  law's  disapprobation  of  con- 
duct is  expressed.  The  most  obvious  one  is  to  give  the  public  a 
remedy  in  the  form  of  a  criminal  prosecution,  as  was  done  by  the 
Sherman  Act.    More  effectual,  because  put  into  the  hands  of  the 


SOCIAL  CONTROL  I0I7 

individual  who  has  been  harmed,  is  its  civil  action  for  damages.  To 
enforce  contracts,  elaborate  and  expensive  legal  machinery  has  been 
provided.  In  a  multitude  of  cases  the  law  makes  real  its  dislike  of 
certain  conduct  by  refusing  the  wrongdoer  the  use  of  this  machinery. 

Promotive  intervention.— The  second  type  of  legal  intervention  is 
promotive  in  its  purpose.  To  promote  the  exchange  of  commodities, 
for  example,  certain  promises  concerning  it  are  sanctioned  by  the  law 
and  their  performance  is  made  obligatory.  To  promote  commerce 
the  law  permits  and  aids  a  railroad  to  take  private  property  with  or 
without  the  owner's  consent.  As  the  examples  indicate,  promotive 
legal  intervention  in  business  takes  two  forms,  which  may  be  denom- 
inated (i)  intervention  by  legal  sanctions,  and  (2)  intervention  by 
legal  endowments. 

Incidentally  for  the  good  of  the  individuals  concerned,  but  pri- 
marily for  the  good  of  society  as  a  whole,  the  law  sanctions  among 
other  things  promises  which  people  have  procured.  What  promises 
the  law  by  its  sanction  requires  to  be  performed  depends  both  upon 
their  content  and  form.  The  promise  must  relate  to  something  of 
general  importance  to  be  thus  dignified  by  the  law.  In  general,  prom- 
ises relating  to  trade  and  commerce  are  binding.  Promises  to  dine 
are  not.  Promises  to  marry  are.  Again,  I  may  want  to  make  a  prom- 
ise to  you  without  making  myself  liable  to  have  to  perform  it.  It  is 
therefore  desirable  that  we  shall  be  able  to  make  our  promises  binding 
or  not  as  we  wish.  The  difference  is  one  of  form.  Unless  the  promise 
takes  a  certain  form  the  law  will  not  enforce  it. 

Ordinarily,  I  cannot  be  compelled  to  sell  property  which  I  own. 
It  cannot  be  taken  from  me  without  my  consent.  Yet  a  corporation, 
in  undertaking  to  build  a  bridge  or  a  railroad,  may  need  land  which 
I  own.  To  such  corporations  the  law-makers  may  give  the  privilege 
of  taking  my  land  without  my  consent.  A  group  of  men  desire  to 
form  a  business  organization  that  will  continue  though  one  of  them 
dies,  and  for  whose  obligations  the  members  will  not  be  liable  beyond 
the  amounts  which  they  have  put  into  the  business.  These  powers 
and  privileges  are  often  conferred  by  the  legislature  upon  groups  of 
individuals.  I  may  not  stand  at  the  edge  of  a  river  and  require  each 
person  who  crosses  to  pay  me  for  the  privilege  unless  I  am  given 
authority  to  do  so  by  the  state.  Persons  or  firms  are  often  permitted 
to  erect  bridges  or  maintain  ferries  and  to  lay  a  common  charge  upon 
the  public  for  services  rendered.  Frequently,  during  the  period  of  a 
strong  policy   to  aid  internal  improvements,   the  different  states 


IOIg  INDUSTRIAL  SOCIETY 

exempted  some  businesses  from  taxation  or  from  some  other  common 
burden.  This  was  often  done  in  the  case  of  railroads.  In  all  of  these 
cases  the  law  gives  to  some  individual  or  firm  rights,  powers,  privileges, 
or  immunities  not  possessed  by  other  members  of  the  public.  These 
are  examples  of  legal  endowments. 

Mandatory  intervention— -Over  against  the  inhibitory  functions  of 
the  law,  which  were  discussed  under  the  head  of  Prohibitive  Interven- 
tion, stand  its  accelerative  functions,  less  numerous,  but  no  less  inter- 
esting. Usually  whether  I  shall  enter  into  a  contract  with  you  is  a 
matter  solely  for  my  determination.  If  I  sell  food,  I  may  refuse  to 
sell  bread  to  X  because  his  head  is  bald,  to  Y  because  he  eats  with  his 
knife,  or  to  Z  because  he  believes  in  ghosts;  and  this  though  each  is 
starving.  I  may  sell  at  any  price  I  please,  and  I  may  charge  one 
man  half  the  value  of  the  bread  while  I  charge  another  double  its 
worth.  I  may  close  my  shop  whenever  it  suits  my  fancy  to  do  so,  for 
any  reason  or  for  no  reason  at  all.  But  if  my  business  is  that  of  a 
carrier  of  goods  or  passengers,  or  that  of  an  innkeeper,  or  if  I  sell  gas, 
water,  or  electricity  instead  of  bread,  ordinarily  I  may  do  none  of  these 
things.  Upon  persons  or  firms  engaged  in  some  businesses  the  law 
imposes  affirmative  duties  that  they  shall  deal  with  all  proper  persons 
who  are  willing  to  pay  prices  which  the  law  has  said  are  reasonable, 
and  that  they  shall  make  no  discriminations  that  are  unreasonable. 
Such  businesses,  moreover,  may  not  be  forsaken  at  will.  While  in 
most  businesses  the  owners  may  fix  the  amount  and  kind  of  property 
which  they  use,  the  owners  of  railroads,  for  example,  must  if  necessary 
buy  more  cars  and  engines.  Telephone  companies  must  lay  more 
cables  if  the  growth  of  the  demand  for  telephones  requires  it.  To 
enforce  these  affirmative  duties  imposed  by  the  law  two  principal 
remedies  exist:  the  person  who  has  been  injured  by  the  failure  of  the 
owners  to  perform  these  duties  may  sue  them  and  collect  for  his 
injury;  or  he  may  require  some  officer  of  the  state,  usually  the  attorney 
general,  to  bring  action  to  compel  the  owners  to  perform  their 
duties. 

Promotive  intervention  is  unlike  prohibitive  intervention  in  that 
it  is  always  the  purpose  of  the  latter  to  prevent  action,  while  the  former 
contemplates  action  and  change.  Doubtless  the  ideas  conveyed  by 
the  terms  "mandatory"  and  "promotive"  intervention  are  sufficiently 
similar  to  be  expressed  by  a  single  term,  yet  it  seems  helpful  to  dis- 
tinguish them.  The  purpose  of  mandatory  intervention  is  to  compel 
action,  as  may  be  seen  by  reference  to  the  examples  given  above  under 


SOCIAL  CONTROL  Ioig 

that  heading.    The  purpose  of  promotive  intervention  is  to  aid  one 
in  acting. 

See  also       35.  Gild  Merchant  Regulations  versus   Craft   Gild 
Regulations. 
54.  The  Law  Merchant. 
57-62.  On    Mediaeval     Social    Control    of    Industrial 
Activity. 

E233.  The  Socialization  of  Law. 
C.  The  Relation  of  Government  to  Industrial  Activity 
390.  MERCANTILISM1 
The  principles  of  the  mercantile  system  were  not  taught  by  any 
School;  there  was  no  master,  there  were  no  disciples.  From  one  of 
its  aspects  it  was  a  popular  economics  and  not  that  in  the  best  sense 
of  the  term.  Though  Adam  Smith  turned  to  Mun  when  he  looked 
for  a  discriminating  statement  of  the  Mercantile  views,  it  is  clear 
from  his  various  criticisms  on  them  in  the  4th  book  of  the  Wealth  of 
Nations,  that  he  does  not  regard  them  as  a  body  of  arguments  and 
conclusions  carefully  worked  out  by  thoughtful  men  from  desire  of 
truth,  but  rather  as  a  scheme  of  commercial  policy  which  different 
governments  had  adopted  on  the  advice  of  interested  merchants  and 
manufacturers.  Its  principles,  so  far  as  they  were  ever  elaborated 
into  a  system,  seem  to  him  to  be  the  maxims  of  practical  men  of 
business,  who  know  how  trade  benefits  themselves  and  have  no  con- 
cern how  it  benefits  the  nation  at  large.  On  the  other  hand,  the 
motive  of  governments  in  adopting  the  Mercantile  policy  could 
hardly  have  been  disinterestedly  to  benefit  the  merchants  and  manu- 
facturers. The  time  of  its  first  appearance  and  the  time  of  its  decline 
will  help  us  to  understand  the  matter.  It  is  usually  said  to  have  begun 
with  the  Reformation  and  ended  with  the  French  Revolution;  and 
this  means  that  it  began  when  foreign  commerce  was  becoming  a 
power  in  Europe  and  ended  when  governments  were  beginning  to  be 
constitutional  and  popular.  The  common  notion  of  Mercantilism 
represents  it  as  confusing  wealth  with  money,  or  at  least  with  the 
precious  metals.  The  charge  thus  blankly  stated  is  not  strictly  true; 
but  it  is  true  that  views  were  adopted  and  made  the  ground  of  political 

1  Taken  by  permission  from  James  Bonar,  Philosophy  and  Political  Economy, 
pp.  130-33.     (Swan  Sonnenschein  &  Co.,  1S93.} 


1020 


INDUSTRIAL  SOCIETY 


action  for  more  than  two  centuries,  which  might  fairly  be  represented 
as  logically  involving  the  fallacy  in  question.  The  intelligible  motive 
for  adopting  a  policy  which  promised  to  multiply  the  precious  metals 
in  a  country  was  clearly  the  desire  of  the  rulers  to  have  a  full  treasury 
for  warlike  and  other  purposes.  There  was  also  a  belief  that  for 
general  reasons  (the  reasons  of  the  "merchants  and  manufacturers") 
it  was  good  for  the  country  that  as  much  of  the  precious  metals  as 
possible  should  be  attracted  into  it.  The  measures  adopted  to  secure 
this  end  were  the  prohibition  to  export  gold  and  silver  "forth  of  the 
kingdom,"  the  careful  watching  of  the  balance  of  trade,  to  see  that 
our  exports  should  in  value  exceed  the  imports,  in  order  that  there 
might  be  a  balance  in  money  to  come  into  the  country,  restraints 
(by  duties  or  prohibitions)  on  importation  from  foreign  countries, 
and  encouragement  (by  bounties  and  drawbacks)  of  exportation, 
special  encouragements  of  home  manufacture  and  of  the  growth  of 
a  home  population  to  labour  on  it,  treaties  of  commerce  to  secure 
privileges  for  our  exporters,  and  finally  the  foundation  of  Colonies 
and  the  retention  there  of  our  monopoly  of  trading. 

It  has  been  stated  that  Mercantilists  agreed  in  displaying  an 
exaggerated  care  for  the  mere  numbers  of  the  people.  The  fallacy 
of  considering  a  large  population  to  be  of  itself  a  source  of  strength 
to  a  nation  may  indeed  be  connected  with  the  military  view  in  which 
the  Mercantile  System  seems  to  have  originated;  but  it  is  not  neces- 
sarily of  a  piece  with  the  rest  of  the  policy.  Not  only  the  adherents 
of  the  Mercantile  policy  but  nearly  all  economical  writers  before  the 
Physiocrats  were  more  or  less  tainted  with  this  fallacy;  and  it  is  no 
more  safe  to  identify  this  view  with  Mercantilism  than  it  is  to  identify 
Mercantile  theorists  with  the  support  of  an  absolute  monarchy. 
No  doubt  the  policy  arose  at  a  time  when  Monarchies  in  Europe  were 
becoming  strong,  and  the  regulation  of  trade  may  have  seemed  as 
natural  in  an  absolute  monarchy  as  the  regulation  of  religion,  morals, 
and  literature.  But  the  Mercantile  system  prevailed  even  under 
the  Commonwealth;  and  it  survived  the  expulsion  of  the  Stuarts. 
Its  absence  in  Holland  was  due  rather  to  its  impracticability  there 
than  to  the  popular  form  of  the  Dutch  government.  It  is  true  that 
Colbert,  the  great  bugbear  of  the  Physiocrats,  was  the  minister  of  an 
absolute  monarch;  but  the  Physiocrats  who  successfully  contended 
against  the  continuation  of  his  policy  were  themselves  suspected  of 
inclining  to  an  absolute  form  of  government.  The  Mercantile  system 
was  no  immediate  consequence  of  the  decay  of  feudalism  and  the  rise 


SOCIAL  CONTROL  I02I 

of  powerful  monarchies.  The  first  efforts  of  these  monarchs  were 
rather  in  the  direction  of  sumptuary  measures;  their  interference 
with  foreign  importation  was  meant  not  to  bring  money  into  the 
country,  but  to  prevent  their  own  people  from  being  corrupted  by 
foreign  luxuries.  It  is  not  till  a  century  after  the  discovery  of  America 
and  the  fall  of  feudalism  that  we  find  Mercantile  views  coming  for- 
ward with  authority.  All  we  can  safely  say  seems  to  be  that,  when 
the  separate  States  became  more  conscious  of  their  own  national  life 
than  of  the  ties  that  bound  them  to  their  neighbours,  they  were  easily 
led  to  confound  commercial  dependence  with  political,  and  it  was 
not  hard  for  jealousy  and  suspicion  to  convince  them  that  their 
neighbour's  gain  could  not  at  the  same  time  be  their  own.  We  can 
understand  too  that  in  the  days  when  governments  did  not  under- 
stand the  limits  of  their  omnipotence  they  would  feel  bound  to 
regulate  the  spirit  of  trading  which  seemed  to  be  becoming  a  passion 
with  their  citizens,  to  the  detriment  of  their  patriotism.  This  would 
seem  to  them  the  more  imperative  because  trade  is  not  the  creation  of 
any  government,  but  is  one  of  the  sponte  acta  that  have  a  life  of  their 
own.  There  was  therefore  an  interference  at  every  point.  Isolated 
writers,  especially  in  England,  expressed  doubts  about  the  wisdom  of 
this  interference;  but  it  was  not  till  the  middle  of  the  eighteenth 
century,  when  a  great  School  of  Economists  arose  in  France,  that 
both  rulers  and  people  were  forced  to  pay  some  regard  to  the  demand 
for  freedom  of  trade.  The  demand  was  simply  that  what  was 
spontaneous  in  its  origin  should  be  allowed  to  be  spontaneous  in  its 
development. 

391.    THE  MERCANTILIST  REGULATIONS  BECOME  ONEROUS1 

In  every  quarter,  and  at  every  moment,  the  hand  of  government 
was  felt.  Duties  on  importation,  and  duties  on  exportation;  bounties 
to  raise  up  a  losing  trade,  and  taxes  to  pull  down  a  remunerative  one; 
this  branch  of  industry  forbidden,  and  that  branch  of  industry 
encouraged;  one  article  of  commerce  must  not  be  grown  because  it 
was  grown  in  the  colonies,  another  article  might  be  grown  and  bought 
but  not  sold  again,  while  a  third  article  might  be  bought  and  sold  but 
not  leave  the  country.  Then,  too,  we  find  laws  to  regulate  wages; 
laws  to  regulate  prices;  laws  to  regulate  profits;  laws  to  regulate  the 
interest  of  money;  custom-house  arrangements  of  the  most  vexatious 

1  Taken  by  permission  from  H.  T.  Buckle,  History  of  Civilization  in  England, 
I,  201-3.     (D.  Appleton  &  Co.,  1906.) 


I022  INDUSTRIAL  SOCIETY 

kind,  aided  by  a  complicated  scheme,  which  was  well  called  the  sliding 
scale__a  scheme  of  such  perverse  ingenuity  that  the  duties  con- 
stantly varied  on  the  same  article,  and  no  man  could  calculate  before- 
hand what  he  would  have  to  pay.  To  this  uncertainty,  itself  the 
bane  of  all  commerce,  there  was  added  a  severity  of  exaction,  felt 
by  every  class  of  consumers  and  producers.  The  tolls  were  so  onerous 
as  to  double  and  often  quadruple  the  cost  of  production.  A  system 
was  organized,  and  strictly  enforced,  of  interference  with  markets, 
interference  with  manufactories,  interference  with  machinery,  inter- 
ference even  with  shops.  The  towns  were  guarded  by  excisemen,  and 
the  ports  swarmed  with  tide-waiters,  whose  sole  business  was  to 
inspect  nearly  every  process  of  domestic  industry,  peer  into  every 
package,  and  tax  every  article;  while  that  absurdity  might  be  carried 
to  its  extreme  height,  a  large  part  of  all  this  was  by  way  of  protection: 
that  is  to  say,  the  money  was  avowedly  raised,  and  the  inconvenience 
suffered,  not  for  the  use  of  the  government,  but  for  the  benefit  of  the 
people;  in  other  words,  the  industrious  classes  were  robbed  in  order 
that  industry  might  thrive. 

Such  are  some  of  the  benefits  which  European  trade  owes  to  the 
paternal  care  of  European  legislators.  But  worse  still  remains  behind. 
For  the  economical  evils,  great  as  they  were,  have  been  far  sur- 
passed by  the  moral  evils  which  this  system  produced.  The  first 
inevitable  consequence  was  that  in  every  part  of  Europe  there  arose 
numerous  and  powerful  gangs  of  armed  smugglers,  who  lived  by  dis- 
obeying the  laws  which  their  ignorant  rulers  had  imposed.  These 
men,  desperate  from  the  fear  of  punishment,  and  accustomed  to  the 
commission  of  every  crime,  contaminated  the  surrounding  popu- 
lation; introduced  into  peaceful  villages  vices  formerly  unknown; 
caused  the  ruin  of  entire  families;  spread,  wherever  they  came, 
drunkenness,  theft,  and  dissoluteness;  and  familiarized  their  asso- 
ciates with  those  coarse  and  swinish  debaucheries  which  were  the 
natural  habits  of  so  vagrant  and  lawless  a  life.  The  innumerable 
crimes  arising  from  this  are  directly  chargeable  upon  the  European 
governments  by  whom  they  were  provoked. 

392.    THE  DEVELOPMENT  OF  INDIVIDUALISM1 

With  a  view  to  determining  the  task  of  the  twentieth  century,  it 
would  be  well  if  we  should  trace  as  far  back  as  possible  the  whole 

1  Adapted  by  permission  from  Thomas  Davidson,  "The  Task  of  the  Twentieth 
Century,"  International  Journal  of  Ethics,  XII  (1901-2),  23-28. 


t 


SOCIAL  CONTROL  io23 

:ourse  of  human  development  (for  each  part  receives  the  meaning 
from  the  whole) ;  but  as  space  forbids  this,  we  must  be  content  to 
gain  what  light  we  can  by  going  back  for  a  few  centuries,  say  to  the 
close  of  the  Middle  Age. 

The  task  of  that  age  may  be  stated  in  a  few  words.  It  consisted 
in  keeping  steadily  before  each  individual  soul  the  fact  of  its  own 
eternity  and  impressing  upon  it  that  its  weal  or  woe,  throughout 
that  eternity,  depended  upon  its  pursuing  a  definite  course  of  conduct. 
So  far,  nothing  could  have  been  better.  But,  unfortunately,  though 
as  we  may  well  believe,  necessarily,  these  things  were  presented  in  an 
external,  dramatic  way,  as  arbitrary  revelations  from  an  external 
God,  and  backed  by  such  awesome  sanctions  as  made  the  soul  feel 
itself  a  mere  helpless  worm  of  the  dust,  in  presence  of  an  irresponsible 
omnipotence.  In  one  word,  human  life  in  these  ages  was  entirely 
regulated  by  authority,  which,  though  it  might  produce  a  certain 
amount  of  socially  desirable  conduct,  as  even  the  poorest  of  motives 
such  as  fear  or  avarice  may,  rendered  all  true  morality,  which  depends 
upon  a  free,  rational  determination  of  the  will,  utterly  impossible. 
The  excuse  for  such  authority  was  the  fantastic  belief  that  human 
nature,  as  such,  was  utterly  fallen,  degraded,  and  incapable  of  self- 
direction;  that,  hence,  if  ever  it  was  to  reach  its  true  end,  it  must 
entirely  submit  itself,  ut  cadaver,  to  external  guidance,  that  is,  author- 
ity, or  direct  inspiration. 

In  a  system  which  accepted  authority  as  the  guide  of  life  on  pain 
of  damnation,  there  was,  of  course,  no  room  for  freedom  of  any  sort, 
freedom  of  thought,  freedom  of  affection,  or  freedom  of  will.  And, 
as  a  matter  of  fact,  all  these  forms  of  freedom  were,  as  far  as  possible, 
vigorously  suppressed.  Free  inquiry  into  the  laws  and  nature  of  the 
world  gave  way  to  a  timid,  scholastic  discussion  of  the  meaning  of 
authority.  Above  all,  free  self-determination  of  the  will,  possible 
only  through  free  inquiry  and  free  affection,  was  placed  under  the 
ban.  The  mediaeval  church,  in  part  directly,  in  part  indirectly, 
through  the  state,  sought  to  regulate  every  thought,  feeling,  work,  and 
deed  of  its  members,  and  of  all  whom  it -claimed  as  such.  When  it 
was  resisted,  it  shrank  from  no  extremes. 

The  task  of  the  centuries  since  the  close  of  the  Middle  Age/ffas  been 
gradually  to  remove  this  yoke  of  authority,  and  to  raise  men  to  free- 
dom of  thought,  affection,  and  will— in  a  word,  to  rational  self-guidance 
or  moral  life.  This  has  been  done,  partly  through  actual  resist- 
ance to  authority,  a  resistance  necessitated  by  social  suffering,  and 


I024  INDUSTRIAL  SOCIETY 

partly  through  discoveries  in  the  worlds  of  nature,  history,  and 
philosophy. 

The  sixteenth  century  was  marked  by  great  advances  in  all  direc- 
tions. The  discovery  of  America,  the  proof  positive  of  the  earth's  ro- 
tundity, and  the  Copernican  astronomy  utterly  broke  up  the  mediaeval 
view  of  the  universe,  the  science  of  astrology,  and  the  astronomical 
ethics  depending  on  both,  and  thus  freed  men  from  a  whole  load  of 
ignorance  and  superstition  in  matters  physical  and  moral.  At  the  same 
time  the  Reformation  among  the  Germanic  nations  freed  northern 
Europe  from  papal  authority,  and  introduced  the  principle  of  free 
inquiry  (without,  indeed,  recognizing  its  full  import),  while  the 
Pagan  Renaissance  among  the  Latin  peoples  went  far  to  free  the  south 
from  that  nature-distorting  asceticism  to  which  much  of  the  church's 
authority  was  due,  and  to  make  the  perfection  of  human  nature, 
instead  of  the  glory  of  God,  the  end  of  human  activity.  Under  the 
influence  of  both  these  movements  education  of  a  human  sort  spread 
rapidly,  art  revived,  and  the  human  mind  advanced  toward  autonomy. 

The  seventeenth  century  is,  unlike  the  sixteenth,  which  had  been 
largely  a  period  of  destruction  in  matters  spiritual,  a  period  of  recon- 
struction. Now,  not  only  are  the  old  sciences  and  philosophies  put 
aside,  but  new  sciences  and  new  philosophies  spring  up  to  take  their 
place.  And,  strange  to  say,  these  new  sciences  and  philosophies  are 
all  animated  by  a  common  spirit  utterly  different  from  that  of  the 
Middle  Age.  Just  at  the  time  when  the  earth,  man's  abode,  ceased 
to  be  regarded  as  the  centre  of  the  physical  universe,  man  himself 
came  to  be  regarded  as  the  centre  of  the  spiritual  universe.  It  is  this 
fact  that  makes  the  modern  world,  as  distinguished  from  the  ancient 
and  mediaeval.  Though  the  meaning  of  this  fact  has  been  but  slowly 
coming  to  consciousness,  it  is  now  obvious  enough  to  anyone  who  cares 
to  think.  It  is  this:  whereas  in  the  older  world  all  truth  was  tried  by 
an  external  authority,  supposed  to  be  revealed,  and  human  reason  was 
relegated  to  a  thrall's  place;  in  the  modern  world,  human  reason  is 
elevated  to  the  first  place,  and  all  authority,  even  the  existence  of  God 
himself,  has  come  before  its  tribunal,  and  accepts  its  verdict.  Thus 
truth  is  no  longer  dependent  upon  authority  but  authority  upon  truth. 

This%reat  change  is  due  mainly  to  two  men — the  English  Prot- 
estant Locke  and  the  French  Catholic  Descartes;  but  we  find  it  in 
earlier  writers,  in  Hooker  and  Hobbes,  for  example.  Both  these 
latter  writers  place  the  origin  and,  therefore,  the  authority  of  human 
society  in  a  social  contract,  and  not  in  divine  appointment,  and  are 


SOCIAL  CONTROL  I025 

ius  the  parents  of  Rousseau  and  the  French  Revolution.  Locke 
md  Descartes,  working  on  different  lines,  came  practically  to  the 
-Line  conclusion,  namely,  that  in  the  human  consciousness  lie  the  test 
id  reality  of  all  truth,  and,  therefore,  of  all  life  guidance.  From 
iem  comes  all  modern  thought,  in  all  its  different  phases,  from  the 
crassest  materialism  to  the  flimsiest  idealism.  To  the  seventeenth 
century  belong  Leibniz  and  Spinoza,  Newton  and  Galileo,  Vico  and 
Grotius;  hence,  the  beginnings  of  modern  science  in  all  its  branches. 
To  it  also  belong  the  first  effective  movements  toward  what  may  be 
called  individualism  which  was  destined  to  play  such  a  part  in  the 
subsequent  world.  They  take  their  rise  in  Holland,  England,  and 
Scotland,  and  find  their  overt  expression  in  the  three  great  anthro- 
pocentric  movements  of  the  century— the  two  English  revolutions  and 
the  foundation  of  a  new  order  of  things — whose  very  essence  is  indi- 
vidualism, in  the  newly-discovered  continent  beyond  the  Western 
Sea.  If  the  sixteenth  century  saw  the  collapse  of  external  spiritual 
authority  and  the  rise  of  rationalism,  the  seventeenth  saw  the  collapse 
of  external  temporal  authority  and  the  rise  of  individualism,  backed 
too  by  a  philosophy  which  showed  it  to  be  rational  and  practicable. 
In  the  eighteenth  century  the  movements  of  the  two  previous 
centuries,  toward  freedom  of  thought  and  individualism  in  life,  were 
carried  to  extremes  and  a  new  movement  begun,  that  may  be  called 
the  movement  toward  economic  freedom.  It  is  par  excellence  the 
century  of  down-breaking  in  all  the  spheres  of  life  and  thought. 
Voltaire  overthrew  thrones  with  a  jest,  and  made  belief  in  revealed 
authority  forever  impossible;  Rousseau  discarded  all  conventional- 
ities and  external  repressive  institutions,  called  for  a  return  to  nature, 
and  made  subjective  sentiment  the  rule  of  life — individualism  with  a 
vengeance !  Hume,  the  friend  of  Rousseau,  supplied  a  philosophy  for 
all  this,  by  reducing  all  thought  to  clusters  of  impressions  and  ideas, 
and  defying  these  to  get  beyond  themselves,  either  to  a  world  of 
objects,  or  to  a  subject.  Kant,  accepting  this  result,  showed  how  the 
world  that  we  know,  subjects  and  all,  can  be  built  up  of  these  clusters, 
provided  we  bring  out  all  that  is  implicit  in  them.  Goethe,  with 
Titanic  nature,  showed  that  man  works  out  his  own  destiny  by  casting 
off  his  limitations  and  rising  to  spiritual  freedom,  among  free  men; 
that,  as  Tennyson  puts  it,  "man  is  man  and  master  of  his  fate." 
Lastly,  Adam  Smith,  devoting  himself  to  a  sphere  of  human  action 
which  thinking  men  had  too  long  affected  to  despise,  demanded  free- 
dom in  the  economic  world,  asserted  that  the  shackles  should  be 


I026  INDUSTRIAL  SOCIETY 

struck  from  the  hands  of  labor,  and  that  complete  freedom  of  pro- 
duction and  trade  should  be  permitted — laissezfaire,  laissez  passer — 
insisting,  with  perfect  truth,  that  freedom  of  subsistence  is  the  condi- 
tion of  all  other  freedom.  Meanwhile,  individualism,  the  demand  of 
the  individual  for  recognition  as  an  absolute  end,  found  public  utter- 
ance in  the  two  great  events  of  the  century,  the  American  and  French 
Revolutions,  in  which  men  boldly  declared  that  they  were  the  lords, 
not  the  slaves  or  tools  of  institutions,  and  that  any  institution  or  law 
which  they  could  or  would  acknowledge,  on  pain  of  denying  their  man- 
hood, must  be  the  expression  of  their  own  reason,  a  means  toward  the 
attainment  of  their  own  ends,  as  spiritual  beings.  *^ 

393.  THE  PHYSIOCRATS  AND  THE  NATURAL  ORDER 

A1 

The  pioneer  of  the  new  doctrine  was  Quesnay,  the  physician  of 
Madame  de  Pompadour.  In  the  articles  of  Quesnay,  as  well  as  in  the 
later  writings  of  himself,  Gournay,  Mercier  de  la  Riviere,  Dupont,  and 
the  elder  Mirabeau,  the  economical  element  bulks  as  large  as  the 
political.  Turgot,  a  greater  personality  than  any  of  them,  is  not  to 
be  reckoned  among  the  physiocrats;  but  he  in  turn  influences  them 
and  is  influenced  by  them.  They  presented  a  "body  of  doctrine 
defined  and  complete,  which  clearly  lays  down  the  natural  rights  of 
man,  the  natural  order  of  Society,  and  the  natural  laws  most  advanta- 
geous to  men  united  in  a  society." 

Land  furnishes  the  raw  materials  of  all  industry;  those  raw 
materials  are  the  original  wealth,  always  renewed,  which  sustain  all 
classes  in  the  kindgom.  It  is  therefore  of  the  first  importance  that 
the  farmer  should  not  be  poor.  For  it  is  not  true  (says  Quesnay) 
that  commerce  and  agriculture  are  two  co-ordinate  sources  of  wealth. 
Commerce  is  only  a  branch  of  the  tree  of  agriculture,  and  a  less 
important  branch  than  manual  labour.  It  is  only  in  agriculture 
(or,  more  generally,  in  the  procuring  of  raw  materials)  that  the  return 
to  expenditure  more  than  balances  expenditure,  and  leaves  a  surplus 
clear  gain — a  gain  which  is  no  other  man's  loss.  Hence,  agriculture 
should  be  a  subject  of  interest,  not  only  to  farmer  and  labourer  and 
landlord,  but  to  the  entire  nation.  It  is  everyone's  interest  that  the 
produce  of  the  soil  should  be  as  great  as  possible,  and  hence  every 
obstruction  to  agriculture  should  be  removed.    There  should  be  free 

1  Adapted  by  permission  from  James  Bonar,  Philosophy  and  Political  Economy, 
PP-  134-39.    (Swan  Sonnenschein  &  Co.,  1893.) 


SOCIAL  CONTROL  102>j 

[portation  of  corn  and  other  raw  produce.  The  result  would  be 
;tter  prices  to  the  cultivator,  better  capacity  on  his  part  to  do  justice 
to  his  lands,  and  consequent  increase  of  cultivation,  followed  by  an 
increased  population  which  again  would  extend  consumption  and 
keep  up  the  market  for  the  produce.  Most  of  the  trade  of  the  king- 
dom, as  it  now  is,  does  not  really  increase  the  wealth  of  the  nation; 
(as  Locke  says)  it  means  no  more  than  money  changing  hands  in  a 
game  or  a  lottery;  it  does  not  add  to  the  stakes. 

Money  is  a  form  of  wealth  which  acts  as  an  intermediary  between 
the  sellers  and  the  buyers,  but  its  function  is  to  be  the  means  of 
exchanging  other  forms  of  wealth.  It  adds  nothing  to  the  "real 
wealth"  of  the  country,  in  the  sense  of  leaving  the  total  greater  than 
it  found  it;  and  it  is  a  mistake  to  suppose  that  an  accumulation  of 
money  is  the  way  to  make  a  nation  really  rich.  This  was  a  view 
directly  opposed  to  the  Mercantile  Theory,  to  which  theory  the 
Physiocrats  may  be  considered  as  dealing  the  death  blow. 

But  it  was  not  only  money  which  was  sterile,  in  the  view  of  those 
Economists.  Quesnay  represents  society  as  divided  (economically) 
into  three  great  classes — the  cultivators,  who  alone  are  productive; 
the  proprietors  (including  the  State)  who  draw  from  the  first  class  what 
they  spend  on  the  third  or  Industrial  class;  and  the  last,  who  are 
called  emphatically  the  Sterile  or  unproductive  class.  Their  mate- 
rials all  come  from  the  first  class,  and  their  outlay  of  labour  and  capital 
does  not  bring  to  the  nation  in  material  goods  more  than  an  equivalent. 
If  we  depended  on  them  and  had  no  agricultural  surplus,  but  just 
enough  to  feed  our  own  people,  the  wealth  of  the  country  could  not 
grow.  Growing  national  wealth  must  mean  growing  produce  of 
agriculture.  Agriculture  alone  yields  a  net  produce  or  clear  gain 
after  reimbursement  of  expenses;  and  the  agriculturist  is  not  the 
labourer,  but  his  employer.  Physiocracy,  therefore,  as  an  eco- 
nomical theory  is  a  glorification  not  of  the  labourer  but  of  the  capital- 
Iist,  though  only  in  one  field  of  action. 
w 

It  is  hardly  necessary  to  say  that  the  term  "natural  order"  is  meant 
to  emphasize  the  contrast  between  it  and  the  artificial  social  order 
voluntarily  created  upon  the  basis  of  a  social  contract.  But  a  purely 
negative  definition  is  open  to  many  different  interpretations. 

1  Adapted  by  permission  from  Charles  Gide  and  Charles  Rist,  A  History^  of 
Economic  Doctrines,  pp.  5-12,  45.  (Authorized  translation,  D.  C.  Heath  &  Co., 
I9I3-) 


I02g  INDUSTRIAL  SOCIETY 

In  the  first  place,  this  "natural  order"  may  be  conceived  as  a 
state  of  nature  in  opposition  to  a  civilised  state  regarded  as  an  arti- 
ficial creation.  As  an  interpretation  of  the  Physiocratic  position, 
however,  it  must  be  unhesitatingly  rejected,  for  no  one  bore  less 
resemblance  to  a  savage  than  a  Physiocrat.  They  all  of  them  lived 
highly  respectable  lives  as  magistrates,  intendents,  priests,  and  royal 
physicians,  and  were  completely  captivated  by  ideas  of  orderliness, 
authority,  sovereignty,  and  property — none  of  them  conceptions 
compatible  with  a  savage  state.  "Property,  security,  and  liberty 
constitutes  the  whole  of  the  social  order." 

In  the  second  place,  the  term  "natural  order"  might  be  taken  to 
mean  that  human  societies  are  subject  to  natural  laws  such  as  govern 
the  physical  world  or  exercise  sway  over  animal  or  organic  life.  From 
this  standpoint  the  Physiocrats  must  be  regarded  as  the  forerunners 
of  the  organic  sociologists.  Such  interpretation  seems  highly 
probable,  because  Dr.  Quesnay,  through  his  study  of  "animal  econ- 
omy" (the  title  of  one  of  his  works)  and  the  circulation  of  the  blood, 
was  already  familiar  with  these  ideas.  Even  this  idea  seems  to  us 
insufficient.  They  neither  believed  that  the  "natural  order  "  imposed 
itself  like  gravitation,  nor  imagined  that  it  could  ever  be  realized  in 
human  society  as  it  is  in  the  hive  or  the  ant-hill.  They  saw  that  the 
latter  were  well-ordered  communities,  while  human  society  at  its 
present  stage  is  disordered,  because  man  is  free,  whereas  the  animal 
is  not. 

What  are  we  to  make  of  the  " natural  order  "  then  ?  The  "natural 
order,"  so  the  Physiocrats  maintained,  is  the  order  which  God. has 
ordained  for  the  happiness  of  mankind.  It  is  the  providential  order. 
To  understand  it  is  our  first  duty,  to  bring  our  lives  into  conformity 
with  it  is  our  next. 

The  "natural  order"  was  that  order  which  seemed  obviously  the 
best,  not  to  any  individual  whomsoever,  but  to  rational,  cultured, 
liberal-minded  men  like  the  Physiocrats.  It  was  not  the  product  of 
the  observation  of  external  facts;  it  was  the  revelation  of  a  principle 
within.  And  this  is  one  reason  why  the  Physiocrats  shpwed  such 
respect  for  property  and  authority.  It  seemed  to  them  that  these 
formed  the  very  basis  of  the  "natural  order." 

It  was  just  because  the  "natural  order"  was  "supernatural,"  and 
so  raised  above  the  contingencies  of  everyday  life,  that  it  seemed  to 
them  to  be  endowed  with  all  the  grandeur  of  the  geometrical  order 
with  its  double  attributes  of  universality  and  immutability.  It 
remained  the  same  for  all  times,  and  for  all  men.    Its  fiat  was  "  unique, 


SOCIAL  CONTROL  l02g 

eternal,  invariable,  and  universal."  Divine  in  its  origin,  it  was 
universal  in  its  scope,  and  its  praises  were  sung  in  litanies  that  might 
rival  the  Ave  Maria. 

Knowledge  of  the  " natural  order"  was  not  sufficient.  Daily 
life  must  also  conform  to  the  knowledge.  Nothing  could  be  easier 
than  this,  for  "if  the  order  really  were  the  most  advantageous"  every 
man  could  be  trusted  to  find  out  for  himself  the  best  way  of  attaining 
it  without  coercion  of  any  kind.  It  is  of  the  very  essense  of  that  order 
that  the  particular  interest  of  the  individual  can  never  be  separated 
from  the  common  interest  of  all,  but  this  happens  only  under  a  free 
system. 

A  brief  resume  of  the  contributions  made  to  economic  science  by 
the  Physiocrats  will  help  us  to  realize  their  great  importance. 

From  the  theoretical  point  of  view  we  have: 

i.  The  idea  that  every  social  phenomenon  is  subject  to  law,  and 
that  the  object  of  scientific  study  is  to  discover  such  laws. 

2.  The  idea  that  personal  interest,  if  left  to  itself,  will  discover 
what  is  most  advantageous  for  it,  and  that  what  is  best  for  the  indi- 
vidual is. also  best  for  everybody.  But  this  liberal  doctrine  had 
many  advocates  before  the  Physiocrats. 

3.  The  conception  of  free  competition,  resulting  in  the  establish- 
ment of  the  bon  prix,  which  is  the  most  advantageous  price  for  both 
parties,  and  implies  the  extinction  of  all  usurious  profit. 

4.  An  imperfect  but  yet  searching  analysis  of  production,  and  of 
the  various  divisions  of  capital.  An  excellent  classification  of  incomes 
and  of  the  laws  of  their  distribution. 

5.  A  collection  of  arguments  which  have  long  since  become  classic 
in  favour  of  landed  property. 

From  a  practical  point  of  view  we  have: 

1.  The  freedom  of  labour. 

2.  Free  trade  within  a  country,  and  an  impassionate  appeal  for 
the  freedom  of  foreign  trade. 

3.  Limitation  of  the  functions  of  the  State. 

4.  A  first-class  demonstration  of  the  superiority  of  direct  taxation 
over  indirect. 

394.    THE  NATURAL  RIGHTS  THEORY1 
U< Arguments  on  behalf  of  the  natural  rights  theory  fall  naturally 
into  two  great  divisions  according  to  the  line  of  attack  adopted.     It  is 

■  Taken  by  permission  from  W.  S.  McKechnie,  The  State  and  the  Individual, 
pp.  221-38.     (James  MacLehose  &  Sons,  1896.) 


I03o  INDUSTRIAL  SOCIETY 

maintained,  on  the  one  hand,  that  there  are  certain  spheres  marked  off 
by  nature  or  justice  into  which  government  has  absolutely  no  right 
to  intrude.  Such  interference  is  objected  to  on  the  ground  that  it 
would  violate  certain  abstract  principles  or  natural  rights  which  are 
so  sacred  and  absolute  that  no  State  has  a  justifiable  warrant  to 
infringe  them.  On  the  other  hand,  it  is  urged  alternatively  that, 
whether  or  not  the  government  can  justify  such  powers  on  a  specu- 
lative basis,  it  is  always  inexpedient  for  it  to  employ  them.  It  always 
does  harm  where  it  seeks  to  do  good,  by  extending  its  functions 
beyond  their  normal  limits."  The  problem,  then,  is  to  define  the 
proper  sphere  of  activity  beyond  which  it  is  inexpedient  and  wrong 
for  government  to  step.  Many  of  its  votaries  adopt  both  lines  of 
argument;  but,  though  these  may  be  consistently  held  by  one  man, 
they  are  essentially  different.  The  essence  of  the  argument  from 
natural  rights  lies  in  the  supposed  existence  of  some  abstract  prin- 
ciple of  justice,  of  some  abstract  rights,  which  are  outside  of  and 
greater  than  the  State.  Certain  hard-and-fast  barriers  are  con- 
structed in  imagination,  and  it  is  said  that  the  State  cannot,  without 
doing  violence  to  itself  and  to  its  duties,  climb  over  these.  It  is  not 
merely  that  it  is  inexpedient  for  the  State  to  allow  its  officials  to  inter- 
fere in  this  or  that  direction.  Something  more  than  mere  good  policy 
is  at  stake.  Eternal  principles,  absolute  and  fundamental  rights, 
are  assailed  if  the  government  dare  to  go  beyond  its  appointed  sphere. 
"The  violation  of  the  rights  of  a  single  individual,"  it  has  been 
forcibly  said,  "is  an  act  of  treason — is  an  act  of  war  against  humanity." 

Are  there  any  absolute  principles  or  rights  which  the  government, 
acting  under  the  proper  authority  from  the  State,  cannot  invade? 
Are  there  any  rights  inherent  in  any  persons  or  groups  of  persons 
within  the  State  which  may  be  called  absolute  ?  Is  there  any  limit 
at  all  to  the  right  of  the  State  to  do  anything  whatsoever,  if  that 
course  is  advisable  for  the  welfare  of  itself  as  an  organic  unity  com- 
prising all  of  its  members  as  component  parts?  The  answer  here 
given  is  equally  simple.  There  is  no  such  absolute,  indefeasible, 
inviolable  right  which  can  justly  defy  the  State  acting  for  the  common 
good. 

No  theory,  however,  is  harder  to  kiH  outright.  The  doctrine  of 
natural  rights  tends  to  reappear  in  a  new  phase,  immediately  it  has 
been  rebutted  in  its  old  one.  A  few  of  its  best-known  forms  must  be 
briefly  enumerated.  Absolute  claims  to  exemption  from  the  control 
of  government  have  been  set  up  on  behalf  of  (i)  rights  of  individual 


SOCIAL  CONTROL  I03I 

erty;    (2)  rights  of  conscience;    (3)  contractual  and  proprietary 
ights;   (4)  rights  of  the  church,  the  family,  and  the  voluntary  asso- 
'ation;    (5)  rights  of  subject  nationalities;   and  (6)  "the  rights  of 
an,"  considered  generally. 

What  is  this  theory  of  the  Rights  of  Man  which  has  played  so 

istinguished  a  role  in  English,  French,  and  American  national 

rogress?    It  naturally  assumed  various  forms,  according  to  the 

es  and  places  of  its  appearance;  but  its  essential  feature  is  every- 

here  the  same.     Man  as  man  has  certain  rights  which  no  State  or 

government  dare  attack.    Every  man,  because  of  his  own  separate 

individuality,  had  these  rights. 

Catalogues  of  these  naturally  vary,  but  they  usually  include  free- 
dom of  thought,  speech,  and  action;  rights  of  public  meeting,  of 
combination,  and  of  freedom  of  the  press,  and  so  on.  All  of  them  are 
excellent  things  in  their  proper  places.  Nor  is  there  the  least  objec- 
tion to  calling  them  "natural  rights"  if  any  good  purpose  is  thereby 
served,  though  it  is  incumbent  on  those  using  the  term  to  explain 
exactly  what  they  mean.  Danger  arises  only  when  they  are  spoken 
of  as  "absolute"  rights. 


395.    SOME  NATURAL  RIGHTS  DOCUMENTS 

THE  AMERICAN  DECLARATION  OF  INDEPENDENCE 


When  in  the  course  of  human  events,  it  becomes  necessary  for 
one  people  to  dissolve  the  political  bands  which  have  connected  them 
with  another,  and  to. assume  among  the  powers  of  the  earth,  the 
separate  and  equal  station  to  which  the  laws  of  Nature  and  of  Nature's 
God  entitles  them,  a  decent  respect  to  the  opinions  of  mankind 
requires  that  they  should  declare  the  causes  which  impel  them  to  the 
separation. 

We  hold  these  truths  to  be  self-evident,  that  all  men  are  created 
equal,  that  they  are  endowed  by  their  Creator  with  certain  inalien- 
able Rights,  that  among  these  are  Life,  Liberty,  and  the  pursuit  of 
Happiness.  That,  to  secure  these  rights,  Governments  are  instituted 
among  Men,  deriving  their  just  powers  from  the  consent  of  the 
governed.  That,  whenever  any  Form  of  Government  becomes 
destructive  of  these  ends,  it  is  the  Right  of  the  People  to  alter  or  to 
abolish  it,  and  to  institute  new  Government,  laying  its  foundations 
on  such  principles  and  organizing  its  powers  in  such  form,  as  shall 
seem  to  them  most  likely  to  effect  their  safety  and  happiness 


I032  INDUSTRIAL  SOCIETY 

THE    PREAMBLE   OF    THE   CONSTITUTION    OF    THE    UNITED    STATES 

We,  the  people  of  the  United  States,  in  order  to  form  a  more 
perfect  union,  establish  justice,  insure  domestic  tranquillity,  provide 
for  the  common  defense,  promote  the  general  welfare,  and  secure  the 
blessings  of  liberty  to  ourselves  and  our  posterity,  do  ordain  and 
establish  this  Constitution  for  the  United  States  of  America 

THE  VIRGINIA  BILL  OF  RIGHTS,   JUNE    12,    1 7 76 

A  Declaration  of  Rights  made  by  the  Representatives  of  the  good 
people  of  Virginia,  assembled  in  full  and  free  Convention;  which 
rights  do  pertain  to  them,  and  their  posterity,  as  the  basis  and  founda- 
tion of  government. 

1.  That  all  men  are  by  nature  equally  free  and  independent, 
and  have  certain  inherent  rights,  of  which,  when  they  enter  into  a 
state  of  society,  they  cannot,  by  any  compact,  deprive  or  divest  their 
posterity;  namely,  the  enjoyment  of  life  and  liberty,  with  the  means 
of  acquiring  and  possessing  property  and  pursuing  and  obtaining 
happiness  and  safety.  .... 

THE  DECLARATION  OF  THE  RIGHTS  OF  MAN  AND  OF  CITIZENS,  ISSUED 
BY  THE  NATIONAL  ASSEMBLY  OF  FRANCE  IN    1 789 

The  representatives  of  the  people  of  France,  formed  into  a  Na- 
tional Assembly,  considering  that  ignorance,  neglect,  or  contempt  of 
human  rights  are  the  sole  causes  of  public  misfortunes  and  cor- 
ruptions of  government,  have  resolved  to  set  forth,  in  a  solemn 
declaration,  those  natural,  imprescriptible  and  inalienable  rights 
(and  do)  recognize  and  declare,  in  the  presence  of  the  Supreme  Being, 
and  with  the  hope  of  His  blessing  and  favor,  the  following  sacred 
rights,  of  men  and  of  citizens; 

I.  Men  are  born  and  always  continue  free  and  equal  in  respect 
to  their  rights.  Civil  distinctions  therefore  can  only  be  founded  on 
public  utility. 

II.  The  end  of  all  political  associations  is  the  preservation  of  the 
natural  and  imprescriptible  rights  of  man,  and  these  rights  are 
liberty,  property,  security,  and  resistance  of  oppression 

396.    THE  TRANSITION  TO  LAISSEZ-FAIRE  IN  ENGLAND1 

Both  in  England  and  in  America  we  have  passed  through  a  cycle 

of   politico-legal   thought.    In   England,    formerly,   practically   all 

1  Taken  by  permission  from  A.  A.  Bruce,  "Laissez-faire  and  the  Supreme  Court 
of  the  United  States,"  Greenbag,  XX  (1908),  553-54. 


SOCIAL  CONTROL  I033 

combinations  and  almost  all  of  the  modern  forms  of  commercial 
organization  were  unlawful.  The  business  of  the  middle  man  was 
unlawful;  the  business  of  the  modern  wholesale  grocer  was  unlawful. 
It  was  a  criminal  offense  to  buy  food  or  victuals  which  were  on  their 
way  to  the  market  for  the  purpose  of  reselling  them,  or  to  buy,  for 
purpose  of  resale,  large  quantitites  of  food  at  any  time.  This,  how- 
ever, was  before  the  days  of  the  rise  of  capitalism.  It  was  at  a  time 
when  the  laws  of  England  were  in  the  hands  of  the  gentry,  the  land- 
holding,  or  military  classes.  It  was  for  the  interest  of  these  to  oppose 
combination  in  every  form.  They  were  jealous  of  the  growing  power 
of  the  business  man.  It  was  for  their  interest  to  make,  as  they  did 
make,  both  the  trade  combination  and  the  labor  combination,  or 
union,  criminal  conspiracies.  But  at  the  beginning  of  the  last  century 
a  change  came.  The  war  with  France  had  been  fought  and  won; 
the  fleets  of  both  the  French  and  the  Dutch  had  been  practically 
swept  from  the  seas;  the  foreign  markets  which  once  belonged  to  the 
French  and  the  Dutch,  now  belonged  to  England;  the  cotton  gin 
had  been  invented;  steam  had  been  utilized;  the  mines  had  been 
uncovered;  all  that  was  necessary  for  England  was  to  manufacture, 
and  the  markets  of  the  world  were  open  to  her.  At  the  same  time 
the  suffrage  had  been  largely  extended  and  the  business  man  had  come 
into  political  power,  and,  above  all,  capital  had  become  diffused 
through  the  establishment  of  banks,  and  the  accumulated  resources 
of  the  country  made  capable  of  utilization.  There  was  immediately 
a  clamor  on  all  sides  for  the  overthrow  of  the  restrictions  of  the  past. 
In  order  to  compete  in  the  markets  of  the  world  and  to  take  advan- 
tage of  the  opportunities  for  wealth  which  the  foreign  trade  afforded, 
ships  had  to  be  built  and  chartered,  trading  posts  established,  and 
factories  built,  and  combinations  of  capital  were  found  absolutely 
necessary.  It  was  no  longer  for  the  interests  of  the  employer  that 
the  rates  of  wages  should  be  regulated  by  law,  nor  that  the  laborer 
should  be  tied  to  the  land.  The  manufacturer  wanted  the  opportu- 
nity to  offer  extra  wages,  because  at  times  he  wished  to  work  his  fac- 
tories night  and  day,  so  that  he  might  get  his  goods  rapidly  upon  the 
market.  He  did  not  want  any  restrictions  on  the  hours  of  labor. 
In  the  past  law  and  custom  had  so  operated  that  no  one  could  become 
a  master  mechanic  or  manufacturer  who  did  not  belong  to  one  of  the 
powerful  trade  guilds  and  who  had  not  served  an  apprenticeship. 
In  this  new  age  of  capitalism  and  of  democracy— for  it  was  both  a 
capitalistic   and   a   democratic   uprising— men   wished   to   become 


I034  INDUSTRIAL  SOCIETY 

employers,  business  men,  and  manufacturers,  on  the  strength  of  their 
brains  and  their  capital  alone.  The  consequence  was  that  the 
restrictive  laws  of  the  past  were  repealed.  The  old  hide-bound 
judicial  decisions  were  reversed.  The  labor  union  and,  to  a  large 
extent,  the  combination  of  capital  were  legitimatized.  "The  lid 
was  taken  off."  It  was  lawful  to  pursue  to  almost  any  length  the 
war  of  competition.  It  was  at  this  time  that  the  industries  in  America 
began  to  really  take  their  form;  that  our  great  commercial  develop- 
ment began.  For  years,  both  in  England  and  in  America,  we  have 
gone  on  in  this  same  unchecked  way;  we  have  preached  everywhere 
the  doctrine  of  laissez  faire,  laissez  passer.  For  years  the  man  who 
would  have  advocated  any  checking,  any  governmental  interference, 
would  have  been  and  was  branded  as  a  dangerous  character. 

397.    THE  STRONGHOLD  OF  LAISSEZ-FAIRE  IN  THE 
UNITED  STATES1 

The  colonists  were  as  a  rule  without  fortune,  ancestry,  or  social 
or  political  standing.  They  had  come  from  countries  where  the 
opportunities  of  the  poor  man  were  but  few,  and  where  individual 
initiative  among  the  lower  classes  was  everywhere  restricted  by  an 
arbitrary  government  for  purposes  of  its  own,  and  for  the  benefit  of 
its  own  members.  They  were  familiar  with  the  regulation  of  wages 
by  statute,  or  by  police  magistrates  who  themselves  belonged  to  the 
employing  classes.  They  were  familiar  with  the  monopolies  granted 
by  the  crown,  of  almost  all  of  the  necessities  of  life.  They  were 
familiar  with  the  mercantile  restrictions  which  sought  to  crush  out 
the  commerce  of  Scotland  and  Ireland  and  of  the  American  colonies, 
in  order  that  the  merchant  princes  and  wealthy  trade  guilds  of  London 
might  become  the  wealthier.  They  were  familiar  with  the  English 
criminal  code  which,  in  its  ruthless  desire  to  protect  the  vested  inter- 
ests and  the  owners  of  property,  made  one  hundred  and  sixty  offenses 
punishable  by  death.  They  lived  in  a  time  when  in  England  a  man 
could  be  hung  for  shooting  a  hare  or  stealing  a  sheep  or  for  begging 
on  the  streets,  but  when  human  life  was  so  cheapened  that  it  was  con- 
sidered perfectly  legitimate  to  drive  little  children  of  seven  or  eight 
years  of  age  from  their  beds  to  work  for  sixteen  hours  a  day  in  the 
factories  and  in  the  mines,  and  to  harness  almost  naked  women  to  the 
ore-trucks  in  the  coal  pits,  their  immediate  desire  could  only  have 

1  Adapted  by  permission  from  A.  A.  Bruce,  "Laissez-faire  and  the  Supreme 
Court  of  the  United  States,"  Greenbag,  XX  (1908),  546-50. 


SOCIAL  CONTROL  I03S 

been  that  the  restrictions  of  the  past  should  be  removed.  It  is  not 
surprising  that  they  should  have  become  individualists,  and  more  and 
more  firmly  imbued  with  the  laissez-faire  idea,  with  the  desire  to  run 
their  own  businesses  as  they  saw  fit/with  the  gospel  of  an  absolute 
freedom  of  contract,  and  with  the  theory  that  the  central  government 
should  be  a  policeman  merely,  and  should  only  interfere  for  the  pro- 
tection of  property  and  life. 

'  In  America  the  laissez-faire  idea  has  been  much  more  deeply 
rooted  than  in  England,  and  it  is  natural  that  it  should  have  been. 
The  large  amount  of  public  land  gave  an  opportunity  to  the  wage 
earner,  which  was  not  to  be  found  in  England  or  in  France,  and  the 
era  of  the  factory  and  of  the  large  manufacturing  centers  was  further 
in  the  distance.  The  agricultural  population  was  much  greater  and, 
until  recently,  almost  anyone  could  be  a  landed  proprietor.  There 
was  to  be  found,  especially  among  the  puritans  of  New  England, 
a  militant  individualism,  for  it  is  to  be  noted  that  the  teachings  of 
Calvin  were  almost  as  much  social  and  political  as  they  were  religious 
and  in  them  the  right  of  self  government,  and  the  freedom  of  the 
church  and  of  the  locality  from  governmental  interference,  was  every- 
where emphasized.  The  birth  throes  of  the  new  country  were  a  pro- 
test against  navigation  acts,  searches  and  seizures  and  governmental 
restraints  of  all  kinds.  So,  too,  class  lines  have  never  been  so  closely 
drawn  here  as  in  Europe,  and  the  business  classes  have  been  con- 
stantly recruited  from  the  laboring  and  the  agricultural.  Added  to 
this  was  the  individualism  of  the  frontier,  which  everywhere  chafes 
at  control  and  at  the  restraints  which  collectivism  thrusts  upon  it. 
The  belief  that  everyone  has  an  equal  chance  in  America  has 
become  deeply  rooted  in  the  minds  of  our  successful  upper  classes, 
and  has  been  reflected  everywhere  in  the  opinions  of  our  courts, 
whose  judges,  if  not  coming  from  the  upper  classes,  have  themselves 
succeeded  and  passed  their  social  lives  with  those  who  have.  This 
individualism  was  from  an  early  time  especially  noticeable  in  the 
South,  where  social  structure  and  economic  development  seemed  to 
make  a  protective  policy  unwise  and  unnecessary.  Its  leaders  were 
at  first  drawn  from  the  large  landed  proprietors  whose  ancestors  were 
the  English  cavaliers  and  country  gentry,  and  who  had  but  little  in 
common  with  the  masses  of  the  people.  So,  too,  even  the  lower 
classes  of  whites,  who  may  be  said  to  have  won  the  West  for  the 
American  union,  were  in  a  large  measure  composed  of,  and  in  thought 
and  action  followed  the  leadership  of,  the  Scotch-Irish  pioneers  who, 


1036 


INDUSTRIAL  SOCIETY 


bringing  with  them  the  individualism  of  Knox  and  of  Calvin,  with 
all  of  its  impatience  at  governmental  control,  pushed  into  the  wilder- 
ness, and,  without  aid,  except  that  derived  from  their  own  axes  and 
their  own  rifles,  cleared  and  settled  the  land  and  admitted  their  own 
associates.  Far  away  from  central  government  and  control  they 
established  their  own  social  customs,  framed  their  own  governments, 
provided  for  their  own  defense,  and  fought  for  the  homes  and  the 
social  institutions  which  they  themselves  had  created.  Just  as  to 
the  old  Anglo-Saxon  chief  the  King  was  a  mere  war-lord,  raised  to  his 
position  solely  for  military  purposes,  and  with  no  conceded  rights  of 
social  or  political  interference,  so  too,  by  the  average  western 
settlers,  central  government  was  looked  upon  largely  as  a  war  device 
or,  at  best,  as  a  means  to  preserve  the  freedom  of  commerce,  and  not 
as  something  which  should  interfere  with  social  and  industrial  customs 
or  the  freedom  of  industrial  contracts.  These  earlier  times,  it  is  true, 
had  in  them  none  of  the  factory  development  of  today,  but  even  after 
that  began  and  great  masses  of  people  became  crowded  into  the  indus- 
trial centers,  removed  from  the  land,  subject  to  the  demands  of  their 
employers  and  their  labor  the  subject  of  barter  and  trade  and  regu- 
lated by  the  law  of  supply  and  demand,  the  great  majority  of  the 
voters  still  belonged  to  the  farming  classes  whose  ownership  of  land 
and  employment  of  labor  cultivated  in  them  too  a  deep-rooted,  if  not 
militant,  individualism.  But  chief  of  all  the  causes  of  American  indi- 
vidualism has  been  the  fact  that  for  so  many  years  opportunities  for 
growth  and  advancement  have  everywhere  been  so  plentiful  that  it 
has  been  hard  for  any  of  those  who  have  themselves  prospered  to 
believe  that  governmental  interference  is  necessary  to  protect  any- 
one, or  that  there  is  not  in  all  matters  a  perfect  equality  of  opportu- 
nity and  of  contractual  ability. 

398.    THE  CLASSICAL  STATEMENT  OF  THE   FUNCTIONS  OF 
GOVERNMENT1 

All  systems  either  of  preference  or  of  restraint  being  thus  com- 
pletely taken  away,  the  obvious  and  simple  system  of  natural  liberty 
establishes  itself  of  its  own  accord.  Every  man,  as  long  as  he  does 
not  violate  the  laws  of  justice,  is  left  perfectly  free  to  pursue  his  own 
interest  his  own  way,  and  to  bring  both  his  industry  and  capital  into 
competition  with  those  of  any  other  man,  or  order  of  men.  The 
sovereign  is  completely  discharged  from  a  duty,  in  the  attempting  to 

1  From  Adam  Smith,  The  Wealth  of  Nations,  Book  IV,  chap.  ix. 


SOCIAL  CONTROL  l0S7 

perform  which  he  must  always  be  exposed  to  innumerable  delusions, 
and  for  the  proper  performance  of  which  no  human  wisdom  or  knowl- 
edge could  ever  be  sufficient;  the  duty  of  superintending  the  industry 
of  private  people,  and  of  directing  it  towards  the  employments  most 
suitable  to  the  interest  of  the  society.  According  to  the  system  of 
natural  liberty,  the  sovereign  has  only  three  duties  to  attend  to;  three 
duties  of  great  importance  indeed,  but  plain  and  intelligible  to 
common  understandings:  first,  the  duty  of  protecting  the  society 
from  the  violence  and  invasion  of  other  independent  societies ;  second, 
the  duty  of  protecting,  as  far  as  possible,  every  member  of  the  society 
from  the  injustice  or  oppression  of  every  other  member  of  it,  or  the 
duty  of  establishing  an  exact  administration  of  justice;  and,  third, 
the  duty  of  erecting  and  maintaining  certain  public  works  and  certain 
public  institutions,  which  it  can  never  be  for  the  interest  of  any  indi- 
vidual or  small  number  of  individuals  to  erect  and  maintain;  because 
the  profit  could  never  repay  the  expense  to  any  individual  or  small 
number  of  individuals,  though  it  may  frequently  do  much  more  than 
repay  it  to  a  great  society. 

399.    REASONS  FOR  INCREASING  INTERVENTION 


As  the  new  industrial  system  developed,  it  was  found  to  produce 
evils  which  individual  action  could  not  remedy.  These  evils  led  to 
legislation  for  workers  in  factories  as  early  as  the  year  1802.  The 
wage-earning  class,  which  has  gradually  acquired  the  largest  share 
of  political  power,  has  always  felt  that  its  strength  lies  in  combined 
action— not  in  individual  enterprise— and  has  usually  favoured  the 
principle  of  state  regulation.  At  the  same  time,  philosophical  reflec- 
tion has  taken  new  forms.  The  belief  in  the  beneficence  of  nature 
has  given  place  to  the  doctrine  of  the  struggle  for  existence.  This 
doctrine  is  incompatible  with  the  notion  that  the  general  interest  is 
best  secured  by  everybody's  endeavor  to  promote  his  own  interest. 
Thus  philosophers  have  become  more  willing  to  accept  the  deliberate 
regulation  of  industry  by  an  authority  which,  at  all  events,  professes 
to  represent  the  whole  community.  The  reaction  toward  mediaeval 
ideas,  expressed  in  the  High  Church  movement  and  in  the  writings  of 
Carlyle  and  Ruskin,  had  also  contributed  to  lessen  the  value  formerly 

'  Taken  by  permission  from  F.  C.  Montague,  "Government  Regulation  of     U 
Industry  in  the  Nineteenth  Century,"  in  Palgrave's  Dictionary  of  Political  Econ- 
omy, II,  242-43.     (MacmiUan  &  Co.,  Ltd.,  1910.) 


1038 


INDUSTRIAL  SOCIETY 


attached  to  individual  responsibility  and  individual  freedom.  A 
third  influence,  favourable  to  the  extension  of  state  control,  may  be 
found  in  the  literature  and  philosophy  of  the  most  civilized  continental 
peoples— especially  of  the  Germans.  At  the  beginning  of  this  century 
the  English  people,  isolated  by  its  long  war  with  France,  and  proud 
of  its  achievements  in  that  war,  had  touched  the  highest  point  of 
arrogant  self-confidence.  Englishmen  were  inclined  to  regard  all 
imported  theories  with  suspicion,  and,  if  they  related  to  commerce 
or  industry,  with  contempt  as  well.  All  this  has  been  changed.  The 
material  progress  of  other  nations  has  raised  their  standing  in  English 
eyes.  The  political  and  economic  pre-eminence  of  England  has  been 
much  reduced.  Increased  facilities  for  travel  and  transmission  of 
intelligence  have  made  the  Englishman  more  cosmopolitan.  The 
vast  space  which  the  action  of  government  fills  in  such  countries  as 
France  or  Germany,  and  the  audacious  theories  which  it  has  generated, 
have  made  a  deep  impression  on  the  English  mind.  Lastly,  the 
benevolent  despotism  which  we  have  established  in  India,  with  at  least 
a  wonderful  apparent  success,  has  reacted  on  English  political  ideas 
and  has  recommended  state  action  to  many  who  would  not  have  been 
accessible  to  speculative  arguments. 

The  practical  result  of  the  change  in  public  opinion,  insensibly 
produced  by  all  these  agencies,  is  seen  in  the  sweeping  legislation  of 
the  last  forty  years.  During  that  time  the  state  has  extended  its 
activity  in  every  direction. 

B1 

Looking  a  little  deeper  we  see  an  intelligible  reason  for  a  far- 
reaching  change  of  attitude  on  the  part  of  democratic  thinkers, 
toward  the  state,  in  the  series  of  political  changes  which  have  con- 
verted the  government  from  an  oligarchic  constitution  to  one  in  which 
the  will  of  the  majority  can,  at  least  when  it  is  sufficiently  resolute 
and  united,  obtain  its  way.  The  government  which  the  men  of 
Bentham's  day  criticized  was  something  too  nearly  resembling  a  close 
and  corrupt  corporation;  it  was  not  distinguished  for  competence, 
it  was  not  remarkable  for  an  enlightened  and  disinterested  view  of 
public  questions.  The  modern  writer,  if  he  sympathizes  with  demo- 
cratic aims,  looks  at  government  as  a  machine  which  may  be  used  to 
embody  his  views  and  give  them  legal  effect.    He  has  overcome  his 

1  Adapted  by  permission  from  L.  T.  Hobhouse,  Social  Evolution  and  Political 
Theory,  pp.  182-84.     (Columbia  University  Press,  191 1.) 


SOCIAL  CONTROL  I039 

distrust;  he  has  found  that  efficiency  is  possible;  and  he  has  come  to 
assume  honesty  and  integrity  almost  as  a  matter  of  course. 

Here  we  touch  a  still  deeper  cause  which  must  be  brought  into  the 
account.  The  period  which  we  have  reviewed  has  witnessed  a  pro- 
gressive deepening  of  humanitarian  feeling  and  of"  the  sense  of  collec- 
tive responsibility.  The  public  mind  will  no  longer  acquiesce  in  the 
sweater's  den  any  more  than  it  would  acquiesce  in  this  country  sixty 
years  ago  in  negro  slavery.  On  all  sides  men  are  agreed  that  problems 
of  poverty,  problems  of  education,  problems  of  physical,  mental,  and 
moral  efficiency  are  matters  not  merely  of  individual  and  private 
but  equally  of  public  and  governmental  concern.  They  do  not  deny 
the  duty  or  depreciate  the  responsibility  of  the  individual  for  himself 
or  of  the  parent  for  his  family,  but  they  superimpose  upon  these  a  duty 
of  the  citizen  to  the  state  and  a  responsibility  of  the  state  for  the 
individual. 

C1 

When  the  theory  of  evolution  began  to  take  its  place  as  an  impor- 
tant factor  in  philosophical  thought,  it  furnished  the  individualists 
with  a  new  line  of  argument.  If  the  struggle  for  existence  has  been 
the  basis  of  all  progress,  they  said,  through  the  resultant  survival  of 
the  fittest,  then  any  interference  with  the  natural  conditions  of  that 
struggle  means  an  interference  with  the  beneficent  result.  If  the 
survival  of  the  fittest  has  brought  us  safely  from  the  amoeba  to  the 
human  being,  why  not  trust  it  to  take  us  the  rest  of  this  journey  that 
we  call  progress?  The  shift  from  the  rather  vague  and  mystical 
"natural  order"  basis  to  this  apparently  scientific  standing  ground 
did  not,  however,  serve  their  purpose  well.  The  natural  order  was 
one  "endowed  with  all  the  grandeur  of  the  geometrical  order  with  its 
double  attributes  of  universality  and  immutability.  It  remained  the 
same  for  all  times  and  for  all  men."  One  could  do  nothing  but  seek 
humbly  to  understand  it  and  to  live  according  to  its  laws.  Now,  an 
attempt  to  substitute  for  this  firm  foundation  the  shifting  sand  of 
evolution  had  certain  inevitable  reactions  in  thinking  minds.  They 
saw  that  as  soon  as  the  idea  of  immutability  of  standards  gives  place 
to  the  idea  of  relativity  the  way  has  been  opened  for  a  vastly  greater 
possibility  of  change  brought  about  by  conscious  human  effort. 
The  words  "survival  of  the  fittest"  cease  to  be  the  magic  formula  of 
a  scientific  natural  order.  Fittest  to  survive  means  just  this  and 
nothing  more,  that  those  survive  who  are  able  to  survive,  i.e.,  able 

1  Prepared  by  L.  M.  Powell. 


I04o  INDUSTRIAL  SOCIETY 

to  cope  with  the  environment  in  which  they  find  themselves.  And 
the  environment,  at  any  rate  since  the  human  stage  has  been  reached, 
has  never  been  a  "natural"  one  in  the  sense  of  being  unaffected  by 
human  desire  to  mold  it. 

From  this  point  it  is  not  a  far  cry  to  the  idea  that  if  human  effort 
can  change  the  environment  at  all,  it  can  change  it  in  such  ways  as 
to  secure  the  survival  of  those  who  are  fit  according  to  ethical  rather 
than  biological  standards.  But  here  we  must  take  care  lest  we  fall 
again  into  the  pit  of  " immutability."  With  the  concept  of  society 
as  a  developing,  changing  entity  comes,  as  we  have  already  noted, 
the  realization  that  no  one  set  of  institutions  and  ideals  can  claim 
for  itself  permanent  recognition.  We  learn  this  lesson  slowly  and 
painfully  through  sheer  experience.  The  regulations  on  trade  that 
meet  the  needs  of  a  growing  national  government  are  carried  into  the 
next  stage  of  that  nation's  development  and  bear  grievously  upon 
it.  The  freedom  of  each  manufacturer  and  trader  to  do  as  he  sees 
fit  comes  to  mean  competition  on  the  lowest  and  most  harmful  plane. 
Given  the  attitude  of  mind  that  is  a  result  of  the  evolutionary  inter- 
pretation of  history — willingness  to  apply  the  idea  of  change  and 
development  to  ideals  and  standards  as  well  as  institutions — and  we 
have  a  new  and  keen-edged  tool  in  clearing  the  way  for  needed 
change. 

400.    WHAT  GOVERNMENT  IS  NOW  DOING1 

The  chief  forms  of  modern  government  interference  with  private 
industry  may  be  put  under  the  four  heads  of  action  in  behalf  of  con- 
sumers, of  producers,  of  investors,  and  of  the  community  in  general. 
.1.  In  the  Middle  Ages  the  government  interposed  in  behalf  of 
the  consumers,  either  to  guarantee  good  work  or  to  insure  reasonable 
price.  Both  of  these  forms  of  interference  have  disappeared  in 
general  industry  today,  because  custom  has  been  replaced  by  compe- 
tition. In  modern  times,  accordingly,  we  find  that  the  chief  form  of 
interference  with  competitive  industry  in  behalf  of  the  consumer  is 
legislation  to  safeguard  health,  as  in  the  case  of  food  inspection  and 
quarantine  regulation. 

2.  On  the  other  hand,  the  interests  of  the  laborer  have  been  so 
materially  affected  by  the  advent  of  the  factory  system  that  modern 
interference  on  behalf  of  the  producers  is  well-nigh  exclusively  limited 

1  Adapted  by  permission  from  E.  R.  A.  Seligman,  Principles  of  Economics, 
PP-  574-76.    (Longmans,  Green  &  Co.,  1905.) 


SOCIAL  CONTROL  I04I 

to  them.  There  are  five  classes  of  such  interference,  all  of  which, 
except  the  last,  are  rapidly  becoming  universal:  (a)  legislation  to 
safeguard  health,  through  the  so-called  factory  laws,  applicable  to 
men,  women,  and  children  alike;  (b)  legislation  to  insure  safety 
through  employers'  liability  laws;  (c)  legislation  fixing  maximum 
hours  of  work,  as  in  the  case  of  the  eight-hour  law  for  miners  and 
public  employees;  (d)  compulsory  insurance  against  illness,  old  age, 
or  lack  of  employment;  and,  finally,  (e)  legislation  fixing  minimum 
wages,  as  in  Australia  and  New  Zealand. 

3.  In  former  times  the  striking  example  of  interference  by  govern- 
ment in  case  of  investment  was  in  behalf  of  the  borrower.  The  usury 
laws,  designed  to  protect  the  unfortunate  debtor,  have,  as  we  know, 
been  rendered  almost  completely  unnecessary  through  the  growth  of 
competition  in  the  loan  of  capital.  This  same  development  has, 
however,  brought  about  the  need  of  intervention  of  the  opposite  kind. 
Today,  it  is  the  lender  or  investor  in  corporate  enterprise,  and  not  the 
borrower,  who  requires  protection.  Here,  again,  there  are  dangers 
on  both  sides,  the  risk  of  over-rigidity  which  will  hamper  legitimate 
enterprise,  and  the  danger  of  lax  accountability  which  will  destroy 
confidence.  That,  however,  some  solid  measure  of  regulation  is 
requisite  can  no  longer  be  successfully  disputed. 

4.  We  come,  finally,  to  the  case  of  government  interference  in 
behalf  of  the  general  interest  of  the  community.  This  takes  the  form 
of  protection  and  also  of  bounties  and  subsidies. 

The  danger  of  such  intervention  is  that  particular  interests  may 
foist  themselves  upon  the  legislator  in  the  guise  of  general  interests. 
Bounties  may  be  classified  as  (a)  military  bounties,  (b)  forest  bounties, 
(c)  agricultural  and  industrial  bounties,  and  (d)  land  transport  and 
shipping  subsidies. 

See  also      235.  Labor  Legislation  in  One  State. 

305-8    on  Certain  Phases  of  Trust  Legislation. 


I042  INDUSTRIAL  SOCIETY 

401.    THE  RAIN  OF  LAW 
A1 

The  day  of  universal  law  has  arrived.  It  seems  to  be  a  lap  or 
two  ahead  of  time.  It  is  not  just  the  kind  of  law  that  is  written  upon 
the  hearts  of  men  or  upon  the  doorposts  of  their  houses,  and  it  is  very 
difficult  to  teach  it  to  our  children,  or  to  meditate  upon  it  day  or 
night.  There  isn't  time.  It  is  printed  on  a  rapid-fire  printing-press 
and  bound  in  unabridged  sheep  or  blue-sky  boards.  The  kindly 
earth  does  not  slumber  in  its  lap— it  fairly  wallows  in  the  litter  of  it. 
The  law-abiding  and  the  law-evading  citizens  lie  down  together  in 
the  confusion  of  it.  He  who  reads  must  run  if  he  would  escape  the 
deluge  of  it,  and  he  who  runs  must  read  if  he  would  keep  up  with  the 
changing  phases  of  it. 

In  Massachusetts,  which  leads  the  world  in  the  volume  and  plas- 
ticity of  its  statutory  output,  President  Eliot's  five-foot  shelf  will  not 
begin  to  hold  the  volumes  a  man  must  read  if  he  would  know  what  he 
is  bidden  and  what  he  is  forbidden;  and  a  new  volume  will  be  placed 
in  his  hands  ere  he  can  scan  the  current  one.  All  the  states  need  to 
conserve  their  natural  resources  to  provide  the  paper  and  drive  the 
presses  of  their  legislative  mills;  and,  lest  in  their  impotence  they 
should  fail  to  do  full  justice  to  the  situation,  Congress  comes  to  their 
aid  with  ponderous  volumes  of  its  own.  By  yielding  its  claim  to  be 
a  deliberative  body  the  National  House  finds  time  to  hear  called  off 
the  captions  of  bills  as  they  pass  from  its  committees  to  enactment 
through  the  pneumatic  tube  of  the  government  printing-office. 

But  the  unofficial,  the  uninitiated,  the  plebeian  citizen  must 
beware.  It  will  not  do  for  him  to  govern  himself  merely  by  sound 
principles  of  conduct,  or  even  by  a  fair  familiarity  with  the  general 
law  of  the  land.  A  neighbor  in  securing  a  legislative  proviso  expressly 
to  authorize  a  transaction  that  some  random  critic  has  challenged, 
may,  by  his  very  proviso,  have  read  into  the  law  an  implied  prohi- 
bition of  all  practices  not  thus  explicitly  provided  for.  One  who,  in 
all  innocence,  pursues  the  even  tenor  of  his  once  legalized  way,  may 
awake  any  morning  to  find  himself  a  law-breaker,  not  by  enactment, 
but  by  inference  from  some  enactment  which  was  procured  for  his 
neighbor's  benefit. 

It  is  a  physical  impossibility  for  the  legislators,  as  a  body,  to 
scrutinize  with  any  care  such  a  mass  of  bills  as  every  legislature  enacts 

1  Adapted  by  permission  from  W.  D.  Parkinson,  "The  Rain  of  Law,"  Atlantic 
Monthly,  CXIV  (1914),  107-9. 


SOCIAL  CONTROL  I043 

at  every  session.  Equally  is  it  impracticable  for  the  public-spirited 
citizen  to  attend  the  hearing  and  protest  a  fraction  of  the  foolish  and 
dangerous  bills  that,  if  enacted,  would  affect  interests  with  which  he 
is  especially  conversant.  Not  only  is  the  responsible  citizen  thus  at 
the  mercy  of  the  irresponsible  and  self-constituted  law-maker,  but 
the  tendency  of  those  public-spirited  organizations  which,  like  the 
prophets  of  old,  are  often  more  representative  of  the  State  in  its 
better  nature  than  are  its  duly  constituted  official  bodies,  is  to  frame 
legislation  in  specific  instead  of  general  terms  and  thus  to  make  the 
laws  both  more  numerous  and  more  complex. 

B1 

During  the  last  two  years  the  Legislature  of  New  York  passed 
1,520  laws,  or  760  at  each  session.  Pennsylvania  passed  504  at  the 
last  session,  and  so  on  through  the  list  of  states.  The  fifty-seventh 
and  fifty-eighth  Congresses  passed  6,700  laws.  It  is  true  that 
a  majority  of  these  were  private  laws  granting  pensions  to  those  who, 
under  general  laws,  would  not  be  entitled  to  receive  them.  It  would 
be  a  conservative  estimate  to  assert  that  Congress  and  the  Legisla- 
tures of  45  States  turn  out  an  annual  grist  of  14,000  laws.  Add  to 
this  the  fact  that  the  appellate  tribunals  alone,  State  and  Federal, 
are  uttering  about  20,000  decisions  annually,  a  large  proportion  being 
devoted  to  an  interpretation  of  leges  scriptae,  and  it  would  seem  that 
the  American  people  are  either  exceptionally  unruly  or  that  the 
maxim  "the  best  government  is  that  which  governs  least"  has  been 
wantonly  ignored  by  our  rulers. 

Compare  this  record  with  that  of  Great  Britain.  Parliament, 
legislating  for  42,000,000  people,  passed  on  an  average — taken  from 
the  figures  for  the  six  years  prior  to  1905 — 46  general  laws,  and  246 
local  laws,  annually.  While  the  United  Kingdom  is  adding  a  thin 
pamphlet  to  her  statute  book,  New  York  is  adding  two  massive 
volumes,  which  with  the  contributions  from  the  other  states,  consti- 
tutes a  library  of  at  least  46  volumes.  While  the  affairs  of  the  British 
public  are  well  regulated  by  292  yearly  enactments,  it  requires  14,000 
to  regulate  our  own. 

What  is  there  in  the  character  and  aspirations  of  the  two  peoples 
which  makes  it  necessary  that  we  should  enact  47  laws  each  year 
where  they  enact  but  one  ? 

1  Adapted  by  permission  from  A.  C.  Coxe,  "Overproduction  of  Law,"  Columbia 
Law  Review,  VI  (1906),  103-5. 


T044  INDUSTRIAL  SOCIETY 

402.  DEFENSE  OF  LAISSEZ-FAIRE' 
Free  competition  develops  in  the  individual  the  highest  possi- 
bilities, sharpens  and  strengthens  his  powers  of  initiative,  and  increases 
his*  sense  of  self-reliance,  while  overgovernment  not  only  hampers 
enterprise  and  interferes  with  the  natural  development  of  trade,  but 
it  strikes  at  the  development  of  character,  tends  to  crush  out  indi- 
viduality and  originality  by  interfering  with  the  natural  struggle 
between  individuals,  and  leads  to  a  general  lowering  of  the  social 
level.  The  highest  civilization,  say  the  laissez-faire  advocates,  has 
been  developed  under  individualism,  a  system  which  has  produced 
more  material  and  educational  progress  than  could  ever  have  been 
produced  under  paternalism.  Spencer  dwells  upon  the  fact  that  in 
an  overgo verned  state  "everybody  is  like  everybody  else."  "A 
people  among  whom  there  is  no  habit  of  spontaneous  action  for  a  col- 
lective interest,"  said  Mill,  "who  look  habitually  to  their  government 
to  command  and  prompt  them  in  matters  of  joint  concern,  who  expect 
to  have  everything  done  for  them  except  what  can  be  made  an  affair 
of  mere  habit  and  routine — have  their  faculties  only  half  developed; 
their  education  is  defective  in  one  of  its  most  important  branches." 

The  laissez-faire  principle,  say  its  advocates,  rests  also  upon 
sound  considerations  of  a  scientific  character.  It  is  in  harmony  with 
the  principle  of  evolution,  since  it  is  the  only  system  that  will  lead 
to  the  survival  of  the  fittest  in  the  economic  struggle.  It  assumes 
that  self-interest  is  a  universal  principle  in  human  nature,  that  each 
individual  is  a  better  judge  of  what  his  own  interests  are  than  any 
government  can  possibly  be,  and  that  if  left  alone  he  will  follow  them. 
It  holds  that  each  individual  should  be  allowed  to  stand  alone  or 
fall,  according  to  his  worth,  unaided  by  the  props  and  supports  of  the 
state,  and  should  be  left  to  work  out  his  own  destiny  without  the 
guidance  and  tutelage  of  government.  The  strong  and  fit  classes 
survive,  the  unfit  elements  are  eliminated,  and  thus  the  good  of 
society  is  promoted. 

Again,  and  this  is  most  important  in  the  arguments  of  the  laissez- 
faire  theorists,  the  policy  of  non-interference  rests  upon  sound  eco- 
nomic principles.  Better  economic  results,  it  is  asserted,  are  obtained 
for  society  by  leaving  the  conduct  of  industry  as  far  as  possible  to 
private  enterprise.  Adam  Smith  in  his  Wealth  of  Nations  pointed 
out  that  the  system  of  natural  liberty  tends  toward  the  largest  pro- 

1  Adapted  by  permission  from  J.  W.  Garner,  Introduction  to  Political  Science, 
pp.  283-88.     (American  Book  Co.,  1910.    Author's  copyright.) 


SOCIAL  CONTROL  I045 

duction  of  wealth.  The  self-interest  of  the  consumer  will  lead  to  the 
demand  for  the  things  that  are  most  useful  to  society,  while  the  self- 
interest  of  the  producer  will  lead  to  their  production  at  the  least  cost. 
In  the  economic  struggle  the  individual  is  animated  mainly  by  motives 
of  self-interest.  If,  therefore,  he  is  allowed  to  use  his  capital  as  he 
pleases,  to  dispose  of  his  labor  to  the  best  advantage,  to  exchange  the 
products*  of  his  toil  freely,  and  to  have  prices  fixed  by  the  natural  laws 
of  supply  and  demand,  better  results,  not  only  to  himself,  but  to  the 
whole  society  will  be  secured.  Unrestricted  competition  stimulates 
economic  production,  tends  to  keep  wages  and  prices  at  a  normal 
level,  to  prevent  usurious  rates  of  interest,  to  secure  efficient  service 
and  the  production  of  better  products  than  can  be  obtained  by  state 
regulation  or  state  management. 

The  experience  of  the  past,  say  the  laissez-faire  advocates, 
abundantly  establishes  the  wisdom  of  the  non-interference  principle. 
History  is  full  of  examples  of  attempts  to  fix  by  fiat  of  the  state  the 
prices  of  food  and  clothing  and  of  many  other  commodities;  of  laws 
regulating  the  wages  of  labor,  prohibiting  the  wearing  of  certain 
kinds  of  apparel  and  requiring  the  wearing  of  certain  other  kinds,  for- 
bidding certain  kinds  of  machinery  in  manufacturing  processes, 
restricting  the  manufacture  of  certain  articles  to  apprentices,  pre- 
scribing the  location  of  factories;  laws  aiding  and  encouraging  certain 
industries  by  means  of  bounties  and  discouraging  certain  others  by 
means  of  prohibitive  taxes;  laws  prohibiting  combinations  among 
laboring  men,  fixing  the  hours  of  labor;  restricting  certain  trades 
exclusively  to  members  of  guilds;  and  even  laws  prescribing  the  cut 
of  one's  dress,  the  number  of  meals  which  one  should  eat,  the  size  of 
buttonholes,  the  length  of  shoes,  the  making  of  pins,  and  the  kind  of 
material  in  which  the  dead  should  be  buried.  Speaking  of  those 
who  were  responsible  for  this  sort  of  legislation,  Buckle  observed  that 
"  they  went  blundering  along  in  the  old  track,  believing  that  no  com- 
merce could  flourish  without  their  interference,  hampering  that  com- 
merce by  repeated  and  harrassing  regulations,  and  taking  for  granted 
that  it  was  the  duty  of  every  government  to  benefit  the  trade  from  its 
own  people  by  injuring  the  trade  of  others."  The  extent  to  which 
the  governing  classes  have  interfered  and  the  mischief  which  that 
interference  has  produced  are  so  remarkable,  he  concludes,  as  to 
make  thoughtful  men  wonder  how  civilization  could  have  advanced 
in  the  face  of  such  repeated  obstacles. 

Finally,  the  laissez-faire  theorists  argue  that  it  is  a  false  assumption 
which  attributes  omniscience  and  infallibility  to  the  state  and  which 


I046  INDUSTRIAL  SOCIETY 

regards  it  as  better  fitted  to  judge  of  the  needs  of  the  individual  and 
to  provide  for  them  than  he  is  himself.  There  is,  they  assert,  a  com- 
mon belief  that  governments  are  capable  of  doing  anything  and 
everything,  and  of  doing  it  more  efficiently  than  it  can  be  done  by 
private  initiative,  when,  in  reality,  experience  and  reason  show  the 
contrary  to  be  the  fact. 

403.  CRITICISMS  OF  LAISSEZ-FAIRE* 
The  individualistic  theory  of  state  functions  has  been  criticized 
upon  various  grounds.  First  of  all,  the  assumption  that  the  state 
is  an  evil  has.not  been  borne  out  by  the  experience  of  mankind  under 
the  regime  bf  state  organization.  History,  in  fact,  shows  unmis- 
takably that  the  progress  of  civilization  in  the  past  has  been  pro- 
moted to  a  very  large  degree  by  wisely  directed  state  action;  in 
short,  that  the  state  is  a  positive  good.  It  is  true,  of  course,  that  at 
times  the  ends  of  the  state  have  been  perverted  to  the  detriment  of 
the  public  good,  but  this  is  no  more  reason  for  condemning  it  as  an 
evil  than  for  saying  that  railroads  are  an  evil  because  their  operation 
sometimes  results  in  accidents.  All  the  signs  indicate  that  with  the 
increasing  complexity  of  modern  civilization  the  need  for  state 
action  will  become  stronger  and  its  role  more  extensive.  "The 
higher  the  state  of  civilization,"  observes  Huxley,  "the  more  com- 
pletely do  the  actions  of  one  member  of  the  social  body  influence  all 
the  rest,  and  the  less  possible  it  is  for  any  one  man  to  do  a  wrong 
without  interfering  more  or  less  with  the  freedom  of  all  his  fellow- 
citizens.  So  that  even  upon  the  narrowest  view  of  the  functions  of 
the  state  it  must  be  admitted  to  have  wider  powers  than  the  advo- 
cates of  the  police  theory  are  disposed  to  admit." 

The  weakest  point  in  the  argument  of  the  laissez-faire  advocates 
is  the  assumption  that  the  state  is  necessarily  hostile  to  freedom,  that 
government  and  liberty  represent  antithetical  ideas,  that  in  propor- 
tion as  the  functions  of  government  are  multiplied  the  domain  of  indi- 
vidual liberty  is  restricted;  in  short,  that  a  maximum  of  government 
means  a  minimum  of  freedom.  In  reality  wisely  organized  and 
directed  state  action  not  only  enlarges  the  moral,  physical,  and  intel- 
lectual capacities  of  individuals  but  increases  their  liberty  of  action 
by  removing  obstacles  placed  in  their  way  by  the  strong  and  self- 
seeking,  and  thus  frees  them  from  the  necessity  of  a  perpetual  struggle 
with  those  who  would  take  advantage  of  their  weakness.    In  this  way 

1  Adapted  by  permission  from  J.  W.  Garner,  Introduction  to  Political  Science, 
pp.  289-97.     (American  Book  Co.,  1910.     Author's  copyright.) 


SOCIAL  CONTROL 

1047 

the  latent  abilities  of  the  individual  are  liberated,  and  his  opportu- 
nities increased.  It  is  manifestly  wrong  to  assume  that  all  restraint 
is  an  evil.  In  truth,  the  state  emancipates  and  promotes  as  well  as 
restrains.  The  doctrine  that  governmental  regulation  tends  to 
impair  individual  character  by  weakening  the  sense  of  individual 
initiative,  self-reliance,  and  self-help  and  by  preventing  the  full  and 
harmonious  development  of  the  faculties  of  the  individual,  has  been 
greatly  exaggerated  by  the  laissez-faire  advocates.  Many  of  the 
individualistic  writers  like  Mill,  Humboldt  and  Spencer  have,  in  fact, 
confused  individuality  with  eccentricity  and  oddity  of  character,' 
qualities  which  in  themselves  have  nothing  of  value.  Character  is 
developed,  not  through  freedom  alone,  but  quite  as  much  through 
discipline  and  restraint.  It  is  not  true  that  as  the  functions  of 
government  are  extended  the  individual  becomes  weaker  and  less 
self-reliant.  The  most  perfectly  developed  man  is  the  social,  not 
the  natural,  man,  for  it  is  now  generally  admitted  that  the  indi- 
vidual owes  much  of  his  character  to  the  society  of  which  he  is 
a  part. 

The  doctrine  of  the  individualists  rests  upon  the  assumption  that 
the  individual  is  largely  a  thing  apart  from  the  group  of  which  he  is 
a  member,  that  he  can  be  separated  from  society  and  treated  as 
though  his  interests  were  entirely  distinct  from  those  of  his  fellow- 
men.  In  reality,  however,  the  individual  is  more  than  a  mere  fraction 
of  society. 

The  distrust,  not  to  say  hostility,  of  the  laissez-faire  theorists 
in  government,  because  of  the  errors  or  abuses  of  particular  govern- 
ments in  the  past,  is  childish.  It  is  wholly  wrong  to  take  the  position 
that  because  governments  have  made  mistakes  in  the  past,  or  because 
their  agents  have  sometimes  abused  the  powers  intrusted  to  them, 
they  cannot  be  trusted  in  the  future;  or  that  because  sumptuary  laws 
are  wrong,  factory  and  sanitary  legislation  must  be  wrong  as  well; 
or  that  because  municipally  constructed  sewers  have  sometimes  pro- 
duced typhoid  fever,  cities  in  the  future  should  leave  the  construction 
of  their  sewer  systems  to  private  enterprise;  or  that  because  some 
poor  laws  have  proved  ineffective,  the  state  should  abandon  alto- 
gether the  policy  of  poor  relief.  The  .laissez-faire  writers  never  tire 
of  parading  and  exaggerating  the  mistakes  which  governments  have 
made  in  the  past,  and  when  they  are  all  collected  and  put  on  exhi- 
bition, they  constitute  what  to  some  is  a  strong  indictment  against 
state  interference.     "The  state  lives  in  a  glass  house,"  observes 


I04g  INDUSTRIAL  SOCIETY 

Huxley;  "we  see  what  it  tries  to  do  and  all  its  failures,  partial  or 
total,  are  made  the  most  of.  But  private  enterprise  is  sheltered  under 
good  opaque  bricks  and  mortar.  The  public  rarely  knows  what  it 
tries  to  do  and  only  hears  of  its  failures  when  they  are  gross  and  patent 
to  all  the  world."  We  may  well  ask  with  Lord  Pembroke,  "what 
would  private  enterprise  look  like  if  its  mistakes  and  failures  were 
collected,  and  pilloried  in  a  similar  manner?".  It  may  readily  be 
admitted,  observes  an  able  writer,  that  government  is  weak  and 
inefficient  at  times  and  obedient  to  private  interests,  but  it  does  not 
follow  from  such  an  admission  that  government  ought  to  be  made 
"weaker,  more  corrupt,  and  more  inefficient  by  practicing  the  illogical 
doctrine  of  laissez  faire." 

The  laissez-faire  assumption  that  each  individual  knows  his  own 
interests  better  than  the  state  can  know  them,  and  is  therefore  the 
best  judge  of  what  is  good  for  him,  and  if  left  to  himself  will 
follow  these  interests,  is  true  only  in  a  limited  sense,  and  is  still  less 
true  of  classes.  This  is  readily  admitted  by  some  individualist  writers 
like  Mill.  Sidgwick,  an  unusually  fair  and  judicial  writer,  discussing 
this  assumption,  well  says:  "But  it  seems  to  me  very  doubtful 
whether  this  can  be  granted;  since  in  some  important  respects  the 
tendencies  of  social  development  seem  to  be  rather  in  the  opposite 
direction.  As  the  appliances  of  life  become  more  elaborate  and  com- 
plicated through  the  progress  of  invention,  it  is  only  according  to  the 
general  law  of  division  of  labor  to  suppose  that  an  average  man's 
ability  to  judge  of  the  adaptation  of  means  to  ends  even  as  regards 
the  satisfaction  of  his  everyday  needs,  is  likely  to  become  continually 
less."  The  very  point  of  the  matter  is  that  ignorant  people  cannot 
take  precautions  against  dangers  of  which  they  are  ignorant.  No 
one  lives  in  a  badly  drained  house,  drinks  water  polluted  with  sew- 
age, or  eats  adulterated  food  because  his  interest  leads  him  to  do  so, 
but  generally  because  he  is  ignorant  of  the  real  character  of  the  service 
or  article  which  he  consumes  or  because  he  cannot  help  himself. 
Not  only  is  the  individual  not  always  a  competent  judge  of  his  own 
interests  as  an  economic  consumer,  but  in  affairs  of  personal  conduct 
he  is  often  not  to  be  trusted,  particularly  in  matters  relating  to  his 
health  or  safety  or  moral  welfare.  The  truth  is  the  state  may  be  a 
better  judge  of  a  man's  intellectual,  moral,  or  physical  needs  than  he 
is  himself,  and  it  may  rightfully  protect  him  from  disease  and  danger 
against  his  wishes  and  compel  him  to  educate  his  children  and  to  live 
a  decent  life. 


SOCIAL  CONTROL  I049 

Spencer's  doctrine  of  "negative  regulation,"  which  would  limit 
the  function  of  the  state  to  redressing  rather  than  preventing  wrongs, 
would  in  many  instances  defeat  the  ends  of  the  state.  Thus,  if  the 
only  security  provided  by  the  state  against  insanitary  plumbing, 
adulterated  foods,  incompetent  practitioners  of  medicine  or  apothe- 
caries, consisted  of  the  right  to  sue  the  negligent  plumber,  the  dis- 
honest milk  dealer,  or  the  incompetent  physician  or  druggist,  instead 
of  requiring  plumbers  to  give  bonds  for  the  efficient  discharge  of 
their  duties  and  physicians  and  druggists  to  pass  examinations  or  other- 
wise furnish  evidence  of  capacity,  milk  to  be  inspected,  etc.,  the  protec- 
tion afforded  would  in  many  cases  be  inadequate,  since  the  injury 
could  not  be  redressed  by  a  mere  suit  for  damages.  We  agree  with 
Sir  Frederick  Pollock  that  if  it  is  a  negative  and  proper  regulation  to 
say  that  a  man  shall  be  punished  for  building  his  house  in  a  city  so 
that  it  falls  into  the  street,  it  cannot  be  positive  and  improper  regu- 
lation to  say  that  he  shall  so  build  it  that  it  will  not  appear  to  compe- 
tent persons  likely  to  fall  into  the  city  street.  There  is,  as  Huxley 
well  says,  no  very  great  difference  between  the  claim  of  an  indi- 
vidual to  go  about  threatening  the  lives  of  his  neighbors  with  a  pistol, 
and  his  claim  to  keep  his  premises  in  a  condition  which  threatens 
the  health  and  lives  of  his  fellow-men.  The  same  is  true  of  the 
right  and  duty  of  the  state  to  protect  the  individual  against  the 
dangers  incident  to  modern  industrial  processes,  such  as  those  result- 
ing from  dangerous  machinery,  from  bad  ventilation,  from  insanitary 
workshops,  from  fire,  and  even  from  unfair  contracts  of  labor.  The 
freedom  of  contract  is  a  taking  phrase,  as  has  been  aptly  remarked, 
and  to  many  it  is  a  conclusive  argument  against  state  intervention 
in  industrial  matters;  but  when  it  refers  to  an  agreement  between 
a  capitalist  and  an  ignorant  laborer  who  is  at  the  mercy  of  his  employer 
there  is  no  equality.  The  doctrine  of  freedom  has  no  sanctity  in  such 
cases.  There  is  really  no  illegitimate  interference  with  the  freedom 
of  contract  when  the  state  undertakes  to  prescribe  the  conditions 
under  which  contracts  shall  be  entered  into  between  parties,  one  of 
whom  is  really  not  on  a  free  and  equal  footing  with  the  other. 


IoSO  INDUSTRIAL  SOCIETY 

404.     MODERN  STATEMENTS  OF  THE  FUNCTIONS  OF 
•       GOVERNMENT 


It  appears  that  there  are  at  least  two  lines  of  policy  upon  which 
government  may  enter: 

First,  government  must  regulate  the  plane  of  competition,  for 
without  legal  regulation  the  struggle  between  men  for  commercial 
supremacy  will  surely  force  society  to  the  level  of  the  most  immoral 
man  who  can  sustain  himself.  The  fittest  to  survive  unregulated 
competition  will  be  he  who  is  morally  the  least  fit  to  live.  What, 
now,  can  government  do  in  such  a  case  ?  One  of  the  duties  of  govern- 
ment is  to  express  the  ethical  sense  of  society;  and  in  this  case  govern- 
ment may  pass  a  law  saying  that  children  shall  not  be  employed  in 
factories.  By  such  interference,  society  is  not  deprived  of  the 
advantages  of  competition,  but  the  plane  of  competition  is  adjusted 
to  the  moral  sense  of  the  community.  Such,  at  least,  is  the  defence 
of  factory  legislation,  and  such  interference  on  the  part  of  govern- 
ment is  typical  of  a  new  line  of  duties  which  the  development  of  great 
industries  has  imposed  upon  the  statesman  of  the  nineteenth  century. 

The  second  class  of  duties  imposed  on  government  by  the  changes 
which  have  come  over  modern  business  life  are  of  a  wholly  different 
character.  There  are  some  industries  which  from  their  very  nature 
are  superior  to  competition,  and  for  such  the  public  has  no  guaranty 
of  fair  treatment.  It  is  absurd  to  argue  that  commercial  laws  will 
insure  equity  in  the  dealings  of  railway  companies,  telegraph  com- 
panies, electric-lighting  companies,  street-railway  companies,  and 
the  like.  It  lies  in  the  structure  of  such  businesses  to  be  conducted 
as  monopolies  and  in  disregard  to  the  comparative  rights  of  men. 
The  important  point  for  us  to  hold  in  mind,  however,  is  this:  The 
existence  of  monopolies  proves  the  existence  of  an  anti-social  interest. 
It  shows  that  the  interest  of  individuals  is  not  always  identical  with 
that  of  the  public.  Now,  government  stands  for  public  interest,  and 
among  the  new  duties  imposed  on  government  by  the  industrial 
revolution  is  the  duty  of  protecting  citizens  against  the  encroach- 
ments of  such  monopolies  as  are  the  fruit  of  that  revolution. 

1  Adapted  by  permission  from  H.  C.  Adams,  "An  Interpretation  of  the  Social 
Movements  of  Our  Time,"  International  Journal  of  Ethics,  II  (1891-92),  43-45; 
"Relation  of  the  State  to  Industrial  Action,"  Publications  of  American  Economic 
Association,  I  (1887),  513-18. 


SOCIAL  CONTROL  I05I 

From  the  standpoint  of  administration  there  is  much  to  be  said 
in  favor  of  that  harmony  of  control  and  unity  of  direction  which 
such  a  management  renders  possible.  Provided  a  business  admits 
of  something  like  military  organization;  provided  the  details  of  its 
management  have  been  well  worked  out;  provided  its  extension  to 
meet  new  demands  may  be  accomplished  by  merely  duplicating  what 
already  exists;  and  provided  the  social  want  which  it  supplies  is  wide- 
spread and  constant,  exclusiveness  in  management  must  lead  to 
efficiency  of  management,  if  only  men  of  adequate  ability  may  be 
found  to  assume  authority.  Under  such  conditions  a  service  may  be 
rendered  at  less  cost  to  the  public  than  if  the  agents  of  the  monopoly 
were  broken  up  into  competing  groups.  There  are  several  reasons 
why  this  is  true.  The  fact  of  an  assured  demand  for  services  rendered 
admits  of  the  closest  calculations;  the  extent  of  the  demand  also 
allows  of  a  minute  application  of  the  principle  of  division  of  labor; 
the  absence  of  any  rivalry  between  competing  concerns  precludes  the 
necessity  of  expending  more  capital  than  is  required  for  an  eco- 
nomical performance  of  the  service;  and  what  is  perhaps  of  as  much 
importance  as  any  other  consideration,  there  is  no  temptation  to 
adopt  speculative  methods  of  management  which  lead  to  the  covering 
of  unnecessary  losses  of  one  period  by  the  arbitrarily  high  profits  of 
another.  Thus  the  possibility  of  cheapness  and  efficiency  seems  to 
lie  in  the  very  nature  of  a  monopoly,  and  the  practical  question  is 
how  to  realize  the  benefits  of  this  principle  for  society. 

The  practical  conclusion  to  which  this  analysis  leads  is  that 
society  should  be  guaranteed  against  the  oppression  of  exclusive 
privileges  administered  for  personal  profit,  while  at  the  same  time  it 
should  be  secured  such  advantages  as  flow  from  concentrated  organ- 
ization. I  do  not  at  present  undertake  to  say  whether  this  should 
be  done  through  carefully  guarded  franchises,  through  official  com- 
missions, through  competition  of  the  state  with  private  industries, 
or  through  direct  governmental  management;  but  in  some  manner 
this  purpose  should  be  accomplished.  Such  monopolies  as  exist 
should  rest  on  law  and  be  established  in  the  interests  of  the  public; 
a  well-organized  society  will  include  no  extra-legal  monopolies  of 
any  sort. 

We  have  thus  answered  directly  the  question  as  to  what  new 
duties  the  changes  in  modern  life  have  imposed  on  government. 
These  duties  are  two.  First,  the  government  must  determine  the  plane 
on  which  competition  may  take  place  in  those  businesses  in  which 


IOS2  INDUSTRIAL  SOCIETY 

it  is  potent.  Second,  it  must  by  all  possible  means  protect  the  com- 
munity from  those  evils  that  arise  from  the  uncontrolled  manage- 
ment of  a  business,  which  from  the  nature  of  the  case  is  superior  to 
competition. 

The  functions  of  the  state  may  be  classified  as:  first,  those  which 
are  necessary;  second,  those  which  are  natural  or  normal,  but  not 
necessary;  and  third,  those  which  are  neither  natural  nor  necessary, 
but  which,  in  fact,  are  often  performed  by  modern  states.  The  last 
are  described  by  some  writers  as  " doubtful"  functions.  What  are 
called  the  essential,  normal,  or  constituent  functions  are  such  as  all 
governments  must  perform  in  order  to  justify  their  existence.  They 
include  the  maintenance  of  internal  peace,  order,  and  safety;  the 
protection  of  persons  and  property;  and  the  preservation  of  external 
security.  They  are  the  original  primary  functions  of  the  state,  and 
all  states,  however  rudimentary  and  undeveloped,  attempt  to  perform 
them.  They  embrace  the  larger  part  of  the  activities  of  the  state  and 
have  to  do  principally  with  the  conservation  of  society  and  only 
secondarily  with  social  progress. 

By  natural  but  unnecessary  functions  are  meant  those  which  the 
state  may  leave  unperformed  or  unregulated  without  abandoning  a 
primary  duty  or  exposing  itself  to  the  dangers  of  anarchy,  but  which 
would  be  neglected,  or  at  least  not  so  well  performed,  by  private 
enterprise.  Among  such  functions  may  be  mentioned  the  operation 
of  the  postal  service;  the  construction  of  dikes,  levees,  canals,  public 
roads,  bridges,  and  irrigation  works,  and  works  of  public  utility 
generally;  the  maintenance  of  scientific  and  statistical  bureaus; 
the  erection  and  maintenance  of  lighthouses,  beacons,  and  buoys; 
the  construction  of  harbors,  wharves,  and  other  instrumentalities  of 
trade  and  commerce;  the  care  of  the  poor  and  helpless;  the  protec- 
tion "of  the  public  health  and  morals;  elementary  education;  the  regu- 
lation of  many  trades,  businesses,  and  occupations,  which  are  affected 
with  a  public  interest;  and  the  conduct  of  various  undertakings  which 
would  be  unprofitable  as  private  ventures,  but  which  are  required  by 
the  common  interest. 

Among  the  activities  of  the  state  which  are  neither  essential  nor 
natural,  but  which  are  not  a  matter  of  indifference  to  the  public,  and 
which  are  performed  by  some  states  as  well  as  by  private  enterprise, 

1  Adapted  by  permission  from  J.  W.  Garner,  Introduction  to  Political  Science, 
pp.  318-20.     (American  Book  Co.,  1910.    Author's  copyright.) 


SOCIAL  CONTROL  I053 

and  at  less  cost,  there  are  a  great  variety  of  services,  mainly  economic 
and  intellectual,  such  as:  the  conduct  of  railway  traffic;  the  tele- 
graph and  telephone  service;  the  manufacture  and  distribution  of 
gas  and  electricity  for  lighting  purposes;  the  furnishing  of  water  for 
drinking  and  other  purposes  in  cities;  the  maintenance  of  theatres, 
pawn-shops,  bath  houses  and  lodging  houses;  the  encouragement  of 
certain  industries  by  means  of  bounties,  protective  tariffs,  and  subven- 
tions; the  planting  of  colonies;  the  encouragement  of  immigration;  the 
establishment  of  experiment  stations,  liquor  dispensaries,  banks,  uni- 
versities of  learning,  hospitals,  reformatories,  art  galleries,  museums, 
zoological  and  botanical  gardens;  the  erection  of  improved  dwellings 
for  working  people;  the  making  of  loans  to  farmers;  grants  in  aid 
of  railroads;  the  distribution  of  seeds  for  agricultural  purposes;  the 
conduct  of  the  business  of  insurance;  the  granting  of  old  age  pensions; 
the  maintenance  of  employment  bureaus;  and  many  other  activities 
too  numerous  to  mention.  Under  this  head  also  may  be  included  a 
great  volume  of  regulatory  or  restrictive  legislation  dealing  with  the 
conduct  of  certain  trades  and  occupations  which  are  affected  with  a 
public  interest,  such  as:  railway  traffic  and  means  of  communication; 
mining,  manufacturing;  the  relations  between  employer  and  em- 
ployees; the  conduct  of  dangerous,  offensive,  or  obnoxious  trades; 
the  censorship  of  the  press,  vaccination,  quarantine,  and  sanitary 
legislation;  laws  regarding  the  erection  of  buildings  in  cities;  laws 
regulating  banking,  barbering,  baking,  plumbing,  pawnbroking, 
slaughtering,  and  many  other  trades  or  businesses. 

The  first  group  of  activities  described  above  represent,  according 
to  the  individualistic  theories,  all  the  activities  that  the  state  ought 
to  undertake.  Anything  more  is  superfluous  and  involves  an  infringe- 
ment upon  the  rights  and  liberties  of  the  individual  and  cannot 

therefore  be  justified. 

C1 

What  attitude  must  the  government  adopt  toward  the  suffering 
and  sorrow,  the  distress  and  poverty  that  everywhere  abound? 
Many  different  answers  are  given  to  this  question;  but  all  of  them 
may  be  reduced  under  five  heads. 

i.  The  first  answer  is  that  government,  in  the  discharge  of  both 
its  legislative  and  its  administrative  duties,  ought  simply  to  go  on  as 
it  is  doing  at  present.    Evils  should  be  dealt  with  piecemeal  as  they 

1  Adapted  by  permission  from  W.  S.  M'Kechnie,  The  State  and  the  Individual, 
pp.  164-69.     (James  MacLehose  &  Sons,  1896.) 


IO-4  INDUSTRIAL  SOCIETY 

arise.  In  this  view  all  systems  are  misleading.  The  only  guide  is 
common-sense.  There  is  no  use  of  making  generalizations  at  all, 
for  each  evil  has  its  own  special  causes,  and  must  be  considered  by 
itself.  Government  is  working  well  enough  on  the  whole  on  its  present 
basis.  It  cannot  cure  everything,  and  does  its  best  when  any  social 
distress  becomes  unbearable.  This  is  the  attitude  of  the  "  practical 
politician,"  who  is  nothing  more  than  practical.  He  waits  till  evils 
show  themselves  and  then  tinkers  them,  one  by  one,  as  they  arise. 
This  attitude  has  its  dangers,  however,  apart  altogether  from  its 
want  of  a  scientific  basis.  To  wait  till  the  various  troubles  raise 
themselves  to  the  surface,  and  then  give  them  just  sufficient  treat- 
ment to  cause  them  to  hide  themselves  in  their  ordinary  lurking- 
places  again,  is  both  heartless  and  absurd.  It  is  the  policy  of  a 
superficial  doctor  who  attacks  the  symptoms  instead  of  the  root  of 
the  disease;  and  is  more  likely  to  throw  the  illness  inward  to  a  vital 
part  than  to  effect  a  cure.  The  "  practical  politician  " — that  object  of 
Mr.  Spencer's  scorn— is  apt  to  alter  the  seat  of  a  social  evil  rather 
than  to  root  it  out.  He  is  apt  to  cause  ten  new  evils  to  come  into 
existence,  each  worse  than  the  one  he  sought  to  cure.  His  theory, 
or  rather  lack  of  a  theory,  may  be  called  the  opportunist  solution 
of  the  problem. 

2.  The  second  answer  to  the  question  is  that  of  the  Socialist — let 
the  government  step  in  boldly  and  undertake  far  more  than  it  does 
at  present — let  it,  in  fact  (say  extreme  votaries  of  this  doctrine), 
regulate  everything.  The  evils  complained  of  are  due  in  great  measure 
to  the  free  play  of  the  unrestrained  evil  passions  of  individuals. 
Government  ought,  by  force,  if  necessary,  to  hold  these  in  check, 
and  it  would  then  become  a  kind  of  terrestrial  Providence  whose  duty 
would  be  to  remedy  every  ill  that  flesh  is  heir  to.  It  would  in  par- 
ticular supersede  the  evils  of  competition  and  the  unequal  distribution 
of  wealth,  by  regulating  all  trade  and  industry  by  a  central  system  of 
control.  It  would  own  all  land,  railways,  machinery,  and,  in  short, 
all  property  of  every  kind — leaving  only  the  rights  of  use  to  the  private 
citizen. 

3.  A  third  opinion  is  the  direct  opposite  of  this.  Existing  evils, 
which  are  by  their  nature  remedial,  so  far  from  being  curable  by 
government  intervention,  are  directly  caused  by  it.  Government 
has  no  business  to  meddle  with  things  outside  its  proper  province,  and 
that  is  at  best  a  very  narrow  one.  In  whatever  direction  the  State 
carries  its  well-meant  but  fussy  interference  with  private  interests,  it 


SOCIAL  CONTROL  I055 

does  harm.  So  far  from  seeking  to  extend  its  province,  its  only  wise 
policy  is  to  recede  as  quickly  as  possible  from  the  abnormal  functions 
it  has  already  undertaken,  and  so  allow  nature  and  the  free  play  of 
individual  interests  to  restore  a  healthy  tone  to  the  community  dis- 
ordered by  the  intrusion  of  artificial  restraints.  Few  advocates  of 
this  doctrine  have  the  courage  to  carry  it  to  an  extreme  equal  to  that 
of  the  Socialists  on  the  opposite  side.  Few  of  them  hold— as,  to  be 
consistent,  they  ought  to  hold— that  government  should  never  inter- 
fere by  force  at  all;  for  this  would  be  practically  to  reject  government 
altogether.  Many  of  them  think  that  it  should  do  nothing  further 
than  what  is,  in  their  opinion,  absolutely  necessary  for  the  preserva- 
tion of  an  organized  society  in  which  men's  rights  are  safe  from  violent 
invasion.    This  is  the  individualistic  solution. 

4.  The  fourth  view  tries  to  distinguish  between  the  provinces  of 
the  individual  and  of  the  State.  The  latter  lies,  as  it  were,  round  the 
centre  of  the  circle,  while  each  social  atom  has  his  individual  sphere 
somewhere  near  the  circumference.  Thus,  the  respective  fields  of 
State-action  and  of  individual-action  are  mutually  exclusive.  To  say 
that  anything  is  a  matter  for  the  individual  to  decide  is,  in  this  view, 
equivalent  to  saying  that  the  government  has  no  right  or,  at  any  rate, 
no  business  to  interfere.  A  hard-and-fast  boundary  line  exists  some- 
where, and  the  problem  is  to  discover  it.  Government  may  therefore 
sin  either  by  excess  or  by  defect.  It  approaches  perfection  according 
as  it  correctly  estimates  the  whereabouts  of  this  boundary  and  acts 
accordingly. 

When  men  attempt  to  draw  this  line  even  in  theory,  however,  a 
thousand  disagreements  spring  up.  No  two  authors  of  any  note 
agree  as  to  its  exact  position.  The  practical  difficulty  is  even  greater 
than  the  theoretical  one.  This  doctrine  of  compromise  acquires  more 
importance  from  the  fact  that  it  is  adopted  in  practice  by  almost  all 
of  those  who  are  professed  Individualists  in  theory.  All  practical 
Individualists  have  thus  something  in  common  with  the  fourth  school, 
which  may  be  called  the  school  of  compromise.  Unfortunately,  how- 
ever, no  such  line  exists  by  nature.  It  is  artificial  and  arbitrary  in 
every  case. 

5.  There  is  yet  another  solution  which  rejects  all  these  views 
equally.  It  may  be  held  that,  while  extreme  Socialism  and  extreme 
Individualism  are  equally  impossible  in  practice  and  unsound  in 
theory,  because  each  ignores  the  essential  factor  in  human  nature, 
exaggerated  by  the  other,  all  compromise  between  them  is  also 


1056 


INDUSTRIAL  SOCIETY 


impossible  and  unsound,  in  starting  from  a  false  antithesis  between 
the  individual  and  the  State.  A  fifth  theory,  then,  asserts  that  no 
province  can  be  found  which  is  absolutely  that  of  the  State,  in  the 
sense  of  excluding  individual  action,  while  equally  there  is  no  province 
of  the  isolated  subject  which  absolutely  excludes  the  government.  The 
individual  finds  his  sphere  to  be  no  narrower  than  the  State  itself, 
while  the  sphere  of  the  government  may  be  logically  extended  to 
embrace  all  the  interests  and  actions  of  every  man  and  woman.  This 
is  the  theory  of  organic  unity,  which  holds  it  absurd  to  draw  a  line 
between  two  things  whose  essential  nature  lies  in  their  connection 
with  each  other. 

This  may  seem  merely  a  theoretical  answer  to  the  problem,  but 
it  prepares  the  way  for  the  only  solution  that  will  work  in  practice. 
No  absolute  barrier  of  any  kind  can  be  set  up  anywhere  to  the  action 
of  the  government  which  has  both  a  right  and  a  duty  to  do  everything 
the  State  entrusts  it  with;  and  the  State  must  insist  on  government 
undertaking  everything  which  will  further  its  ultimate  end,  or  any 
of  its  more  immediate  aims,  legitimate  in  themselves  and  consistent 
with  the  final  goal.  The  actual  province  of  any  government,  then,  is 
just  whatever  is  entrusted  to  it  by  the  sovereign  legislature  as  the 
source  of  positive  law.  The  ideal  province  is  that  which  is  best  fitted 
to  fulfil  the  final  destiny  (or  what  is  the  same  thing,  to  realize  the 
highest  welfare)  of  the  nation  as  a  branch  of  the  family  of  mankind. 
Its  limits  may  thus  shift  from  time  to  time  and  from  country  to  coun- 
try. No  absolute  boundaries  or  rules  can  be  laid  down  a  priori.  The 
government  ought  to  interfere  in  any  place  to  which  the  sovereignty 
of  the  State  extends,  if  the  good  it  thus  effects  outweighs  on  the  whole 
the  evil.  But  in  estimating  such  evil  and  good  reference  must  be 
made  to  remote  contingencies  as  well  as  near  ones;  a  broad  statesman- 
like view  must  be  taken,  founded  on  a  wide  experience  of  affairs  and 
on  the  principles  of  human  nature  as  laid  down  by  the  most  advanced 
science  of  the  day. 

This  fifth  solution  of  the  problem,  which  is  here  taken  to  be  the 
only  sound  one,  differs  from  all  the  others.  It  differs  from  the  first 
in  condemning  the  policy  of  mere  drifting  with  the  current,  without 
formulating  principles  of  guidance  and  without  listening  to  the  voice 
of  science.  It  condemns  the  treatment  of  each  case  as  an  isolated 
problem,  and  the  see-saw  inconsistent  policy  that  results — one  thing 
straggling  in  one  direction,  while  its  fellow  drifts  in  the  other.  Every 
act  of  policy  must  be  ultimately  judged  by  the  final  end  of  the  State 


SOCIAL  CONTROL  IOS7 

f  ind  by  those  approved  minor  ends  which  political  science  has 

d  to  be  for  the  time  consistent  with,  and  conducive  to,  that 
joal.    Thus  a  principle  of  order  is  introduced, 
also  differs  from  the  socialistic  plan.    For,  though  it  concedes 

i  the  government  may  be  lawfully  and  justly  endowed  with  powers 
,  do  everything,  it  admits  no  absolute  presumption  in  favour  of 
immunity  of  property  or  of  government  interferences  as  opposed 
to  private  initiative. 

It  differs  from  Individualism  in  refusing  to  admit  the  truth  of  any 
philosophy  which  would  find  man's  highest  good  apart  from  his 
fellow-men,  and  because  it  refuses  to  admit  any  absolute  limits  to  the 
action  of  the  central  authority  acting  for  the  good  of  the  whole. 

It  differs  -from  those  who  would  effect  a  compromise  between  the 
last  two  theories,  because  it  cannot  admit  any  distinct  province  of 
the  man  apart  from  the  State.  It  does  not  look  on  the  government 
and  the  subject  as  two  unconnected  principles  which  approach  each 
otner  from  opposite  sides,  and  it  does  not  try  to  allocate  the  sum  of 
human  interests  between  them,  settling  by  a  contract  or  compromise 
that  everything  on  this  side  of  an  imaginary  line  goes  to  the  one  party 
and  everything  on  that  side  to  the  other. 

D.     The  Old  Order  Changeth 

405.     DISHARMONY  THE  RESULT  OF  CHANGED  INDUSTRIAL 

CONDITIONS1 

I  ally  myself  with  those  who  hold  that  a  social  movement  is  sure 
to  arise  whenever  there  is  a  lack  of  harmony  between  the  realities  of 
life  and  the  ideals  of  living.  It  becomes  my  duty  therefore  to  dis- 
close those  changes  in  industrial  methods  by  which  harmony  in 
industries  has  been  disturbed. 

You  have  doubtless  seen  a  child  playing  with  his  blocks  upon  the 
floor,  setting  up  one  after  another  in  a  row.  So  long  as  no  accident 
occurs  they  all  stand,  but  should  the  skirt  of  the  child  or  a  breeze 
from  the  door  topple  one  of  them  over,  they  all  fall.  So  it  is  with 
industries  before  disturbed  by  the  restless  genius  of  the  nineteenth 
century.  Somehow,  trades  had  been  established— the  spinner,  the 
weaver,  the  fuller,  and  the  dyer.  Somehow,  accustomed  methods 
of  work  had  been  set  up.     Somehow,  men  had  adjusted  themselves 

1  Adapted  by  permission  from  H.  C.  Adams,  "An  Interpretation  of  the  Social 
Movements  of  Our  Time,"  International  Journal  of  Ethics,  II  (1891-92),  33-46. 


io58  INDUSTRIAL  SOCIETY  \ 

to  certain  ways  of  doing  business.  The  son  entered  the  trade  of  his1 
father,  and  the  father  taught  the  son  rules  of  trade  that  had  been 
followed  for  generations.  Precedent  was  thus  crystallized  into  habit, 
and  the  thought  of  change  in  the  methods  of  work  did  not  enter  the 
minds  of  men.  Thus  for  centuries,  if  we  except  agriculture,  the  habits 
of  workmen  remained  unchanged. 

It  was  into  such  a  society  as  this  that  the  accident  of  Hargreave's 
invention  was  thrown.  The  spinning- jenny  increased  the  efficiency 
of  the  spinners  a  hundred-fold,  and  thus  gave  the  weavers  more  yarn 
than  they  could  weave.  The  adjustments  that  had  grown  up  with 
the  centuries  were  destroyed  in  a  moment.  There  is  a  greater  differ- 
ence between  1790  and  1890,  in  all  matters  of  business  procedure,  than 
between  the  twelfth  century  and  1790. 

All  this  is  familiar  to  every  student  of  history,  but  there  is  one 
fact  which  seems  to  have  been  overlooked.  At  the  time  when  indi- 
vidualism in  industry  was  promulgated  by  Adam  Smith,  industries 
were  small  and  widely  diffused.  Men  were  using  tools,  and  the  busi- 
ness relations  were  personal  and  direct.  Under  such  conditions  there 
is  greater  likelihood  that  competition  would  work  with  equity  than 
at  the  present.  But  without  attempting  to  develop  this  thought, 
let  me  call  your  attention  to  the  significant  fact.  The  truth  is,  the 
theory  of  industrial  liberty,  framed  to  meet  a  regime  of  hand-work, 
has  been  accepted  and  developed  by  a  society  which  knows  only 
machine  labor.  A  social  philosophy  adjusted  to  a  scheme  of  domestic 
industry  has  been  maintained,  notwithstanding  the  fact  that  domestic 
industry  has  given  way  to  the  factory  system. 

From  the  sixteenth  century  to  the  beginning  of  the  nineteenth 
century  the  tendency  has  been  toward  disintegration  in  all  matters  of 
property  and  industries.  In  early  society  when  men  worked  wholly  for 
local  markets,  when  the  relation  between  employer  and  employee  was 
a  personal  relation,  competition  was  kept  in  restraint  by  custom  and  by 
law.  But  with  the  downfall  of  feudalism,  with  the  discovery  of  the 
new  world,  with  the  new  spirit  of  personal  independence  infused  into 
life  by  the  great  religious  reformation  and  by  the  political  struggles, 
all  this  was  changed.  Localism  gave  way  to  nationality,  competition 
took  the  place  of  custom,  and  wealth  came  to  be  used  as  capital.  It  was 
at  this  point  in  the  development  of  English  society  that  the  era  of 
inventions  made  its  appearance.  Great  industries  sprang  into  exist- 
ence, and  under  the  theory  of  property  then  prevalent  it  naturally 
followed  that  the  new  social  power  generated  by  the  use  of  machinery 


SOCIAL  CONTROL  Iosg 

fell  into  the  hands  of  those  who  were  so  fortunate  as  to  become  propri- 
etors of  the  mechanism  of  production. 

406.    INCREASING  STRIFE  IN  ECONOMIC  LIFE' 

In  the  time  when  the  family  lived  wholly  off  the  produce  of  its 
own  farm,  questions  of  the  distribution  of  wealth  and  of  welfare  could 
scarcely  arise.  But  now  that  every  man  pours  his  own  product 
into  some  market,  it  enters  in  a  way  into  social  wealth  and  passes 
out  of  his  control.  What  he  shall  have  to  show  for  it  depends  on 
factors  which,  as  John  Stuart  Mill  showed,  are  man-made  rather  than 
natural.  He  is  obliged  to  enter  a  game,  and  to  a  degree  his  share 
of  the  Desirable  depends  on  his  success  in  that  game.  The  establish- 
ment of  the  rules  of  the  game  lies  within  the  province  of  society. 

Restraint  breeds  a  resistance  corresponding  to  the  loss  it  imposes. 
When  we  go  to  short-chain  the  interests  which  prey  on  men's  vices, 
they  snap  at  us  like  jackals.  Collective  ownership  of  public  utilities 
may  quiet  the  special  interests  that  now  rage  in  the  halter  of  regula- 
tion, but  by  the  time  their  anti-civic  career  is  ended  another  range  of 
enterprises  will  be  springing  against  the  leash.  We  declare  pipe-lines 
common  carriers  with  the  duty  to  file  tariffs,  and  we  get  refusal,  sub- 
terfuges, freak  tariffs,  and  onerous  requirements  that  bar  independents 
from  using  the  lines.  If  our  children  will  not  be  called  upon  to  fix 
gas  prices  and  street  car  fares  in  the  teeth  of  concentrated  private 
interest,  they  will  have  their  hands  full  in  regulating  railroad,  tele- 
graph, express,  insurance,  pipe-lines,  and  news-service  rates;  wharf, 
dock,  storage,  and  cotton-baling  charges;  the  prices  of  oil,  anthracite, 
coal,  ice,  and  schoolbooks;  and  in  prescribing  the  conditions  of  manu- 
facture and  sale  of  articles  all  the  way  from  dressed  beef  to  corporation 
securities. 

Every  year  the  points  of  contact— and  of  friction — between 
government  and  private  interests  have  multiplied.  In  the  days  of 
well-water,  candles,  sorghum,  and  flatboats,  there  were  no  water, 
gas,  sugar,  or  railroad  interests  to  vex  politics.  Home-grown  food 
did  not  call  for  the  inspector.  Till  the  factory  came  there  was  no 
need  to  bar  children  from  toil  or  to  enforce  the  guarding  of  dangerous 
machinery.  A  generation  ago  the  little  razor-back  gas  and  horse-car 
companies  had  no  call  to  mix  in  politics;  but  the  advent  of  water-gas 

1  Adapted  by  permission  from  E.  A.  Ross,  "The  Rules  of  the  Game,"  Atlantic 
Monthly,  C  (1907),  321-28. 


I06o  INDUSTRIAL  SOCIETY 

and  the  trolley,  coupled  with  urban  growth,  gave  them  the  lard 
of  monopoly  profit  to  defend,  and  made  the  public-service  corpora- 
tions the  arch-corrupters  of  city  councils.  Once  the  railroads  com- 
peted, but  their  consolidators  have  driven  the  despairing  shipper  to 
look  to  government  for  protection.  On  all  sides  we  see  businesses 
that,  feeling  less  and  less  the  automatic  curb  of  competition,  will  soon 
need  the  snaffle  of  public  regulation. 

The  state  government  labors  heavily,  like  a  steamboat  working 
through  sudd  on  the  Upper  Nile.  The  railroads  want  to  avert  rate 
regulation  and  to  own  the  state  board  of  equalization.  The  gas  and 
street-railway  companies  want  " ripper"  legislation,  the  authoriza-' 
tion  of  fifty-year  franchises,  and  immunity  from  taxation  of  franchises, 
or  limitation  of  stock-watering.  Manufacturers  want  the  unrestricted 
use  of  child  labor.  Mining  companies  dread  short-hour  legislation. 
Publishers  want  their  textbooks  foisted  upon  the  schools.  The  baking 
powder  trust  wants  rival  powders  outlawed.  The  oil  trust  wants  to 
turn  safety  inspection  against  the  independents.  A  horde  of  harpies 
have  the  knife  out  for  pure-food  bills.  Brewers,  distillers,  elevator 
combines,  pet  banks,  rotten  insurance  companies — all  have  a  motive 
for  undermining  government  by  the  people. 

Thus  time  adds  to  the  number  of  interests  intent  to  break  or  to 
skew  the  rules  of  the  game.  The  phalanx  lengthens  of  those  who 
want  government  to  be  of  india  rubber  and  not  of  iron.  Of  course  this 
resistance  produces  results.  Under  a  pressure  of  ten  talents  men 
collapse  who  were  adamant  under  the  pressure  a  single  talent  can 
exert.  In  view  of  the  temptations  we  send  them  against,  we  ought 
not  to  marvel  that  so  many  public  servants  bend  or  break.  It  is  not 
to  be  expected  that  government  can  withstand  the  growning  strain 
without  many  structural  improvements.  In  any  case  it  is  certain 
that  to  the  upholding  of  the  rules  of  the  game  society  must  devote  an 
increasing  share  of  its  thought  and  conscience. 


See  also         87.  Unrest  Because  of  Violation  of  Reciprocity. 

104.  Some  Shortcomings  of  Self  Interest. 

139-40.  Some  Defects  of  the  Pecuniary  Order. 

171-77.  Indirect  Costs  and  Social  Control. 

195.  Reduction  of  Risk  by  Social  Control. 

224-27.  Insecurity  through  Inadequate  Social  Control. 

369-72.  An  Indictment  of  Property. 


SOCIAL  CONTROL  Io6l 

407.    DISSATISFACTION  WITH  PRESENT  FORMAL  SOCIAL 
CONTROL 

A1 

1.  Our  law  is  archaic  and  antiquated  in  viewpoint  and  method. 
(a)  It  accepts  a  social  theory  conceived  more  than  a  century  ago  and 
almost  universally  rejected  today.  It  therefore  tends  to  assume  that 
social  ideals,  conditions,  and  relationships  that  existed  more  than  a 
century  ago  exist  now.  It  tends  to  base  its  judgment  of  right,  rights, 
and  relationships  on  the  conditions  and  relations  that  existed  more 
than  a  century  ago.  {b)  Its  method  of  procedure  is  that  of  precedent, 
i.e.,  it  proceeds  on  the  basis  of  fixed  absolute  rules  of  judgment  formu- 
lated in  the  past,  instead  of  on  the  basis  of  changing  and  developing 
standards  based  on  present  and  developing  conditions  and  relation- 
ships, standards  and  ideals  of  justice  and  welfare.  It  thus  tends  to  be 
a  system  based  on  logic  rather  than  on  life. 

2.  Our  law  is  individualistic  rather  than  socialized.  It  postulates 
the  individual  as  the  center  of  the  universe,  and  does  not  recognize 
fully  the  existence  of  social  groups  and  group  relationships.  It  there- 
fore does  not  know  how  to  deal  with  social  groups  and  group  relation- 
ships except  to  deny  their  normal  existence.  It  knows  no  society 
apart  from  an  aggregation  of  individuals  and  no  social  welfare  apart 
from  individual  welfare.  It  is  concerned  primarily  in  upholding  indi- 
vidual rights  or  in  acting  as  arbitrator  in  contests  between  individuals 
over  their  rights.     In  short,  it  is  thoroughly  atavistic. 

3.  Our  law  tends  to  place  private  property  rights  above  personal 
and  social  rights.  It  places  private  property  very  close  to  the  center 
of  its  social  philosophy. 

4.  Hence  the  law,  being  absolutistic,  individualistic,  and  concerned 
with  property  rights,  is  stiff,  inflexible,  inelastic,  ill-adapted  to  meet 
the  conditions  and  needs  of  the  changing  socialized  situation. 

In  the  eye  of  the  law  the  relations  between  workers  and  employers 
is  fundamentally  what  it  was  when  the  assumptions  and  rules  of  the 
law  were  established.  If  they  have  changed  from  this,  it  is  abnormal 
and  artificial.  It  is  the  duty  of  the  law  to  restore  the  normal  or 
rational  relationship;  hence  the  lawyers  and  the  courts  have  not  felt 
obliged  to  acquaint  themselves  thoroughly  with  the  existing  economic 
situation  and  relationships,  or  if  they  have  they  have  found  great 
difficulties  in  understanding  and  fully  acknowledging  it  as  it  is. 

1  Taken  by  permission  from  mimeographed  material  prepared  by  R.  F.  Hoxie 
for  his  class  in  Labor  Conditions  and  Problems. 


I062  INDUSTRIAL  SOCIETY 

5;  The  law  is  ultra-conservative  and  acts  too  slowly  to  meet  the 
needs  of  changing  conditions.     "The  law's  delays." 

6.  Nevertheless,  the  law  is  uncertain.  This  results  from  several 
causes:  (a)  from  the  conflict  between  the  two  contradictory  concepts 
at  work  determining  the  character  of  the  law — the  absolutistic  and  the 
evolutionary;  (b)  from  the  fact  that  the  interpretation  of  the  federal 
and  state  laws  is  in  the  hands  of  different  sets  of  judges;  (c)  from  the 
fact  that  each  court,  federal  or  state,  is  a  different  source  of  interpre- 
tation; (d)  from  the  fact  that  each  court  in  each  state  is  a  distinct 
authority;  (e)  from  the  fact  that  each  judge  is  to  an  extent  a  different 
source  of  interpretation;  (/)  from  the  fact  that  the  judges  themselves 
are  more  or  less  under  the  domination  of  the  contradictory  principles 
at  the  foundation  of  the  law. 

7.  The  law  is  undemocratic.  The  people  may  think  they  know 
what  they  want  and  what  is  for  social  welfare,  the  employers  and 
workers  may  agree  on  an  adjustment  of  their  relationships  and  on 
the  basis  of  their  decisions  laws  may  be  enacted,  but  until  the  court 
has  spoken  this  may  not  be  law.  Whatever  the  excellence  of  the  law — 
its  fitness  to  meet  the  needs  of  the  developing  situation — if  in  the  eye 
of  the  law  and  the  mind  of  the  courts  it  violates  the  fundamental 
and  unchangeable  assumptions  and  rules  of  justice  conceived  in  the 
past  and  relating  to  a  past  situation,  and  if  somehow  or  other  by  legal 
fiction  it  cannot  be  made  to  appear  to  be  in  harmony  with  these 
assumptions  and  rules,  the  courts  can  and  will  declare  it  no  law. 
Trjey  are  the  priests  and  keepers  of  the  ark  of  the  covenant,  whose 
duty  it  is  to  see  that  it  is  not  profaned  by  unclean  hands,  that  the  law 
as  delivered  on  the  twelve  tables  shall  persist  now  and  forever. 

B1 

The  causes  of  dissatisfaction  with  the  administration  of  justice 
may  be  grouped  under  four  main  heads:  (1)  Causes  for  dissatisfaction 
with  any  legal  system;  (2)  causes  lying  in  the  peculiarities  of  our 
Anglo-American  legal  system;  (3)  causes  lying  in  our  American  judi- 
cial organization  and  procedure;  and  (4)  causes  lying  in  the  environ- 
ment of  our  judicial  administration. 

These  causes  of  dissatisfaction  with  any  system  of  law  I  believe 
to  be  the  following:  (1)  the  necessarily  mechanical  operation  of  rules, 

'Adapted  by  permission  from  Roscoe  Pound,  "The  Causes  of  Popular  Dis- 
satisfaction with  the  Administration  of  Justice,"  American  Law  Review,  XL  (1906), 
730-48. 


SOCIAL  CONTROL  I003 

and  hence  of  laws;  (2)  the  inevitable  difference  in  rate  of  progress 
between  law  and  public  opinion;  (3)  the  general  popular  assumption 
that  the  administration  of  justice  is  an  easy  task,  to  which  anyone 
is  competent;  and  (4)  popular  impatience  of  restraint. 

Under  the  second  main  head,  causes  lying  in  our  peculiar  legal 
system,  I  should  enumerate  five:  (1)  the  individualist  spirit  of  our 
common-law,  which  agrees  illy  with  a  collectivist  age;  (2)  the  common- 
law  doctrine  of  contentious  procedure,  which  turns  litigation  into 
a  game;  (3)  political  jealousy,  due  to  the  strain  put  upon  our 
legal  system  by  the  doctrine  of  supremacy  of  law;  (4)  the  lack  of 
general  ideas  or  legal  philosophy,  so  characteristic  of  Anglo-American 
law,  which  gives  us  petty  tinkering  where  comprehensive  reform  is 
needed;  and  (5)  defects  of  form  due  to  the  circumstance  that  the  bulk 
of  our  system  is  still  case-law. 

Passing  to  the  third  head,  causes  lying  in  our  judicial  organiza- 
tion and  procedure,  we  come  upon  the  most  efficient  causes  of  dissatis- 
faction with  the  present  administration  of  justice  in  America.  For 
I  venture  to  say  that  our  system  of  courts  is  archaic  and  our  procedure 
behind  the  times.  Uncertainty,  delay,  and  expense,  and  above  all 
the  injustice  of  deciding  cases  upon  points  of  practice  which  are  the 
mere  etiquette  of  justice,  all  direct  results  of  the  organization  of  our 
courts  and  the  backwardness  of  our  procedure,  have  created  a  deep- 
seated  desire  to  keep  out  of  court,  right  of  wrong,  on  the  part  of 
every  sensible  business  man  in  the  community. 

Our  system  of  courts  is  archaic  in  three  respects:  (1)  in  its  multi- 
plicity of  courts;  (2)  in  preserving  concurrent  jurisdictions;  (3)  in 
the  waste  of  judicial  power  which  it  involves. 

Finally,  under  the  fourth  and  last  head,  causes  lying  in  the  environ- 
ment of  our  judicial  administration,  we  may  distinguish  six:  (1)  popu- 
lar lack  of  interest  in  justice,  which  makes  jury  service  a  bore  and  the 
vindication  of  right  and  law  secondary  to  the  trouble  and  expense 
involved;  (2)  the  strain  put  upon  law  that  it  has  today  to  do  the  work 
of  morals  also;  (3)  the  effect  of  transition  to  a  period  of  legislation; 
(4)  the  putting  of  our  courts  into  politics;  (5)  the  making  the  legal 
profession  into  a  trade;  and  (6)  public  ignorance  of  the  real  workings 
of  courts  due  to  ignorant  and  sensational  reports  in  the  press. 


I064  INDUSTRIAL  SOCIETY 

408.    DISSATISFACTION  WITH  PRESENT  INFORMAL 
SOCIAL  CONTROL' 

Informal  social  control  is  exercised  chiefly  through  (1)  custom, 
(2)  public  opinion,  (3)  conscience,  (4)  religion.  These  no  doubt  tend 
to  overlap  and  pass  over  into  each  other,  but  we  may  distinguish  them 
broadly. 

Custom  stands  for  the  conformity  of  the  individual  to  the  tradi- 
tional and  general  ways  of  acting  in  some  group.  Its  agencies  are 
imitation  and  suggestion,  positive  drill  or  ritual,  conscious  desire  to 
be  like  others  of  our  group  and  not  " queer"  or  "outlandish."  It 
thus  governs  in  the  relatively  stable  external  and  general  aspects  of 
conduct. 

Public  opinion  expresses  the  more  conscious  active  and  adjustable 
constraint.  It  acts  through  direct  praise  or  blame  or  through  the 
remoter  rewards  and  penalties.  It  stamps  some  as  "having  gained 
success,"  others  as  "failures."  It  awards  to  some  public  office,  to 
others  business  popularity,  to  others  social  distinction.  It  defeats 
the  unpopular  candidate,  ruins  financially  the  disliked  business, 
ostracizes  socially  the  man  who  violates  the  code  of  club  or  class.  It 
is  typically  represented  by  the  "honorable"  and  "dishonorable." 

Conscience  stands  for  a  more  penetrating,  careful,  and  disinter- 
ested judgment  than  public  opinion.  It  professes  to  be  guided  by 
standards  more  permanent  than  those  of  shifting  favor.  When  it 
pronounces  conduct  right  or  wrong  it  looks  at  motives  or  results  more 
searchingly,  and  when  it  speaks  of  "duty"  to  creditors,  to  fellow- 
workmen,  to  employer,  to  employee,  to  family,  or  to  the  community 
it  implies  a  set  of  personal  relations  in  which  the  individual  is  placed, 
and  which  he  may  not  break.  Just  why  he  ought  to  keep  his  word, 
to  be  honest,  to  care  for  his  children,  to  stand  by  his  union,  he  may 
not  be  able  to  state;  but  he  feels  the  tug  of  forces  binding  him  closely 
to  those  with  whom  he  is  in  constant  relation,  feebly  to  those  of  a 
different  class  or  race  or  living  at  a  distance. 

Religion  embodies  a  conviction  that  the  universe  is  not  a  mere 
machine  but  is  on  the  side  of  right  and  good,  and  will  not  suffer  wrong 
finally  to  triumph  or  evil  to  prevail.  It  embodies  men's  demands  for 
a  fairer  tribunal,  a  more  just  order  of  society,  a  larger  scope  of  oppor- 
tunity than  falls  to  the  human  lot  here.  It  adds  a  higher  authority 
to  conscience.     It  gives  a  more  personal  symbol  for  the  unity  among 

1  Prepared  by  J.  H.  Tufts. 


SOCIAL  CONTROL 


1065 


men  when  it  calls  them  sons  of  one  god  and  therefore  brothers  of  a 
spiritual  kindred. 

All  these  controls  of  custom,  public  opinion,  conscience,  and  reli- 
gion have  periods  of  relative  strength  and  times  of  relative  weakness. 
The  former  are  likely  to  coincide  with  simplicity  of  racial  elements, 
v fixity  of  social  classes,  continuity  of  industrial  practices  and  economic 
status,  persistence  of  political  power,  and  an  absence  of  any  striking 
discoveries  or  inventions.  Weakness  comes  when  races  mingle,  bring- 
ing conflicting  customs,  or  when  old  customs  no  longer  meet  new 
economic  situations;  when  classes  break  down  and  new  ambitions  are 
born  among  those  hitherto  accepting  their  status  passively  or  as  part 
of  a  providential  order;  when  existing  governments  are  overthrown 
and  new  groups  gain  power;  when  new  economic  forces  upset  older 
ways  of  distribution;  when  new  discoveries  in  science  compel  new 
conceptions  of  the  universe. 

The  present  time  is  by  no  means  negative  in  its  attitude  toward 
the  needs  for  positive  and  constructive  direction  if  men  are  to  live 
together  harmoniously,  and  to  achieve  their  own  best  expression. 
Nevertheless  it  finds  itself  puzzled  and  baffled  in  its  judgment,  and 
uncertain  as  to  its  duties.  Public  opinion  is  inconsistent.  Religion 
is  halting  between  the  conceptions  of  an  older  order  and  the  challenge 
of  a  new.  Certain  specific  examples  may  serve  to  illustrate  the  shift- 
ing of  ideals,  the  breaking  of  traditions,  the  conflicts  in  public  opinion, 
the  perpTexities  of  conscience — in  a  word,  the  uncertainty  in  what 
Sumner  calls  the  mores. 

1.  The  most  conspicuous  field  for  the  customary  traditional  aspect 
of  social  control  is  without  doubt  the  relations  of  the  sexes.  The  con- 
duct of  young  people  before  marriage  had  been  regulated  in  the  old 
world  by  conventions  having  various  origins  but  serving  to  secure  the 
chastity  of  woman  before  marriage  and  fidelity  in  marriage.  Perma- 
nence as  contrasted  with  easy  divorce  had  a  religious  sanction,  but 
was  also  a  tradition  in  "good"  society.  The  class  ideal  of  the  "lady" 
reinforced  other  motives.  This  old-world  tradition  has  undergone 
numerous  mutations.  Frontier  life  broke  down  seclusion  and  chap- 
eronage,  but  developed  its  own  controls  of  neighborhood  and  self- 
reliance,  which  in  turn  are  either  absent  or  too  unsophisticated  for 
urban  life.  Economic  independence  among  women  suggests  freedom 
from  parental  and  neighborhood  control.  The  immigrant  finds  old- 
world  customs  un-American  and  discards  them.  The  class  idea  of  the 
lady  is  unpopular  in  a  world  of  achievement,  but  the  new  standards 


Io66  INDUSTRIAL  SOCIETY 

of  such  a  world  of  achievement  are  not  as  yet  well  denned  or  enforced 
by  a  class.  The  successful  artist  of  either  sex  has  always  been  granted 
considerable  license.  Shall  this  be  extended  also  to  the  successful 
person  in  any  line?  Now  that  divorce  is  more  free  the  pattern  is 
constantly  before  the  young— the  "best  people"  divorce.  Equality 
of  other  kinds  makes  for  a  single  standard  in  sex  relations,  but  since 
the  general  direction  of  change  has  been  for  woman  to  secure  man's 
prerogatives,  it  is  not  self-evident  that  in  this  case  man  should  submit 
himself  to  the  control  which  has  been  the  established  convention  for 
woman. 

2.  Public  opinion  covers  all  fields,  but  the  conception  of  "success" 
shows  some  of  the  inconsistencies  in  our  present  situation.  First  of 
all  the  field  of  success  has  shifted  away  from  the  professions  to  business. 
Prizes  are  found  in  the  exercise  of  power,  and  power  has  increasingly 
come  to  those  who  control  capital  and  industry.  Power  in  the  pro- 
fessions depended  largely  on  ability  to  influence  persons  by  argument, 
eloquence,  or  through  personal  esteem.  Power  in  the  economic  world 
of  earlier  days  depended  also  to  a  considerable  degree  on  personal  con- 
fidence. Business  was  conducted  by  individuals;  relations  to  cus- 
tomers, to  creditors,  to  employees  were  largely  personal.  And  the 
reputation  of  a  man  as  a  fellow-townsman  was  an  appreciable  factor 
in  estimating  his  success.  But  the  corporate  and  impersonal  charac- 
ter of  present  business  has  cut  off  nearly  all  the  older  standards  for 
success  and  brought  a  different  set  of  qualities  to  the  fore?  Power 
depends  on  grand  strategy,  on  large-scale  economies,  on  securing 
monopoly  by  franchise,  competition,  or  far-seeing  anticipation  of 
supply  and  demand.  Undoubtedly  financial  credit,  good-will  of  the 
public,  contented  labor  are  important  elements,  but  these  are  gained 
by  objective  means,  prompt  payments,  low  prices,  good  service,  fair 
wages.  And  these  are  seemingly  compatible  with  ruthless  competi- 
tion, capitalizing  the  necessities  of  the  community  to  the  last  cent, 
utter  though  far-sighted  selfishness,  and  total  disregard  of  community 
interests.  In  fact  a  corporation  organized  for  profit  is  not  supposed 
to  have  any  other  aim,  or  to  exercise  any  scruple  except  to  keep 
within  the  law.  How  then  is  public  opinion  to  judge  the  directors  of 
corporations  ?  Can  it  approve  the  dazzling  success  of  the  leaders  but 
charge  all  the  ruthlessness,  egoism,  and  lack  of  civic  spirit  to  the  im- 
personal corporation  through  which  these  leaders  achieve  their  results  ? 

3.  Conceptions  of  honesty  and  justice  are  striking  examples  of  the 
present  difficulties  of  conscience.     Our  conception  of  honesty  was 


SOCIAL  CONTROL  io07 

shaped  largely  in  an  industrial  and  business  order  when  mine  and  thine 
were  easily  distinguished,  when  it  was  comparatively  easy  to  tell  how 
much  a  man  produced,  and  when  it  was  practicable  to  consider  that 
goods  belonged  to  their  makers  or  to  the  owners  of  the  soil  on  which 
they  had  grown.  Honesty  centered  on  keeping  contracts,  and  did 
not  need  to  look  into  the  conditions  back  of  the  contract.  Now 
honesty  must  face  a  prior  question:  Who  owns  what  is  collectively 
produced  ?  Have  I  dealt  honestly  if  I  receive  or  pay  wages  or  profits 
according  to  market  standards,  or  do  I  need  to  look  farther  back? 
In  the  case  of  justice  a  similar  inadequacy  of  individualistic  standards 
is  coming  to  recognition.  Justice  in  common  law  and  common  sense 
had  meant  giving  to  each  his  rights.  Of  these  rights  property  was 
one.  Justice  need  not  concern  itself  with  the  general  good,  though 
benevolence  or  charity  might  of  course  be  necessary  to  meet  illness 
or  accident.  When  no  one  was  very  rich,  and  few  were  very  poor, 
the  theory  might  be  assumed  to  be  working  well.  Present  conditions 
challenge  this  inherited  conception.  Luxury  in  palaces,  in  yachts,  in 
pleasure  cars,  in  hotel  life,  in  clubs,  in  amusement,  and  recreation 
might  in  itself  raise  only  a  vague  suggestion  of  a  poker  game  or  a 
lottery  instead  of  the  supposedly  moral  world  of  our  fathers.  But 
the  multitudes  out  of  work  through  no  fault  of  their  own  because 
of  market  fluctuations,  the  multitude  of  men  crippled  by  modern 
industrial  processes,  the  wretched,  unhealthful,  and  depressing  dwell- 
ings of  laborers  in  modern  cities,  the  general  insecurity  of  life,  liberty, 
and  happiness,  and  the  absence  of  property  afford  a  contrast  to 
luxury  which  raises  a  challenge  as  to  the  justice  of  it.  And  a  second 
line  of  thought  goes  deeper:  property  to  our  fathers  was  chiefly  for 
use,  or  for  security.  Property  in  the  enormous  accumulations  of 
today  is  largely  for  power.  It  controls  the  living  conditions  of  others 
as  truly  as  of  its  owners.  Can  justice  then  ignore  the  conditions  under 
which  such  power  is  gained  and  exercised,  and  be  content  merely  to 
buttress  it  ?  Are  not  the  defences  which  were  worked  out  against 
political  power  needed  against  economic  power  ?  And  for  the  great 
number  of  propertyless  are  there  not  demands  for  security,  for  pro- 
tection, for  a  share  in  the  goods  of  civilization  which  a  better  con- 
ception of  justice  cannot  ignore  ? 

4.  Religious  control  manifests  itself  not  so  much  as  offering 
standards  distinct  from  those  set  by  custom  and  conscience,  as  by 
reinforcing  the  motives  for  action  either  by  the  sanction  of  divine 
authority  or  by  the  emotional  supports  of  the  religious  community- 
human  and  divine.    Authority  as  such,  however,  has  lost  much  of  its 


I068  INDUSTRIAL  SOCIETY 

influence  in  recent  times.  Religious  community  life  a  generation  ago, 
among  a  people  largely  rural  or  living  in  villages,  of  fairly  homoge- 
neous faith,  and  with  doctrines  generally  accepted,  exercised  a  power- 
ful influence  not  only  upon  the  members  of  churches  but  upon  the 
community  at  large.  At  present  the  readjustments  in  doctrinal 
views  and  the  multitude  of  other  associations  and  avenues  for  intel- 
lectual and  social  interests,  particularly  the  rapid  changes  of  member- 
ship due  to  industrial  and  urban  conditions,  have  loosened  the  hold 
of  the  religious  control  over  its  own  members  and  still  more  strikingly 
over  the  community  at  large. 

To  state  with  any  approach  to  completeness  the  causes  for  these 
various  conflicts  and  inadequacies  of  the  chief  forms  of  social  control 
would  mean  to  write  a  history  of  the  times.  But  three  broad  groups 
of  causes  may  be  barely  stated:  first,  the  economic  changes  to  a 
collective  and  impersonal  method  of  carrying  on  business  and  indus- 
try, the  enormous  power  of  wealth  which  has  resulted  from  this  and 
other  causes,  and  the  difficulty  in  finding  any  new  standards  for  dis- 
tributing the  wealth  and  controlling  the  power;  second,  the  changes 
in  population,  including  the  shift  from  rural  to  urban  life,  the  mixture 
in  this  country  of  various  races  with  various  and  often  conflicting 
customs  and  morals,  the  influence  of  frontier  conditions;  third,  the 
development  of  modern  science  and  the  advent  of  more  general  edu- 
cation and  new  agencies,  particularly  the  press,  for  shaping  public 
opinion. 

409.  THE  CHANGING  IMPORTANCE  OF  THE  FORMS  OF 
CONTROL1 

Changes  in  knowledge,  in  degree  of  civilization,  and  in  the  char- 
acter of  social  requirements  cause  a  method  of  control  to  wax  or  wane 
from  age  to  age.  We  might  compare  the  social  order  to  a  viaduct 
across  some  wooded  ravine,  which  rests  part  of  its  weight  on  timbers 
that  decay  with  the  lapse  of  time,  and  partly  on  living  tree  trunks 
which  constantly  gain  in  strength.  Or,  we  might  liken  it  to  a  bridge 
resting  on  piers,  built  some  of  stone  which  crumbles  in  time,  and  some 
of  stone  which  hardens  with  long  exposure  to  the  air.  No  doubt 
etiquette  and  ceremony  have  done  their  best  work.  The  seer  of 
visions  and  dreamer  of  dreams  has  had  his  day.  The  hero  will  never 
again  be  the  pivot  of  order.  The  reign  of  custom  with  its  vague 
terrors  is  about  over.    The  assizes  of  Osiris,  Rhadamanthus,  God,  or 

1  Adapted  by  permission  from  E.  A.  Ross,  "Social  Control,"  American  Jour- 
nal of  Sociology,  III  (1897-98),  811-12. 


SOCIAL  CONTROL  Io6o 

Allah,  with  their  books  of  record,  inquisitions,  and  judgments,  will 
hardly  dominate  the  imagination  in  the  days  to  come.  The  reputed 
dispensations  of  Providence  will  less  and  less  affect  conduct.  A 
fictive  blood  kinship  cannot  bind  men  into  the  national  groups  of 
to-day.  So  public  action  in  the  form  of  mob,  ban,  or  boycott  is 
justly  regarded  as  a  relic  of  barbarism. 

On  the  other  hand,  instruction  as  to  the  consequences  of  actions, 
with  a  view  to  enlisting  an  enlightened  self-interest  in  support  of  all 
the  conduct  it  is  competent  to  sanction,  will  meet  with  universal 
approval  in  an  age  of  public  education;  and  the  passiveness  of  the 
average  mind  will  make  it  safe  to  work  into  such  moral  instruction 
certain  convenient  illusions  and  fallacies,  which  it  is  nobody's  interest 
to  denounce.  Suggestion,  that  little  understood  instrument,  will,  no 
doubt,  be  found  increasingly  helpful  in  establishing  moral  imperatives 
in  the  young.  But  it  will  render  its  greatest  service  in  shaping  in 
youth  those  feelings  of  admiration  or  loathing  that  determine  the 
ruling  ideals  of  character,  and  in  influencing  those  imputations  of 
worth  which  enable  society  to  impose  upon  the  individual  its  own 
valuations  of  life's  activities  and  experiences.  And  society  will 
further  the  work  by  cutting  with  cameo-like  clearness  the  types  of 
character  it  chooses  to  commend,  and  by  settling  ever  more  firmly 
in  tradition  and  convention  the  values  it  seeks  to  impose.  But  from 
social  art,  however,  we  have  the  most  to  look  for.  I  would  place  it 
next  to  religion  in  power  to  transform  the  brute  into  the  angel.  Art 
is  one  of  the  few  moral  instruments  which,  instead  of  being  blunted 
by  the  vast  changes  in  opinion,  have  gained  edge  and  sweep  by  these 
very  changes.  So  far  as  eye  can  pierce  the  future,  there  is  nothing 
to  limit  or  discredit  it.  The  sympathies  it  fosters  do  not,  it  is  true, 
establish  norms  and  duties;  but  they  lift  that  plane  of  general  senti- 
ment out  of  which  imperatives  and  obligations  arise.  If  there  is  any- 
one in  this  age  who  does  the  work  of  the  Amoses  and  Isaiahs  of  old, 
it  is  an  Ibsen,  a  Tolstoi,  a  Victor  Hugo,  or  a  Thomas  Hardy. 

410.  THE  FUNCTION  OF  RESEARCH  AND  INVESTIGATION' 
Research  to  establish  "truth  for  its  own  sake"  must  precede  every 
development  of  science,  natural  or  social.  Such  research  may  have 
no  immediate  effect,  but  it  lies  back  of  all  ultimate  usefulness  of  a 
science.  When  the  principles  are  established  and  applications  of 
them  can  be  made  it  becomes  obvious  that  we  have  an  important 

1  Prepared  by  L.  M.  Powell. 


1070 


INDUSTRIAL  SOCIETY 


influence  upon  our  control  problems.  "Knowledge  is  control"  in  a 
very  real  sense.  Since  control  is  in  the  last  analysis  a  matter  of  human 
decisions,  we  can  influence  control  by  giving  people  reasons  for  mak- 
ing one  decision  rather  than  another.  Now  research  and  investi- 
gation are  methods  of  securing,  either  directly  or  indirectly,  to  the 
individuals  who  are  to  decide  a  question,  the  most  complete  possible 
knowledge  of  the  situation.  This  holds  whether  we  think  of  the 
farmer  who  changes  his  whole  method  of  farming  as  a  result  of 
researches  in  agricultural  chemistry,  of  the  directors  of  a  corporation 
who  have  their  plant  carefully  studied  and  put  in  new  methods  of 
factory  housekeeping,  or  of  the  voters  of  a  city  who  decide  to  have 
a  board  of  health  with  certain  duties  and  powers  because  medical 
science  shows  the  need  for  such  action. 

These  illustrations  are  drawn  from  the  realm  of  natural  science, 
but  the  principle  is  equally  true  for  the  social  sciences.  If  we  think 
of  social  control  in  the  narrower  sense  of  control  by  human  beings  of 
their  relationships  to  each  other,  we  have  a  much  more  difficult  field 
in  which  to  carry  on  research,  because  of  the  small  range  of  possible 
experimentation,  and  a  more  difficult  field  in  which  to  secure  decision 
on  the  basis  of  knowledge  rather  than  of  emotion.  Nevertheless  we 
have  in  this  field  the  same  result  from  secure  and  varied  information 
and  the  clear  establishment  of  laws  as  in  the  natural  world.  A  group 
that  has  realized  that  its  ideals  and  institutions  are  not  fixed  and 
immutable  but  open  to  question  and  to  conscious  change  will  realize 
also  that  the  processes  of  research  and  investigation  constitute  prac- 
tically the  only  way  open  whereby  sound  bases  can  be  secured  upon 
which  to  make  such  conscious  changes. 

411.  CAN  DIRECTION  BE  GIVEN  TO  SOCIAL  CONTROL?1 
Can  we  control  so  complex  and  many-sided  a  thing  as  social 
development?  Unfortunately,  to  this  question  we  cannot  give  an 
unqualified  affirmative.  Many  social  "forces"  are  beyond  our  ken 
and  power;  others,  of  which  we  have  some  knowledge,  cannot  be 
reached  by  any  contrivances  which  we  have  yet  perfected;  given 
programs  promising  definite  results  have  the  perversity  to  produce 
undreamed-of  complications;  and  immediate  consequences  have  fallen 
into  the  disagreeable  habit  of  distracting  our  attention  from  more 
ultimate  and  important  results.     It  seems,  therefore,  that  the  whole- 

1  Taken  by  permission  from  W.  H.  Hamilton,  Current  Economic  Problems, 
PP-  74-75-     (The  University  of  Chicago  Press,  1915.) 


SOCIAL  CONTROL  IO?I 

sale  prescription  of  "remedies"  and  the  amateurish  tinkering  with 
parts  are  likely  to  prove  dangerous.  Yet,  if  we  are  sufficiently  con- 
scious of  the  limitations  under  which  we  are  working,  we  can  do  some- 
thing  toward  directing  the  movement.  We  know  something  of  the 
elements  involved;  we  have  had  much  experience  that  should  stand 
us  in  some  stead;  and  we  have  evolved  some  very  remarkable  agencies 
of  control.  If  we  proceed  cautiously,  make  our  programs  flexible, 
and  quickly  change  our  procedure  to  meet  the  unexpected  contin- 
gencies which  are  inevitable,  there  is  reason  for  faith  in  our  ability 
eventually  to  accomplish  much.  If  we  essay  the  task,  we  shall  need 
a  knowledge  of  the  means  of  control,  a  theory  of  the  use  of  these 
means,  and  a  consciousness  of  the  "end"  for  which  they  are  used. 
Let  us  consider  these  in  turn. 

Even  if  our  desires  be  quite  modest,  they  will  necessitate  the  use 
of  numerous  and  varied  means  of  control.  The  changes  which  we 
wish  to  effect  may  be  in  the  structure  of  society,  in  institutions,  in 
activities,  or  in  values;  they  may  call  for  immediate  and  mechanical 
action  or  they  may  necessitate  slow  and  gradual  adaptations;  they 
may  affect  almost  the  whole  of  society  or  may  immediately  touch  only 
a  single  aspect  of  life.  For  these  and  a  myriad  other  uses  instruments 
of  social  control  are  available.  The  state  can  be  used  to  secure  quick 
mechanical  changes;  the  school  and  the  church  can  be  used  slowly 
to  effect  more  gradual  and  organic  adaptations;  the  labor  union, 
by  sharp,  incisive  action,  can  immediately  further  the  interest  of  a 
group;  the  interest  of  a  like  group  may  be  gradually  advanced  by  a 
voluntary  association  using  more  peaceful  methods;  press  and  public 
opinion  can  reach  a  large  part  of  society;  occupational  associations 
and  codes  of  ethics  can  exercise  a  control  over  particular  groups;  and 
convention  and  tradition,  through  their  prohibitions  and  inhibitions, 
can  effectively  direct  the  lives  and  activities  of  the  individuals.  Each 
of  these  agencies  in  its  own  way  can  be  used  to  make  the  "system" 
somewhat  different.  Because  of  the  multiplicity,  variety,  and 
efficiency  of  these  agencies— despite  the  gravity  of  our  ignorance— we 
could  not  escape  social  control  if  we  would. 

Our  theory  of  the  use  of  these  "forces"  has  been  very  gradually 
built  up,  and  as  yet  is  far  from  complete.  During  most  of  the  nine- 
teenth century,  when  "the  country  was  in  a  stage  of  increasing 
returns,"  when  self-reliance  was  dominant,  and  when  men  dared  not 
meddle  with  the  rising  machine-system  which  they  very  imperfectly 
understood,  the  dominant  theory  was  that  of  laissez  /aire.    This 


I072  INDUSTRIAL  SOCIETY 

theory  overlooked  entirely  the  influence  exerted  by  agencies  other 
than  the  state,  as  well  as  a  large  number  of  active  functions  performed 
by  government,  such  as  the  protection  of  property  and  the  mainte- 
nance of  contract.  At  present  the  hold  of  individualistic  theory  is 
weakening.  The  frontier  is  gone;  we  are  confronted  by  the  grave 
problems  of  a  mature  society;  we  are  less  prone  to  attribute  success 
or  failure  to  personal  merit  or  demerit;  and  we  talk  of  "social  condi- 
tions" and  "inequality  of  opportunity."  All  of  this  inclines  us  to 
depend  more  upon  authority,  and  threatens  a  radical  extension  of 
state  activity.  But  there  are  potent  checks  upon  this  attitude. 
The  interpretation  of  our  constitution  still  proceeds  from  individual- 
istic assumptions;  the  pecuniary  organization  of  society  still  gives 
great  weight  to  the  views  of  the  owners  of  "vested  wealth";  and  in 
many  places  a  spirit  of  abandon  in  legislation  is  doing  much  to  dis- 
credit state  interference.  But  we  are  quite  consciously  coming  to 
complement  our  theory  of  the  province  of  government  with  a  theory 
of  the  use  of  other  agencies  of  control.  For  we  are  learning  that  we 
must  pay  for  what  we  get,  that  legislation  cannot  produce  Utopias, 
that  good  is  achieved  rather  than  acquired,  and  that  the  less  conspicu- 
ous agencies  of  control  are  as  certain  as  they  are  slow. 

A  consciousness  of  the  end  for  which  these  means  are  used  is 
hardest  for  us  to  acquire.  But,  difficult  as  the  task  is,  we  must  realize 
that  if  we  attempt  social  control,  we  must  know  what  we  are  about; 
we  must  have  a  tentative  goal;  we  must  appreciate  the  "end"  at 
which  we  are  aiming.  To  achieve  that  end  our  proposals  must  fit 
together  into  consistent  programs;  the  instruments  of  control  which 
we  use  must  complement  each  other.  This  does  not  mean  that  there 
must  be  no  elements  of  antagonism  in  the  system,  but  rather  that  there 
must  not  be  the  spoiled  work  which  comes  from  the  confused  counsel 
whose  origin  is  in  dealing  with  problems  in  isolation.  Consciousness 
of  the  "end"  also  involves  looking  beyond  immediate  proposals. 
Beyond  conflicting  proposals,  seemingly  unimportant,  lie  powerful 
social  theories,  quite  contradictory  in  the  kind  of  societies  they  tend 
to  produce.  In  many  problems,  therefore,  the  ultimate  issue  is 
between  different  systems.  Shall  our  ideal  be  that  of  a  personal  and 
industrial  feudalism,  an  individualistic  America  of  the  nineteenth 
century,  a  socialized  Germany  of  the  Hohenzollerns,  an  idealized 
and  Marxianized  state,  or  something  else?  Upon  our  conception 
of  the  ideal  state  toward  which  "progress"  should  carry  us  depends 
our  "solution"  of  the  problems  which  we  discuss. 


SOCIAL  CONTROL  io73 

412.    RADIANT  POINTS  OF  SOCIAL  CONTROL' 

A  control  that  we  have  any  right  to  call  social  has  behind  it  prac- 
tically the  whole  weight  of  society.  But  still  this  control  often 
wells  up  and  spreads  out  from  certain  centers  which  we  might  term 
the  radiant  points  of  social  control.  The  question  before  us  is:  What 
is  the  ultimate  seat  of  authority  ?  Where  resides  the  will  that  guides 
the  social  energies  ?  Who  holds  the  levers  which  set  in  motion  the 
checks  that  hold  a  man  back  or  the  stimuli  that  push  him  on  ? 

That  frequently  these  checks  and  stimuli  are  managed  by  a  rather 
small  knot  of  persons  should  not  for  a  moment  lead  the  reader  to 
confuse  social  control  with  class  control.  Totally  different  from  class 
control  in  origin  is  the  power  of  a  minority  to  direct  social  control. 
Social  power  is  concentrated  or  diffused  in  proportion  as  men  do  or  do 
not  feel  themselves  in  need  of  guidance  or  protection.  When  it  is  con- 
centrated it  is  lodged  in  that  class  of  men  in  which  the  people  feel 
the  most  confidence.  The  many  transfer  their  allegiance  from  one 
class  to  another — from  elders  to  priests,  or  from  priests  to  savants — 
when  their  supreme  need  changes,  or  when  they  have  lost  confidence 
in  the  old  guidance.  When  they  begin  to  feel  secure  and  able  to  cope 
with  evils  in  their  own  strength  and  wisdom,  the  many  resume 
direction  of  themselves  and  the  monopoly  of  social  power  by  the  few 
ceases. 

Such  is  the  underlying  law  of  the  transformations  and  displace- 
ments of  power.  The  immediate  cause  of  the  location  of  power  is 
prestige.  The  class  that  has  the  most  prestige  will  have  the  most 
power.  The  prestige  of  numbers  gives  ascendancy  to  the  crowd. 
The  prestige  of  age  gives  it  to  the  elders.  The  prestige  of  prowess 
gives  it  to  the  war  chief,  or  the  military  caste.  The  prestige  of  sanc- 
tity gives  it  to  the  priestly  caste.  The  prestige  of  inspiration  gives 
it  to  the  prophet.  The  prestige  of  place  gives  it  to  the  official  class. 
The  prestige  of  money  gives  it  to  the  capitalists.  The  prestige  of 
ideas  gives  it  to  the  elite.  The  prestige  of  learning  gives  it  to  the 
mandarins.  The  absence  of  prestige  and  the  faith  of  each  man  in 
himself  give  weight  to  the  individual  and  reduce  social  control  to  a 
minimum. 

In  some  cases  there  exists  an  appropriate  name  for  the  regime. 
When  the  priest  guides,  we  call  it  clericalism.  When  the  fighting 
caste  is  deferred  to,  we  call  it  militarism.    When  the  initiative  lies 

*  Adapted  by  permission  from  E.  A.  Ross,  "Social  Control,"  American  Journal 
of  Sociology,  VI  (1 900-1 901),  238-45. 


1074 


INDUSTRIAL  SOCIETY 


with  the  minions  of  the  state,  we  call  it  officialism.  The  leadership 
of  the  moneyed  men  is  capitalism.  That  of  the  men  of  ideas  is  liberal- 
ism. The  reliance  of  men  upon  their  own  wisdom  and  strength  is 
individualism. 

Social  control  has  about  it  a  tinge  that  betrays  the  source  from 
which  it  springs.  When  the  reverend  seniors  monopolize  power, 
much  will  be  made  of  filial  respect  and  obedience,  infanticide  will 
be  a  small  offence,  while  parricide  will  be  punished  with  horrible 
torments.  Let  the  priests  get  the  upper  hand  and  chastity,  celibacy, 
humility,  unquestioning  belief,  and  scrupulous  observance  will  be  the 
leading  virtues.  The  ascendancy  of  the  military  caste  shifts  the 
accent  to  courage,  obedience,  loyalty,  pugnacity,  sensitiveness  to 
personal  honor,  and  the  unrelenting  pursuit  of  revenge.  When  the 
moneyed  man  holds  the  baton  in  the  social  orchestra,  the  keynotes 
will  be  industry,  thrift,  sobriety,  probity,  and  civility.  The  man- 
darins and  literati  have  no  moral  program  of  their  own,  but  they 
are  sure  to  exalt  reverence  for  order,  precedent,  and  rank.  The  elite, 
whatever  ideal  they  champion,  will  be  sure  to  commend  the  ordering 
of  one's  life  according  to  ideas  and  principles,  rather  than  according 
to  precedent  and  tradition.  For  only  by  fostering  the  radical  spirit 
can  they  hope  to  lead  men  into  untrodden  paths.  We  may,  then,  lay 
it  down  as  a  law  that  the  character  of  social  requirement  changes  with 
every  shifting  of  social  power. 

413.    SOME  SUGGESTIONS  CONCERNING  THE  DIRECTION  OF 
SOCIAL  CONTROL 


How  to  secure  equality  of  wealth  with  liberty,  without  sacrificing 
anything  that  we  now  prize,  such  as  private  property,  freedom  of 
contract,  freedom  of  initiative,  and  economic  competition.  (Parts  of 
the  program  are  arranged  in  the  inverse  order  of  their  importance) : 

I.    Legislative  Program 

A.  For  the  redistribution  of  unearned  wealth. 

1.  Increased  taxation  of  land  values. 

2.  Graduated  inheritance  tax. 

3.  Control  of  monopoly  prices. 

1  Taken  by  permission  from  T.  N.  Carver,  Essays  in  Social  Justice,  pp.  264- 
65.    (Harvard  University  Press,  1915.) 


SOCIAL  CONTROL  I0? 

B.  For  the  redistribution  of  human  talent. 

i.  Increasing  the  supply  of  the  higher  or  scarcer  forms  of  talent 

a)  Vocational  education,  especially  for  the  training  of  business  men 

b)  Cutting  off  incomes  which  support  capable  men  in  idleness  thus 
increasing  the  supply  of  active  talent;  cf.,  i,  2,  and  3,  under  A 

2.  Decreasing  the  supply  of  the  lower  or  more  abundant  forms  of  labor 
power. 

a)  Restriction  of  immigration. 

b)  Restriction  of  marriage. 

(1)  Elimination  of  defectives. 

(2)  Requirement  of  minimum  standard  income. 

c)  Minimum  wage  law. 

d)  Fixing  building  standards  for  dwellings. 

C.  For  the  increase  of  material  equipment. 

1.  Increasing  the  available  supply  of  land. 

2.  Increasing  the  supply  of  capital. 

a)  Thrift  versus  luxury. 

b)  Savings  institutions. 

c)  Safety  of  investments. 

d)  "Blue  sky"  laws. 

II.    Non-Legislative  Program 

A.  Raising  the  standard  of  living  among  the  laboring  classes. 

1.  The  function  of  the  advertiser. 

2.  The  educator  as  the  rationalizer  of  standards. 

3.  Thrift  and  the  standard  of  living. 

4.  Industrial  co-operation  as  a  means  of  business  and  social  education. 

B.  Creating  sound  public  opinion  and  moral  standards  among  the 

CAPABLE. 

1.  The  ambition  of  the  family  builder. 

2.  The  idea 

a)  That  leisure  is  disgraceful; 

b)  That  the  productive  life  is  the  religious  and  moral  life; 

c)  That  wealth  is  a  tool  rather  than  a  means  of  gratification; 

d)  That  the  possession  of  wealth  confers  no  license  for  luxury  or 
leisure; 

e)  That  government  is  a  means  and  not  an  end. 

3.  Professional  standards  among  business  men. 

C.  The  discouraging  of  vicious  and  demoralizing  developments  of 
public  opinion,  such  as: 

1 .  The  cult  of  incompetence  and  self-pity. 

2.  The  gospel  of  covetousness,  or  the  jealousy  of  success. 


I076  INDUSTRIAL  SOCIETY 

3.  The  emphasizing  of  rights  rather  than  obligations. 

4.  The  worship  of  the  almighty  ballot  and  the  almighty  dollar. 

5.  The  idea  that  a  college  education  should  aim  to  give  one  a  "gentle- 
manly appreciation"  of  the  ornamental  things  of  life,  such  as  liter- 
ature, art,  golf,  and  whisky,  rather  than  to  strengthen  one  for  the 
serious  work  of  life. 

6.  The  idea  that  the  capitalization  of  verbosity  is  constructive  business. 

B1 

Certain  principles  emerge  with  a  good  degree  of  clearness.  We 
state  some  of  the  more  obvious. 

1.  Wealth  and  property  are  subordinate  in  importance  to  personality. 
—The  life  is  more  than  meat.  Most  persons  agree  to  this,  stated 
abstractly,  but  many  fail  to  make  the  application.  They  may  sacri- 
fice their  own  health,  or  human  sympathy,  or  family  life;  or  they  may 
consent  to  this  actively  or  passively  as  employers,  or  consumers,  or 
citizens,  in  the  case  of  others.  A  civilization  which  loses  life  in  pro- 
viding the  means  to  live  is  not  highly  moral.  A  society  which  can 
afford  luxuries  for  some  cannot  easily  justify  unhealthful  conditions 
of  production,  or  lack  of  general  education.  An  individual  who  grati- 
fies a  single  appetite  at  the  expense  of  vitality  and  efficiency  is  immoral. 
A  society  which  considers  wealth  or  property  as  ultimate,  whether 
under  a  conception  of  "natural  rights"  or  otherwise,  is  setting  the 
means  above  the  end,  and  is  therefore  unmoral  or  immoral. 

2.  Wealth  should  depend  on  activity. — The  highest  aspect  of  life 
on  its  individual  side  is  found  in  active  and  resolute  achievement,  in 
the  embodying  of  purpose  in  action.  Thought,  discovery,  creation, 
mark  a  higher  value  than  the  satisfaction  of  wants,  or  the  amassing 
of  goods.  If  the  latter  is  to  be  a  help  it  must  stimulate  activity,  not 
deaden  it.  Inherited  wealth  without  any  accompanying  incitement 
from  education  or  class  feeling  or  public  opinion  would  be  a  question- 
able institution  from  this  point  of  view. 

3.  Public  service  should  go  along  with  wealth. — Note  that  we  do  not 
say,  "wealth  should  be  proportionate  to  public  service."  This  would 
take  us  at  once  into  the  controversy  between  the  individualist  and 
the  socialist  which  we  consider  among  the  unsettled  problems. 

4.  The  change  from  individual  to  collective  methods  of  industry 
and  business  demands  a  change  from  individual  to  collective  types  of 
morality. — Moral  action  is  either  to  accomplish  some  positive  good  or 

1  Adapted  by  permission  from  John  Dewey  and  J.  H.  Tufts,  Ethics,  pp.  514- 
22.     (Henry  Holt  &  Co.,  1910.) 


SOCIAL  CONTROL  I077 

to  hinder  some  wrong  or  evil.  But  under  present  conditions  the 
individual  by  himself  is  practically  helpless  and  useless  for  either 
purpose.  It  was  formerly  possible  for  a  man  to  set  a  high  standard 
and  live  up  to  it,  irrespective  of  the  practice  or  cooperation  of  others. 
Today  suppose  a  person  has  a  little  property  invested  in  some  one  of 
the  various  corporations  which  offer  the  most  convenient  method  for 
placing  small  sums  as  well  as  large.  This  railroad  defies  the  govern- 
ment by  owning  coal  mines  as  well  as  transporting  the  product; 
that  public-service  corporation  has  obtained  its  franchise  by  bribery; 
this  corporation  is  an  employer  of  child  labor;  that  finds  it  less 
expensive  to  pay  a  few  damage  suits — those  it  cannot  fight  success- 
fully— than  to  adopt  devices  which  will  protect  employees.  Does  a 
man,  or  even  an  institution,  act  morally  if  he  invests  in  such  cor- 
porations in  which  he  finds  himself  helpless  as  an  individual  stock- 
holder ?  And  if  he  sells  his  stock  at  the  market  price  to  invest  the 
money  elsewhere,  is  it  not  still  the  price  of  fraud  or  blood  ?. .'  If,  finally, 
he  buys  insurance  for  his  family's  support,  recent  investigation  has 
shown  that  he  may  have  been  contributing  unawares  to  bribery  of 
legislatures,  and  to  the  support  of  political  theories  to  which  he  may 
be  morally  opposed.  The  individual  cannot  be  moral  in  independence. 
The  modern  business  collectivism  forces  a  collective  morality.  Just 
as  the  individual  cannot  resist  the  combination,  so  individual  morality 
must  give  place  to  a  more  robust  or  social  type. 

5.  To  meet  the  change  to  corporate  agency  and  ownership,  ways  must 
be  found  to  restore  personal  control  and  responsibility. — Freedom  and 
responsibility  must  go  hand  in  hand.  The  "moral  liability  limited" 
theory  cannot  be  accepted  in  the  simple  form  in  which  it  now  obtains. 
If  society  holds  stockholders  responsible,  they  will  soon  cease  to  elect 
managers  merely  on  an  economic  basis  and  will  demand  morality. 
If  directors  are  held  personally  responsible  for  their  "legal  depart- 
ment," or  union  officials  for  their  committees,  directors  and  ofiicials 
will  find  means  to  know  what  their  subordinates  are  doing. 

6.  To  meet  the  impersonal  agencies  society  must  require  greater 
publicity  and  express  its  moral  standards  more  fully  in  law—  Publicity 
is  not  a  cure  for  bad  practices,  but  it  is  a  powerful  deterrent  agency 
so  long  as  the  offenders  care  for  public  opinion  and  not  solely  for  the 
approval  of  their  own  class.  Professor  Ross  maintains  that  in  the 
United  States  classes  are  still  so  loosely  formed  that  general  approval 
is  desired  by  the  leaders.  Hence  he  urges  that  it  is  possible  to  enforce 
moral  standards  by  the  "grilling  of  sinners."    But  to  make  this 


1078 


INDUSTRIAL  SOCIETY 


"grilling"  a  moral  process  society  needs  much  more  accurate  informa- 
tion and  a  more  impartial  basis  for  selecting  its  sinners  than  present 
agencies  afford. 

7.  Every  member  "of  society  should  share  in  its  wealth  and  in  the 
values  made  possible  by  it.— The  quantitative  basis  of  division  and  the 
method  for  giving  each  a  share  belong  to  the  unsettled  problems. 
But  the  worth  and  dignity  of-  every  human  being  of  moral  capacity 
is  fundamental  in  nearly  every  moral  system  of  modern  times.  It  is 
implicit  in  the  Christian  doctrine  of  the  worth  of  the  soul,  in  the 
Kantian  doctrine  of  personality,  in  the  Benthamic  dictum,  "every 
man  to  count  as  one."  It  is  imbedded  in  our  democratic  theory 
and  institutions.  With  the  leveling  and  equalizing  of  physical  and 
mental  power  brought  about  by  modern  inventions  and  the  spread 
of  intelligence,  no  State  is  permanently  safe  except  on  a  foundation 
of  justice.  And  justice  cannot  be  fundamentally  in  contradiction 
with  the  essence  of  democracy.  This  means  that  wealth  must  be 
produced,  distributed,  and  owned  justly;  that  is,  so  as  to  promote 
the  individuality  of  every  member  of  society,  while  at  the  same  time 
he  must  always  function  as  a  member,  not  as  an  individual.  In 
defining  justice  some  will  place  freedom  first;  others,  a  standard  of 
living.  Some  will  seek  fairness  by  distributing  to  each  an  actual 
share  of  the  goods;  others,  by  giving  to  each  a  fair  chance  to  get  his 
share  of  goods.  Others  again  have  held  that  if  no  moral  purpose  is 
proposed  and  each  seeks  to  get  what  he  can  for  himself,  the  result  will 
be  a  just  distribution  because  of  the  beneficent  effects  of  competition. 
Still  others  have  considered  that  if  the  economic  process  has  been  once 
established  on  the  basis  of  contracts  rather  than  status  or  slavery, 
justice  may  be  regarded  as  the  maintenance  of  these  contracts, 
whatever  the  effect  in  actual  benefits. 

414.    A  VISION  OF  SOCIAL  EFFICIENCY1 

While  I  can  speak  with  authority  of  my  opinion  alone,  I  still 
have  no  doubt  that,  if  we  could  agree  on  the  meaning  of  the  words, 
so  that  .we  should  not  fear  that  to  some  of  us  some  of  them  would 
mean  one  thing  and  to  some  another,  there  would  be  substantial 
unanimity  in  this  Society  along  the  following  lines.  They  are 
specifications  of  the  general  conception  which  we  entertain  of  our 

1  Taken  by  permission  from  A.  W.  Small,  ''A  Vision  of  Social  Efficiency," 
American  Journal  of  Sociology,  XIX  (1913-14),  435-39. 


SOCIAL  CONTROL  I079 

whole  national  experience,  of  the  physical  conditions  which  make 
that  experience  possible,  of  the  goal  toward  which  that  experience 
is  to  be  directed,  as  fast  as  it  becomes  conscious,  and  of  the  operative 
principles  which  will  insure  the  efficiency  of  the  experience  The 
form  in  which  I  recite  the  items  is  not  that  of  law-givings  for 
the  enterprise,  but  of  presumptions,  or  prophetic  forelookings  which 
we  should  rely  upon  as  the  matrix  in  which,  from  time  to  time, 
constitutions  and  statutes  and  ordinances  in  pursuance  of  these 
valuations  would  grow. 

We  should  presume  then,  first,  that  as  a  matter  of  course  the 
enormous  enterprise  of  utilizing  this  space  and  time,  these  material 
deposits,  and  physical  energies  and  moral  opportunities  is  a  community 
undertaking;  an  affair  of  co-operation  in  duties  and  copartnership 
in  enjoyments;  with  the  common  interest  always  effectively  para- 
mount to  minor  aims. 

We  should  assume,  second,  that  the  innermost  and  ultimate 
meaning  of  the  whole  undertaking  is  not  to  be  found  in  its  mastery 
of  physical  conditions,  but  in  its  transmuting  of  this  control  of  forces 
into  realization  of  types  of  persons  surpassing  one  another,  generation 
after  generation,  in  progressive  realization  of  completer  physical  and 
mental  and  moral  attainments. 

We  should  take  it  for  granted,  third,  that  the  total  of  external 
resources  will  always  be  regarded  as  a  trust  to  be  administered  by 
the  community  as  an  endowment  for  the  human  process  in  which  the 
enterprise  finds  its  ultimate  expression. 

We  should  regard  it  as  settled,  fourth,  that  the  undertaking  will 
always  be  conducted  with  a  view  to  encouragement,  in  each  indi- 
vidual, of  every  excellence,  and  the  highest  degree  of  every  excellence 
which  can  be  harmonized  with  the  efficiency  of  the  whole  process  of 
human  development. 

We  should  be  confident,  fifth,  that  all  normal  adults  concerned 
in  the  undertaking  will  be  agreed  that  certain  regulative  principles 
of  conduct  are  indispensable.  They  will  consequently  be  sure  that 
all  the  resources  of  the  community  must  be  pledged  to  the  procuring 
of  conduct  consistent  with  these  principles. 

That  is,  a  system  of  control  will  be  demanded  which  will  be  in- 
exorable in  its  insistence  upon  certain  conduct  held  by  the  general 
community  judgment  to  be  necessary  for  the  good  of  the  whole. 
The  system  of  control  will  shade  off  into  non-compulsion  and  even 
non-prescription  and  non-intervention  in  the  degree  in  which  it  is  the 


io8o 


INDUSTRIAL  SOCIETY 


consensus  of  the  community  that,  in  certain  ranges  of  conduct, 
spontaneity  of  action  makes  more  for  the  good  of  the  whole  than 
group  constraint. 

Sixth:  Because  the  "realization  of  completer  human  types" 
and  "the  good  of  the  whole"  are  concepts  which  must  redefine 
each  other  in  an  incessant  reciprocity  during  the  term  of  this  enter- 
prise, we  should  anticipate  that  the  system  of  control  will  be  flexible 
and  adaptable,  both  in  its  structure  and  in  its  functions,  to  the 
changing  implications  of  the  undertaking. 

Consequently,  types  of  conduct  which  may  be  secured  by  forcible 
means  at  one  stage  of  the  process  may  not  need  to  be  required  nor 
even  enjoined  at  another.  Thus  the  system  of  control  may  never 
usurp  the  place  of  an  absolute  authority.  On  the  contrary,  in  its 
structure,  its  policies,  and  its  programs  the  system  of  control  must 
always  be  itself  controlled  by  the  evolving  requirements  of  the 
enterprise. 

It  would  be  understood,  seventh,  that  there  will  be  no  arbitrary 
limitations  upon  the  freedom  of  each  normal  adult  member  of  the 
community  to  exercise  his  abilities  in  promotion  of  the  enterprise  and 
that  the  partnership  of  each  in  all  the  franchises  and  emoluments  of 
the  undertaking  will  correspond  with  the  value  of  his  contribution 
to  the  common  operations. 

We  should  foresee,  eighth,  that  from  year  to  year  and  from  decade 
to  decade  the  enterprise  will  show  an  increasing  surplus  of  material 
and  spiritual  goods.  This  accumulation  will  of  course  be  held  as  a 
trust  fund  by  the  community,  and  it  will  be  used  as  a  special  endow- 
ment to  reinforce  those  operations  which  in  the  general  interest  from 
time  to  time  most  require  stimulation.  Experience  will  develop  a 
code  of  equity  to  govern  the  administration  of  this  material  and  spirit- 
ual wealth.  It  will  be  dedicated  to  the  assistance  of  all  persons  and 
processes  that  increasing  enlightenment  discovers  to  be  worthy  of 
exceptional  support.  It  will  be  jealously  guarded  against  concession 
in  the  form  of  permanent  privilege,  and  it  will  be  held  without  preju- 
dice at  the  service  of  every  interest  in  the  community  which  needs 
temporary  encouragement  in  developing  activities  that  give  assurance 
of  contributing  ultimately  to  the  good  of  the  whole. 

We  should  have  no  doubt,  ninth,  that  those  persons  who,  more 
through  misfortune  than  through  culpable  fault,  are  only  slightly 
or  not  at  all  able  to  contribute  to  the  common  enterprise  will  be 
enlisted  for  the  most  useful  employments  of  which  they  are  capable, 


SOCIAL  CONTROL  Io8l 

and  that  the  deficit  between  their  services  and  a  reasonable  appraisal 
of  their  needs  will  be  a  charge  upon  the  insurance  reserve. 

We  should  be  agreed,  tenth,  that  those  persons  who,  more  by  their 
own  choice  than  by  misfortune,  are  unfit  to  contribute  to  the  com- 
mon enterprise  will  be  held  to  such  disciplinary  constraints  by  the 
community  that  they  will  acquire  some  social  fitness,  and  that  they 
will  at  length  prefer  a  tolerable  measure  of  usefulness  in  the  general 
undertaking  to  the  alternative  constraint. 

In  the  case  of  the  persons  whose  social  unfitness  is  due  in  part 
to  the  predetermining  negligence  of  the  society,  attempts  to  correlate 
these  persons  with  the  whole  functional  process  will  have  due  regard 
to  the  different  causes  of  the  abnormality,  and  will  always  be  guided 
by  supreme  reference  to  establishment  of  normality,  both  in  the 
erring  society  and  in  the  delinquent  individual. 

We  should  look  forward,  eleventh,  to  progressive  recognition  of 
gradations  in  the  scale  of  accredited  values.  That  is,  material 
values  will  be  appraised  in  the  proportion  of  the  uses  of  the  respective 
things  to  people,  and  moral  values  will  rank  in  accordance  with  the 
social  worth  of  the  various  types  and  qualities  of  human  activity. 

It  would  follow,  twelfth,  that  adequate  provision  must  be  made 
for  the  function  of  keeping  all  the  members  of  the  community  aware 
of  the  reciprocal  nature  of  the  enterprise  in  which  they  are  engaged, 
and  of  the  implied  liabilities  of  all  to  each  and  of  each  to  all. 

For  similar  reasons,  thirteenth,  a  part  of  the  common  undertaking 
must  always  be  to  see  that  no  specific  plans  adopted  or  permitted  by 
the  community  should  tend  to  prejudice  the  general  purpose. 

It  would  be  our  conviction,  fourteenth,  that  the  general  purpose 
will  be  prejudiced  if  one  of  the  following  things  occurs: 

a)  If  tendencies  are  tolerated  which  give  to  some  types  of  people 
more  than  their  proportional  share  of  the  returns  of  the  enterprise, 
or  which  deprive  other  types  of  any  portion  of  their  due  share  of  those 
returns. 

b)  If  tendencies  are  tolerated  which  encourage  the  increase  of  less 
desirable  types  of  persons,  or  which  discourage  the  increase  of  more 
desirable  types. 

c)  In  particular,  if  tendencies  are  tolerated  which  make  it  pos- 
sible for  some  people  to  enjoy  without  being  useful,  and  which  veto 
other  people's  will  to  be  useful  for  the  sake  of  enjoying. 

d)  If  it  becomes  harder  for  some  parts  of  the  community  than  for 
others  to  obtain  justice. 


I0g2  INDUSTRIAL  SOCIETY 

e)  If  the  belief  becomes  current  among  some  members  of  the 
community  that  the  best  way  to  get  their  rights  is  to  repudiate 
parts  of  their  obligations. 

/)  If  a  creed  becomes  current  that  things  are  more  important 
than  people. 

g)  If,  whether  as  cause  or  effect  of  this  creed,  programs  become 
fixed  which  set  the  interests  of  wealth  above  the  interests  of  people. 

Fifteenth,  and  finally*  but  first  and  constantly  the  precondition 
of  all  the  rest:  we  should  presuppose  that  the  members  of  the  com- 
munity will  be  instant,  in  season  and  out  of  season,  in  discovering  for 
themselves,  and  in  passing  along  to  their  children,  zeal  for  discovering 
every  accessible  detail  and  interpretation  of  knowledge  which  may 
reveal  conditions  upon  which  promotion  of  the  whole  moral  enter- 
prise depends;  and  which  especially  may  disclose  failures  of  the 
persons  concerned  to  apply  their  resources  and  abilities  most  effi- 
ciently to  promotion  of  the  undertaking. 

Please  observe  that  I  have  not  referred  to  this  scheme  as  a  vision 
of  social  righteousness,  or  a  vision  of  social  justice,  or  a  vision  of  social 
reform.  There  might  be  a  suspicion  of  something  weakly  sentimental 
about  such  visions.  I  have  been  talking  about  the  literal  business  in 
which  humanity  is  engaged;  the  most  matter-of-fact  affair  which 
mundane  people  have  on  their  hands — this  central  and  circumfer- 
ential business  of  transforming  all  the  resources  of  the  world  into  the 
highest  grade  of  physical,  mental,  and  moral  persons  evolvable  out 
of  the  given  elements.  I  have  been  enumerating  some  of  the  basic 
requirements  of  efficiency  in  this  business.  Such  intelligence  as  we 
possess  tells  us  that  the  large  business  of  life  is  not  economically  con- 
ducted unless  it  sustains  the  efficiency  test  which  these  specifications 
enforce. 


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